Using contingent claims analysis, we study the impact of private guarantees on the default risk premiums or credit spreads of discount loans. Specifically, we analyze the reduction of the default risk premium on a new junior loan by obtaining the numerical estimates under a stochastic interest...

We set out, in this paper, to extend the Das and Sundaram (2000) model as a means of simultaneously considering correlated default risk structure and counter-party risk. The multinomial model established by Kamrad and Ritchken (1991) is subsequently modified in order to facilitate the...