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A modified structural model for credit risk

Abstract:

In this paper, we modify classical structural models such as the Black-Cox model and Merton's model by indifference pricing. The reason of doing this is because the assets of a firm, which are traditionally regarded as the underlying and used to hedge the credit risk, are usually non-tradeable in the market. We introduce the firm's stock and a financial index in the market to hedge the credit risk and derive the price of the defaultable corporate bond by indifference valuation. The correspond...

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Publication status:
Published

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Publisher copy:
10.1093/imaman/dpr004

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Institution:
University of Oxford
Department:
Oxford, MPLS, Oxford-Man
Role:
Author
Publisher:
Oxford University Press
Journal:
IMA JOURNAL OF MANAGEMENT MATHEMATICS
Volume:
23
Issue:
2
Pages:
147-170
Publication date:
2012-04-05
DOI:
EISSN:
1471-6798
ISSN:
1471-678X
URN:
uuid:c6b4a351-ef8f-406c-ad2c-02b2e52e9c42
Source identifiers:
321539
Local pid:
pubs:321539

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