earticle

영어

This paper presents a pricing formulas of the defaultable bond under the reduced-form model. The market value of the firm ’s asset, as the first state variable, is assumed to follow the jump-diffusion process which reflects the sudden changes of the firm value, and to exhibit a mean reverting. A new probability measure, “default risk adjusted forward measure", is defined and used to price the FRN. This new measure has a strong advantage of calculating interest rate derivatives with the default risk. The model is also extended to price the defaultable bond with the counterparty default risk.