RT Journal Article
SR Electronic
T1 Pricing Defaultable Coupon Bonds Under a Jump-Diffusion Process
JF The Journal of Fixed Income
FD Institutional Investor Journals
SP 51
OP 64
DO 10.3905/jfi.2002.319318
VO 12
IS 1
A1 Mark C.W. Wong
A1 Stewart D. Hodges
YR 2002
UL https://pm-research.com/content/12/1/51.abstract
AB This article employs a structural approach to analyze term structures of credit risk and yield spreads for corporate debt when a firm's asset value follows a jump-diffusion process. The authors show several significant implications of the jump process for credit spreads by extending two generalized models. If they do not take systematic jump risk into consideration, theoretical models tend to underestimate credit spreads. Taxes also have significant effects. Interestingly, the model implies that a change in the federal tax rate may be a factor in the earlier default of low-grade bonds.