Pricing of Defaultable Bonds with Log-Normal Spread: Development of the Model and an Application to Argentinean and Brazilian Bonds During the Argentine Crisis

In this paper we describe a two-factor model for a defaultable discount bond, assuming log-normal dynamics with bounded volatility for the instantaneous short rate spread. Under some simplified hypothesis, we obtain an explicit barrier-type solution for zero recovery and constant recovery. We also present a numerical application for Argentinean and Brazilian Sovereign Bonds during the default crisis of Argentina. Copyright Springer Science + Business Media, Inc. 2005

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Year of publication:	2005
Authors:	Estrada, Mariano Cané de ; Cortina, Elsa ; FontÁn, Constantino ; Fiori, Javier
Published in:	Review of Derivatives Research. - Springer. - Vol. 8.2005, 1, p. 49-60
Publisher:	Springer
Subject:	credit risk \| defaultable bonds \| log-normal spread

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://ebvufind01.dmz1.zbw.eu/10005709840