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Pricing corporate bonds in structural models under CEV process

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Abstract

Much of the work on corporate bond pricing in structural models assumes that the firm value follows standard geometric Brownian motion. This paper uses a more general assumption for firm value and derives an analytical formula for the corporate bond. Specializing the formula to the so-called constant elasticity variance (CEV) process, we get a closed-form solution to the corporate bond. When the elasticity parameter β is equal to zero, we get the Black-Cox model with constant default barrier.

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Authors and Affiliations

  1. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, 100190, China

    Chang Qu

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  1. Chang Qu
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Correspondence to Chang Qu.

Additional information

Supported by the National Basic Research Program of China (973 Program) (No.2007CB814902).

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Qu, C. Pricing corporate bonds in structural models under CEV process. Acta Math. Appl. Sin. Engl. Ser. (2009). https://doi.org/10.1007/s10255-008-8014-0

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  • DOI: https://doi.org/10.1007/s10255-008-8014-0

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