Journal of South China University of Technology (Natural Science Edition) ›› 2005, Vol. 33 ›› Issue (2): 91-93,98.

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A Two-Factor Model for Pricing Corporate Bonds

Yang Li-hong  Qin Dao-li  Yang Xia   

  1. College of Mathematical Sciences,South China Univ.of Teeh.,Guangzhou 510640,Guangdong,China
  • Received:2004-04-29 Online:2005-02-25 Published:2005-02-25
  • Contact: 杨立洪(1961-)，男，副教授，博士生，主要从事数理金融和管理科学与工程方面的研究 E-mail:malhy-ang@ scut.edu.cn
  • About author:杨立洪(1961-)，男，副教授，博士生，主要从事数理金融和管理科学与工程方面的研究

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Abstract:

By considering the characteristics of the corporate bonds in China such as long cycles,big fluctuations and great possibility of default risk,it is demonstrated that holding the bonds with default risk actually means hol-ding a portfolio by buying bonds without default risk and selling European put options at the sanle time.Further-more,a two-factor model for pricing corporate bonds is proposed by using the trinomial tree model and taking the
default risk into account.This model includes two stochastic factors,namely,the corporate value and the interest rate.

Key words: corporate bond, pricing model, European option, trinomial tree model, default risk, stochastic inte-rest rate