We study the preferential treatment of green bonds in central bank collateral framework as a climate policy instrument within DSGE model with and financial frictions. In model, carbon-emitting conventional firms issue defaultable corporate to banks that use them collateral, subject haircuts determined by bank. A haircut reduction induces increase bond issuance, investment, leverage, default ris...

In this paper we present a tree model for defaultable bond prices which can be used for the pricing of credit derivatives. The model is based upon the two-factor Hull-White (1994) model for default-free interest rates, where one of the factors is taken to be the credit spread of the defaultable bond prices. As opposed to the tree model of Jarrow and Turnbull (1992), the dynamics of default-free...

This paper looks at methods to calculate prices (or approximate prices) of bonds (zero coupon as well bearing) where the interest rates follow a log-normal distribution using two different waysthe first method makes use conditioning variable similar approach Basu (1999) and Rogers Shi (1995), while second (only applicable in case zero - bond case) is by making direct expansion technique. The fa...

In existing pricing theories, pricing of single-name credit default swaps (CDSs) and their options makes no reference to the prices of defaultable bonds, the underlying assets of those derivatives. Such a pricing practice does not exclude possible arbitrage across bond and CDS markets. In this paper, we introduce a new theory that treats the two markets as one and thus ensures price consistency...

In this paper a simulation approach for defaultable yield curves is developed within the Heath et al. (1992) framework. The default event is modelled using the Cox process where the stochastic intensity represents the credit spread. The forward credit spread volatility function is affected by the entire credit spread term structure. The paper provides the defaultable bond and credit default swa...

We consider a defaultable asset whose risk-neutral pricing dynamics are described by an exponential Lévy-type martingale subject to default. This class of models allows for local volatility, local default intensity and a locally dependent Lévy measure. Generalizing and extending the novel adjoint expansion technique of Pagliarani, Pascucci and Riga [SIAM J. Financial Math. 4 (2013) 265–296], we...

We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock, and a defaultable bond, whose prices are determined via equilibrium. We analyze the endogenous interaction arising between the stock and the defaultable bond via the interplay between equilibrium behavi...

We consider an equilibrium model à la Kyle-Back for a defaultable claim issued by a given firm. In such a market the insider observes continuously in time the value of firm, which is unobservable by the market makers. Using the construction of a dynamic Bessel bridge of dimension 3 in [5], we provide the equilibrium price and the optimal insider’s strategy. As in [3], the information released b...

Three alternative approaches to the valuation of a defaultable coupon bond in an extended Merton’s model are given. Probabilistic approach yields a closed-form expression for the arbitrage price of this bond. A boundary value problem method is based on the concept of an CD-extended generator for Markov processes. The third approach relies on a recursive procedure method in which at every step a...