Default risk in asset pricing

Pierre Mella-Baral and Pierre Tychon
Additional contact information
Pierre Mella-Baral: London School of Economics
Pierre Tychon: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS)
Authors registered in the RePEc Author Service: Pierre Mella-Barral

No 1996021, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This paper provides an analytical solution for the impact of default risk on the valuation of realistically intricate claims on time dependent uncertain income streams. Its modular structure allows us to adjust the set of assumptions concerning the event of default to the specificity of the environment which surrounds the asset. The importance of such a flexibility is illustrated in the context of corporate debt, examining the simplest case of finite lived coupon paying corporate bonds with principal repayment at maturity. The magnitude of risk premia, as well as the term structure of credit spreads, are not surprisingly largely determined by the assumed default scenario.

Keywords: asset pricing; default risk; bankruptcy (search for similar items in EconPapers)
JEL-codes: G12 G13 G33 (search for similar items in EconPapers)
Pages: 19
Date: 1996-09-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://sites.uclouvain.be/econ/DP/IRES/9621.pdf (application/pdf)

Related works:
Working Paper: Default Risk in Asset Pricing (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:1996021

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