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

1 Department of Mathematics, Tongji University, Shanghai 200092, China
2 Department of Mathematics and Statistics, Washington State University, Pullman, WA99164, USA
3 Department of Mathematics, University of Pittsburgh, Pittsburgh, PA 15260,USA
4 School of Statistics and Mathematics, Shanghai Lixin University of Accounting and Finance,Shanghai 201209, China

Special Issues: Volatility of Prices of Financial Assets

In this paper we study a corporate bond-pricing model with credit rating migration and astochastic interest rate. The volatility of bond price in the model strongly depends on potential creditrating migration and stochastic change of the interest rate. This new model improves the previousexisting models in which the interest rate is considered to be a constant. The existence, uniquenessand regularity of the solution for the model are established. Moreover, some properties includingthe smoothness of the free boundary are obtained. Furthermore, some numerical computations arepresented to illustrate the theoretical results.
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Copyright Info: © 2017, Hong-Ming Yin, et al., licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution Licese (http://creativecommons.org/licenses/by/4.0)

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