Pairs trading is a technique that is widely used in the financial industry and its profitability has been constantly documented for various markets under different time periods. The two most commonly used methods in pairs trading are distance method and co-integration method. In this paper, we...

In this paper, we consider a new corporate bond-pricing model with credit-rating migration risks and a stochastic interest rate. In the new model, the criterion for rating change is based on a predetermined ratio of the corporation’s total asset and debt. Moreover, the rating changes are...