On the Pricing of Defaultable Bonds Using the Framework of Barrier Options |
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Authors: | Motokazu Ishizaka Koichiro Takaoka |
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Institution: | (1) Graduate School of Commerce and Management, Hitotsubashi University, Naka 2-1, Kunitachi, Tokyo 186-8601, Japan |
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Abstract: | In the framework of the structural approach of bond pricing, we extend the Fujita–Ishizaka model by considering more realistic payoffs. The payoff to the bondholder at time of default, provided that default occurs prior to maturity, depends on the firm value at time of default. We also find the new measure with the advantage to calculate the value of bond and its financial interpretation. In addition, we present some numerical exmaples. |
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