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On a Corporate Bond Pricing Model with Credit Rating Migration Risksand Stochastic Interest Rate

  • Received: 27 July 2017 Accepted: 26 September 2017 Published: 12 October 2017
  • In this paper we study a corporate bond-pricing model with credit rating migration and a stochastic interest rate. The volatility of bond price in the model strongly depends on potential credit rating migration and stochastic change of the interest rate. This new model improves the previous existing models in which the interest rate is considered to be a constant. The existence, uniqueness and regularity of the solution for the model are established. Moreover, some properties including the smoothness of the free boundary are obtained. Furthermore, some numerical computations are presented to illustrate the theoretical results.

    Citation: Jin Liang, Hong-Ming Yin, Xinfu Chen, Yuan Wu. On a Corporate Bond Pricing Model with Credit Rating Migration Risksand Stochastic Interest Rate[J]. Quantitative Finance and Economics, 2017, 1(3): 300-319. doi: 10.3934/QFE.2017.3.300

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  • In this paper we study a corporate bond-pricing model with credit rating migration and a stochastic interest rate. The volatility of bond price in the model strongly depends on potential credit rating migration and stochastic change of the interest rate. This new model improves the previous existing models in which the interest rate is considered to be a constant. The existence, uniqueness and regularity of the solution for the model are established. Moreover, some properties including the smoothness of the free boundary are obtained. Furthermore, some numerical computations are presented to illustrate the theoretical results.


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