This paper develops a framework for modelling risky debt and valuing credit derivatives that is flexible and simple to implement, and that is, to the maximum extent possible, based on observables. Our approach is based on expanding the Heath-Jarrow-Morton term-structure model to allow for...

We develop a model for pricing securities whose value may depend simultaneously on equity, interest-rate, and default risks. The framework may also be used to extract probabilities of default (PD) functions from market data. Our approach is entirely based on observables such as equity prices and...