Ballestra, Luca Vincenzo; Pacelli, Graziella - In: Applied Mathematical Finance 16 (2009) 1, pp. 17-36
We propose a numerical method to price corporate bonds based on the model of default risk developed by Madan and Unal. Using a perturbation approach, we derive two semi-explicit formulae that allow us to approximate the survival probability of the firm issuing the bond very efficiently. More...