The Study Of The Pricing Of The Corporate Bond

With capital working as a key factor to the economic activities and development, the efficiency of capital allocation essentially determines the development process and future of the national economy. Therefore, the development level of the national capital market definitely indicates the development level of the national economics. Accordingly, the development level of corporate bonds, which act as important component of capital market, also directly influences the development level of capital market. And how to rationally and effectively price corporate bonds has always been an important subject as well as a hot issue investigated in various circles.Accompanying the development and the specialization of our domestic financial market in recent years, the development of the corporate bond market has been thrown into sharp relief.As one method of the corporate direct financing, the corporate bond market calls for instant development. Hence, it is imperative that we begin the research of this market. Since the real scope of such research is quite broad, this paper chooses just one aspect in order to make the research target more specific, and that is to make a research on the pricing of domestic corporation bonds. No matter what kind of financial product, the pricing of it plays a pivotal role in the decision made by both of investor and fund raiser, because the price is directly linked with their financing costs, and that is why the pricing aspect is chosen. The basic idea is to start research in theory of the various factors that affect bond prices, and then this paper introduces the basic formula for the pricing of corporate bonds. This paper firstly reviews the pricing theory of the term structure of corporate bond and the pricing models of corporate bonds. Then, this paper discusses one kind of pricing model of corporate bond which introduces the default intensity, the most important job of this paper is that it gives a special class of solutions of the corporate bond pricing model under some reasonable assumptions, and gives examples of specific numbers at last. The structure of this paper as follow:The first chapter describes the research background and the significance of this article, and then gives a brief review of previous studies theory. The second chapter discusses the basic theory of bond pricing:income capitalization method, and makes a simple quantitative analysis. Then this article reviews the theory of term structure of interest rates. Firstly, it introduces the theory of term structure of interest rates and the yield curve, and then introduces the three kinds of traditional explanation of the shape of yield curve, the following describes in detail the Vasicek model (1997), Cox-Ingersoll-Ross (CIR) model (1985), Ho-Lee model (1986), Longstaff- Schwartz model (1992), Heath-Jarrow-Morton model (1992). The third chapter describes pricing models of the corporate bond which introduce the default intensity. Firstly, it explains the relations between the interest rate risk and default risk that is both of which contact with each other, and differences between each other. Then it introduces three main types of corporate bond pricing models:structural model (the original BSM model, stochastic interest rate of the Merton model), some of the models (or simple models, Jarrow-Turnbll discrete model, Duffie-Singleton model), hybrid model. The final chapter model on the base of the default intensity is the core part of this article. At the beginning of this chapter it introduces some preliminary knowledge, which mainly contains stochastic calculus, and then starts building the model and derives a new simple proof of the basic formula of corporate bond pricing theory. Under some reasonable assumptions this article resolves a special class of solutions, and then it points out what needs further exploration. Finally, it summarizes the full text and drives conclusions of the paper.