
doi: 10.2139/ssrn.331883
This paper provides a closed form solution for the pricing of defaultable bonds and default correlation. In a stochastic interest rates framework default occurs when the value of the assets of the firm either hits a stochastic boundary of default or according to a stochastic hazard rate. The model combines the advantages of structural and reduced form models and thus generates credit spreads and default correlations consistent with empirical observation.
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