Term Structures of Defaultable Bonds

In this essay we introduce three types of credit pricing models: first and second generation structural-form models and reduced-form models with relative papers and their main results. This paper mainly focuses on the reduced-form credit pricing model by explaining Duffie and Singleton’s paper Modeling Term Structure of Defaultable Bonds (1999). A detailed explanation of the paper’s deductions and motivations is presented. We discuss the paper’s drawbacks and summarize the relative improvements made by recent papers. In the end, we make applications to Duffie and Singleton’s model and solve for explicit pricing formulas of defaultable bonds in different cases.