(Translated by https://www.hiragana.jp/)
Defaultable Puttable/Callable Bond Valuation: A 3D Finite Difference Model
IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpfi/0511018.html
   My bibliography  Save this paper

Defaultable Puttable/Callable Bond Valuation: A 3D Finite Difference Model

Author

Listed:
  • David Wang

    (Hsuan Chuang University, Taiwan)

  • Heng-Chih Chou

    (Ming Chuan University, Taiwan)

Abstract

This paper presents a 3D model for pricing defaultable bonds with embedded put/call options. The pricing model incorporates three essential ingredients in the pricing of defaultable bonds: stochastic interest rate, stochastic default risk, and put/call provision. Both the stochastic interest rate and the stochastic default risk are modeled as a square-root diffusion process. The default risk process is allowed to be correlated with the default-free term structure. The put/call provision is modeled as a constraint on the value of the bond in the finite difference scheme. This paper can provide new insight for future research on defaultable bond pricing models.

Suggested Citation

  • David Wang & Heng-Chih Chou, 2005. "Defaultable Puttable/Callable Bond Valuation: A 3D Finite Difference Model," Finance 0511018, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0511018
    Note: Type of Document - pdf; pages: 10
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0511/0511018.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Manish Tewari & Pradipkumar Ramanlal, 2022. "Risk Management and Agency Theory: Role of the Put Option in Corporate Bonds," JRFM, MDPI, vol. 15(2), pages 1-28, January.

    More about this item

    Keywords

    Defaultable Bond; Embedded Option; Partial Differential Equation; Finite Difference Method;
    All these keywords.

    JEL classification:

    • G - Financial Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0511018. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.