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June 2011 Pricing the zero-coupon bond and its fair premium under a structural credit risk model with jumps
Yinghui Dong, Guojing Wang, Rong Wu
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J. Appl. Probab. 48(2): 404-419 (June 2011). DOI: 10.1239/jap/1308662635


In this paper we consider a structural form credit risk model with jumps. We investigate the credit spread, the price, and the fair premium of the zero-coupon bond for the proposed model. The price and the fair premium of the bond are associated with the Laplace transform of default time and the firm's expected present market value at default. We give sufficient conditions under which the Laplace transform and the expected present market value of a firm at default are twice continuously differentiable. We derive closed-form expressions for them when the jumps have a hyperexponential distribution. Using the closed-form expressions, we obtain numerical solutions for the default probability, the credit spread, and the fair premium of the bond.


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Yinghui Dong. Guojing Wang. Rong Wu. "Pricing the zero-coupon bond and its fair premium under a structural credit risk model with jumps." J. Appl. Probab. 48 (2) 404 - 419, June 2011.


Published: June 2011
First available in Project Euclid: 21 June 2011

zbMATH: 1217.91195
MathSciNet: MR2840307
Digital Object Identifier: 10.1239/jap/1308662635

Primary: 44A10 , 60J75

Keywords: credit spread , default probability , fair premium rate , hyperexponential distribution , structural credit risk model , zero-coupon bond

Rights: Copyright © 2011 Applied Probability Trust


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Vol.48 • No. 2 • June 2011
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