We present a unified, market-complete model that integrates both Bachelier and Black- Scholes-Merton frameworks for asset pricing. The model allows for the study, within a unified framework, of asset pricing in a natural world that experiences the possibility of negative security prices or...

This paper is concerned with the valuation and analysis of default-risky debt instruments with arbitrary interest and principal payments. For the valuation, we use three nested multivariate extensions of the standard Merton (1974) model for pricing risky zero-coupon bonds. First, we present a...

This paper is concerned with the valuation and analysis of default-risky debt instruments with arbitrary interest and principal payments. For the valuation, we use three nested multivariate extensions of the standard Merton (1974) model for pricing risky zero-coupon bonds. First, we present a...

China’s bond market has been ranked third globally; however, China’s corporate bonds are significantly less liquid than its stocks. Liquidity risk is an important component in China’s corporate bond spreads. In this paper, we propose a stochastic liquidity discount factor model to evaluate...