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The Pricing of Risky Bonds: Current Models and Future Directions

Hyungsok Ahn, Varqa Khadem, Paul Wilmott


The modelling of credit risk, credit derivatives and non-hedgeable securities in general is currently in a poor state. Ideas from equity options theory have been adopted for credit risk, but have not been adapted for the peculiarities of this more complex world.

This brief paper

is a review and critique of current ideas and models, and includes suggestions for a more sophisticated realisitic and ultimately more sensible approach. The bibliography at the end should provide a useful source for the current state of the art.

Click here to download paper (245 kB)


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