An integral equation approach for bond prices with applications to credit spreads

Yu Ting Chen; Cheng Few Lee; Yuan Chung Sheu

doi:10.1142/9789811202391_0110

An integral equation approach for bond prices with applications to credit spreads

Yu Ting Chen, Cheng Few Lee, Yuan Chung Sheu

Department of Applied Mathematics

Research output: Chapter in Book/Report/Conference proceeding › Chapter › peer-review

Abstract

We study bond prices in Black-Cox model with jumps in asset value. We assume that the jump size distribution is arbitrary and, if default occurs, following Longstaff and Schwartz [A Simple Approach to Valuing Risky Fixed and Floating Rate Debt. Journal of Finance 50 (1995), 789-819] and Zhou [The Term Structure of Credit Spreads with Jump Risk. Journal of Banking & Finance 26 (2001), 2015-2040], the payoff at maturity date depends on a general write-down function. Under this general setting, we propose an integral equation approach for the bond prices. As an application of this approach, we study the analytic properties of the bond prices. Also we derive an infinite series expression for the bond prices.

Original language	English
Title of host publication	Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning (In 4 Volumes)
Publisher	World Scientific Publishing Co.
Pages	3849-3866
Number of pages	18
ISBN (Electronic)	9789811202391
ISBN (Print)	9789811202384
DOIs	https://doi.org/10.1142/9789811202391_0110
State	Published - 1 Jan 2020

Keywords

Bond price
Credit spread
Default barrier
Jump diffusion
Write-down function

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10.1142/9789811202391_0110

Cite this

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An integral equation approach for bond prices with applications to credit spreads. / Chen, Yu Ting; Lee, Cheng Few; Sheu, Yuan Chung.
Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning (In 4 Volumes). World Scientific Publishing Co., 2020. p. 3849-3866.

Research output: Chapter in Book/Report/Conference proceeding › Chapter › peer-review

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An integral equation approach for bond prices with applications to credit spreads

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