Bonds With Credit Risk And Option Pricing Research

As the newly-emerging financial instruments since 1990s, credit derivatives have been used to separate credit risk from other risk of the basic equity, and transfer credit risk to the dealing opponent. Credit derivatives could reveal credit risk with more liquidity and transaction, and are more important to risk combination of improving profit and highlighting structurization; furthermore, the instruments keep away from risk in the investment market, so as to activate the credit market. Therefore, the research of credit derivatives is of significant practicality to financial market.In view of risk-neutral probability measure, this paper discusses the pricing of coupon bond in several periods and the pricing of options on the bond in floating interest rate. The article sets up a model of bond price in an enterprise. Divided into many periods, the enterprise pays coupon at the end of each period, and default probability of each period has been considered in the model. At first, the contribution analyzes the formula of assets price and the relation between default probability and assets price of the enterprise; then discusses the pricing of bond, based on all kinds of default situations; shows concrete solution of the pricing; calibrates the model according to the actual situation; and indicates how to calculate the value of coupon bond in the financial market with an example. Considering the pricing of the bond above, the article designs credit option; discusses pricing of European option; reveals a theorem of not exercising the American option early on specified conditions in real market, and analyzes upper and lower bound of the option price at the end.