Bridge over ocean
1 March 1994 Financial Analysts Journal Volume 50, Issue 2

A Trinomial Model of Bonds with Default Risk

  1. Frank S. Skinner
Default risk can be modeled as an evolution of a series of events, rather than a binomial occurrence of default or no default. This insight results in a simple trinomial model for bonds with default risk that incorporates four major factors that influence the price of corporate debt. These four factors are the possibility of a rating change, recovery in the event of default, changes in the time to maturity and movements in the underlying term structure.
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Publisher Information
Association for Investment Management and Research 6 pages doi.org/10.2469/faj.v50.n2.73 ISSN/ISBN: 0015-198X

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