search query: @author Peterson, S. / total: 8
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| Author: | Peterson, S. Stapleton, R. C. |
| Title: | The pricing of options on credit-sensitive bonds |
| Journal: | Schmalenbach Business Review
2003 : JUL, VOL. 55:3, p. 178-193 |
| Index terms: | |
| Language: | eng |
| Abstract: | The authors build a three-factor term-structure of interest rates model and use it to price corporate bonds. The first two factors allow the risk-free term structure to shift and tilt. The third factor generates a stochastic credit-risk premium. To implement the model, the authors apply the Peterson and Stapleton (2002) diffusion approximation methodology. The method approximates a correlated and lagged-dependent lognormal diffusion processes. The authors then price options on credit-sensitive bonds. The recombining log-binomial tree methodology allows the rapid computation of bond and option prices for binomial trees with up to forty periods. |
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