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1 results

  • Pricing the Zero-Coupon Bond and its Fair Premium Under a Structural Credit Risk Model with Jumps

  • Part of
  • Yinghui Dong, Guojing Wang, Rong Wu
  • Journal:
    Journal of Applied Probability / Volume 48 / Issue 2 / June 2011
    Published online by Cambridge University Press:
    14 July 2016, pp. 404-419
    Print publication:
    June 2011
    • Article
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  • In this paper we consider a structural form credit risk model with jumps. We investigate the credit spread, the price, and the fair premium of the zero-coupon bond for the proposed model. The price and the fair premium of the bond are associated with the Laplace transform of default time and the firm's expected present market value at default. We give sufficient conditions under which the Laplace transform and the expected present market value of a firm at default are twice continuously differentiable. We derive closed-form expressions for them when the jumps have a hyperexponential distribution. Using the closed-form expressions, we obtain numerical solutions for the default probability, the credit spread, and the fair premium of the bond.