Author:
Artzner Philippe,Delbaen Freddy
Abstract
AbstractThe paper examines a type of insurance contract for which secondary markets do exist: default risk insurance is implicit in corporate bonds and other risky debts. It applies risk neutral martingale measure pricing to evaluate the option for a borrower with default risk, to prepay a fixed rate loan. A simple “matchbox” example is presented with a spreadsheet treatment.
Publisher
Cambridge University Press (CUP)
Subject
Economics and Econometrics,Finance,Accounting
Cited by
20 articles.
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1. Prepayment risk on callable bonds: theory and test;Decisions in Economics and Finance;2015-02-07
2. Prepayment Risk Modeling for Residential Mortgage Backed Securities;International Journal of Information Systems in the Service Sector;2012-04
3. Default Likelihood Under Regime-Switching;SSRN Electronic Journal;2012
4. Credit Scoring and the Price of Credit Risk;Risk Finance and Asset Pricing;2011-12-06
5. Premia for correlated default risk;Journal of Economic Dynamics and Control;2011-08