Over the last two decades, default rates and market risk have increased substantially. A consequence of the growing global interlacing is a strong dependence between both individual stock returns and credit events. Risk management (especially risk diversification) is much more challenging,...

In this paper we present a tree model for defaultable bond prices which can be used for the pricing of credit derivatives. The model is based upon the two-factor Hull-White (1994) model for default-free interest rates, where one of the factors is taken to be the credit spread of the defaultable...