This article provides a new methodology for pricing and hedging derivative securities
involving credit risk. Two types of credit risks are considered. The first is where the asset …

We develop a simple approach to valuing risky corporate debt that incorporates both default
and interest rate risk. We use this approach to derive simple closed‐form valuation …

This article provides a Markov model for the term structure of credit risk spreads. The model
is based on, with the bankruptcy process following a discrete state space Markov chain in …

During the seven years that elapsed between the first and second editions of the present
book, considerable progress was achieved in the area of financial modelling and pricing of …

In the past five years, many sophisticated models for pricing credit risk have been
developed. The rapid progress in this area is primarily a result of the growth of credit …

This paper decomposes default risk into timing and recovery risks. The two default
components are explicitly priced as if they were traded in the futures market. We develop …

Economic theory tells us that market and credit risks are intrinsically related to each other
and not separable. We describe the two main approaches to pricing credit risky instruments …

This paper presents an improved method of pricing vulnerable Black-Scholes options under
assumptions which are appropriate in many business situations. An analytic pricing formula …

Abstract Since Black and Scholes (1973) and Merton (1974), structural models of credit risk
have relied almost exclusively on diffusion processes to model the evolution of firm value …

Credit risk is an important consideration in most financial transactions. As for any other risk,
the risk taker requires compensation for the undiversifiable part of the risk taken. In bond …