Bonds-pricing by a Firm with Short- and Long-term Bonds

Abstract:

At the maturity of short-term bond,the payment of the short-term debt may cause a jump in the company’s assets,so the pricing of the long-term bond needs to be divided into periods.By stochastic analysis and structure approach,the probability of no default before the short-term bond maturity and the conditional distribution of the company’s assets was obtained,and the pricing formula for both the short- and long-term bond were derived too.Finally,an analysis was made of the financial meanings on the basis of the numerical results.

Key words:bond pricing; default probability; conditional distribution of company’s assets; first passage time model