On a new corporate bond pricing model with potential credit rating change and stochastic interest rate

• Published in: Journal of risk and financial management Vol. 11; no. 4; pp. 1 - 12
• Main Authors: Yin, Hong-Ming, Liang, Jin, Wu, Yuan
• Format: Journal Article
• Language: English
• Published: Basel MDPI 01.12.2018; MDPI AG
• Subjects: Bond ratings; Brownian motion; corporate bond-pricing model; Corporate bonds; Credit ratings; Interest rates; jump volatility; Markov analysis; Mathematical models; multi credit rating migration; Partial differential equations; Securities markets; Sovereign debt; stochastic interest rate; Stochastic models

In this paper, we consider a new corporate bond-pricing model with credit-rating migration risks and a stochastic interest rate. In the new model, the criterion for rating change is based on a predetermined ratio of the corporation's total asset and debt. Moreover, the rating changes are allowe...