Evaluating corporate bonds with complicated liability structures and bond provisions

Chuan Ju Wang, Tian-Shyr Dai, Yuh Dauh Lyuu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Scopus citations


This paper presents a general and numerically accurate lattice methodology to price risky corporate bonds. It can handle complex default boundaries, discrete payments, various asset sales assumptions, and early redemption provisions for which closed-form solutions are unavailable. Furthermore, it can price a portfolio of bonds that accounts for their complex interaction, whereas traditional approaches can only price each bond individually or a small portfolio of highly simplistic bonds. Because of the generality and accuracy of our method, it is used to investigate how credit spreads are influenced by the bond provisions and the change in a firm's liability structure due to bond repayments.

Original languageEnglish
Pages (from-to)749-757
Number of pages9
JournalEuropean Journal of Operational Research
Issue number2
StatePublished - 1 Sep 2014


  • Credit risk
  • Default
  • Pricing
  • Structural model


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