Based on the works of Brockman and Turtle (2003) and Giesecke (2004), we propose in this study a hybrid barrier option model to explain observed credit spreads. It is free of problems with the structural model which underprescribed credit spreads for investment grade corporate bonds and...

This study presents a model of sovereign debt with an embedded Down-and-In Put (DIP). Our model focuses more on the perspective of a debtor, while taking the creditor's behavior into consideration. The findings suggest that debt forgiveness is more effective than repayment award or default...