PRICING DEFAULTABLE BOND

Abstract

This research provides an extension to the theory of the effects of credit risk on zero- coupon bond. This thesis is divided into four chapters. Chapter 1 gives a brief introduction to the models of pricing defaultable bond and provides a literature review of previous work in this area. Chapter 2 proposes a firm-value model to price defaultable bond models assuming multi-factor Gaussian interest rates. Two models are provided. Chapter 3 uses the numerical method to price defaultable bonds subject to the assumption of generalized Cox-Ingersoll-Ross interest rate process. Chapter 4 contains the conclusions and points out possible future researches.