This paper develops a model of the term structures of nominal and real interest rates driven by state variables representing the short-term real interest rate, expected inflation, inflation's central tendency, and four volatility factors.
Predictions of firm-by-firm term structures of credit spreads based on current spot and forward values can be improved upon by exploiting information contained in the shape of the credit-spread curve.
Recent advances in asset pricing—the reduced-form approach to pricing risky debt and derivatives—are used to quantitatively evaluate several proposals for mandatory bank issue of subordinated debt.
This paper develops a simple model for pricing interest rate options. Analytical solutions are developed for European claims and extremely efficient algorithms exist for tile pricing of American options.
