In this paper the authors measure the risk attitudes of bond investors which can be revealed from settled market prices. They present an equilibrium model which focuses on the stochastic behavior of tastes in addition to the dynamics of investor beliefs.

Simple formulas for the price of corporate discount and coupon bonds are found using the Longstaff and Schwartz valuation approach for the debt claims of a firm, where default is triggered by a special State variable: the firm's asset-to-debt-ratio. Instead of keeping the total amount of debt...