Related papers: Priced risk in corporate bonds

We analyze 18 quadrillion models for the joint pricing of corporate bond and stock returns. Strikingly, we find that equity and nontradable factors alone suffice to explain corporate bond risk premia once their Treasury term structure risk…

Corporate bond factor research faces a replication crisis. The crisis stems from two sources that inflate reported factor premia: transaction prices whose measurement error enters both sorting signals and return denominators, creating a…

We derive simple return models for several classes of bond portfolios. With only one or two risk factors our models are able to explain most of the return variations in portfolios of fixed rate government bonds, inflation linked government…

We study the pricing problem for corporate defaultable bond from the viewpoint of the investors outside the firm that could not exactly know about the information of the firm. We consider the problem for pricing of corporate defaultable…

We introduce a new model for pricing corporate bonds, which is a modification of the classical model of Merton. In this new model, we drop the liquidity assumption of the firm's asset value process, and assume that there is a liquidly…

This paper presents a new model for pricing financial derivatives subject to collateralization. It allows for collateral arrangements adhering to bankruptcy laws. As such, the model can back out the market price of a collateralized…

We find that the CAPM fails to explain the small firm effect even if its non-parametric form is used which allows time-varying risk and non-linearity in the pricing function. Furthermore, the linearity of the CAPM can be rejected, thus the…

After the beginning of the credit and liquidity crisis, financial institutions have been considering creating a convertible-bond type contract focusing on Capital. Under the terms of this contract, a bond is converted into equity if the…

We study factor models augmented by observed covariates that have explanatory powers on the unknown factors. In financial factor models, the unknown factors can be reasonably well explained by a few observable proxies, such as the…

We propose an option approach for pricing bond illiquidity that is reminiscent of the celebrated work of Longstaff (1995) on the non-marketability of some non-dividend-paying shares in IPOs. This approach describes a quite common situation…

In this paper is proposed a 2 factor structural PDE model of pricing puttable bond with credit risk and derived the analytical pricing formula. To this end, first, a 2 factor structural (PDE) model of pricing zero coupon bond with credit…

We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of…

Factor modeling of asset returns has been a dominant practice in investment science since the introduction of the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The factors, which account for the systematic risk,…

In this article we show how to analyze the covariation of bond prices nonparametrically and robustly, staying consistent with a general no-arbitrage setting. This is, in particular, motivated by the problem of identifying the number of…

Cost-of-capital valuation is a well-established approach to the valuation of liabilities and is one of the cornerstones of current regulatory frameworks for the insurance industry. Standard cost-of-capital considerations typically rely on…

Pricing formulae for defaultable corporate bonds with discrete coupons under consideration of the government taxes in the united model of structural and reduced form models are provided. The aim of this paper is to generalize the…

In most illiquid markets, there is no obvious proxy for the market price of an asset. The European corporate bond market is an archetypal example of such an illiquid market where mid-prices can only be estimated with a statistical model. In…

Conditions of Stability for explicit finite difference scheme and some results of numerical analysis for a unified 2 factor model of structural and reduced form types for corporate bonds with fixed discrete coupon are provided. It seems to…

We extend the now classic structural credit modeling approach of Black and Cox to a class of "two-factor" models that unify equity securities such as options written on the stock price, and credit products like bonds and credit default…

We propose a characteristics-augmented quantile factor (QCF) model, where unknown factor loading functions are linked to a large set of observed individual-level (e.g., bond- or stock-specific) covariates via a single-index projection. The…