Based on the Black and Scholes (Black, F., and M. Scholes. (1973). The Pricing of Options and Corporate Liabilities, Journal of Political Economy 81, 637–659) and Merton (Merton, R. C. (1974). On the Pricing of Corporate Debt: The Risk Structure of Interest Rates, Journal of Finance 29,...

We 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, we apply the Peterson and Stapleton...

We propose a numerical method to price corporate bonds based on the model of default risk developed by Madan and Unal. Using a perturbation approach, we derive two semi-explicit formulae that allow us to approximate the survival probability of the firm issuing the bond very efficiently. More...

The paper uses fuzzy measure theory to represent liquidity risk, i.e. the case in which the probability measure used to price contingent claims is not known precisely. This theory enables one to account for different values of long and short positions. Liquidity risk is introduced by...

Loan records and lender credit risk classifications are used to examine agricultural credit risk migration. The results include estimates of the likelihood of borrowers transitioning among five credit risk tiers. The paper also examines factors that influence or predict credit risk migration and...

We propose procedures for estimating the time-dependent transition matrices for the general class of finite nonhomogeneous continuous-time semi-Markov processes. We prove the existence and uniqueness of solutions for the system of Volterra integral equations defining the transition matrices,...

The credit risk capital requirements within the current Basel II Accord are based on the asymptotic single risk factor (ASRF) approach. The asset correlation parameter, defined as an obligor's sensitivity to the ASRF, is a key driver within this approach, and its average values for different...