The paper describes model of a new type for valuation of risky bonds and loans that we call Bayesian Multi-Period (BMP) model. BMP is neither structural model nor reduced form and not a Merton-type model at all. BMP proceeds from concept of a risky bond (loan) value as Net Present Value (NPV) of a cash flow, generated by a bond. For a defaultable bond NPV is random value, and BMP identifies “fa...

Many pricing and risk management models need credit spread curves as an input. Given the small number of bonds outstanding per issuer the estimation of credit spread curves is not trivial in the corporate bond market. To ensure a sufficient number of bonds for the estimation procedure in many cases bonds in different currencies have to be used which implies that the estimation procedure has to ...

Collateralized debt obligations, which are are securities with payoffs that are tied to the cash flows in a portfolio of defaultable assets such as corporate bonds, play a significant role in the financial crisis that has spread throughout the world. Insufficient capital provisioning due to flawed and overly optimistic risk assessments is at the center of the problem. This paper develops stocha...

Abstract The main objective of this study is to determine a lease agreement finance an investment project and solution for managing credit risk. This investigates three types contingent leases reduce the costs associated with bankruptcy compensate lessor's position. A leasing defaultable contract allows lessor obtain rent that will be recovered if lessee defaults. convertible can automatically ...

In this paper, by applying the potential approach to characterizing default risk, a class of simple affine and quadratic models is presented to provide a unifying framework of valuing both risk-free and defaultable bonds. It has been shown that the established models can accommodate the existing intensity based credit risk models, while incorporating a security-specific credit information facto...

The credit risk evaluation of corporate bond is one of the difficult and hot research fields in the related research and plays a key role for corporate financing. Based on the fuzzy theory and analytic hierarchy process, a new credit risk evaluation model of corporate bond is presented. First an evaluation indicator system of credit risk of corporate bond is designed through analyzing the chara...

We examine the determinants of the realized bid-ask spread in the U.S. corporate, municipal and government bond markets for the years 1995 to 1997, based on newly available transactions data. Overall, we find that liquidity is an important determinant of the realized bid-ask spread all three markets. Specifically, in all markets, the realized bid-ask spread decreases in the trading volume. Addi...

The determinants of a substantial portion of bond credit spreads remain puzzled in literature. Through investigating corporate bond credit spreads from year 2000 to 2005, we find that corporate internal liquidity still significantly impacts on corporate bond credit spreads when controlling other well-known variables stated in literature. Additionally, we also find that there is a systematic int...

We describe a two factor valuation model for convertible bonds when the firm may default. We endogenize both default and the recovery value of a defaulted bond. A sophisticated numerical framework enables us to specify numerically and financially consistent boundary conditions and inequality constraints. We investigate the affect of changing the default, recovery and loss specification. The aff...