We propose a new model to price defaultable bonds which incorporates features of both structural and reduced-form models of credit risk. The main novelty of the model is that the default intensity is described by an additional stochastic differential equation coupled with the process of the...

We present a hybrid Heston model with a local stochastic volatility to describe government bond yield dynamics. The model is analytically tractable and, therefore, can be efficiently estimated using the maximum likelihood approach. Twofold is the model contribution. First, it captures changes in...