Modelling default-risky bonds

Abstract

In this dissertation, we examine current models used to value default-risky bonds. These models include both the structural and the reduced-form approaches. We begin by examining various issues involved in modelling credit risk and pricing credit derivatives. We then explore the various dimensions of structural models and reduced-form models and we provide an overview of four models presented in the literature on credit risk modelling. Both the theoretical and empirical research on default-risky bond valuation is summarized. Finally, we make suggestions for improving on the credit risk models discussed.