Defaultable Term Structure Models with Fractional Recovery of Par

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Defaultable Term Structure Models with Fractional Recovery of Par

by Darrell Duffie of Stanford University

August 18, 1998

Abstract: This paper provides simple tractable models of the term structure of credit spreads on corporate or sovereign bonds based on exogenous fractional recovery of face value. One version of the model is based on "affine" state variables. Another version is in the spirit of the Heath-Jarrow-Morton model of forward rates.

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