A sequential pricing framework for corporate securities: The case of rating-trigger step-up/-down bonds

作者：Bank Matthias; Kupfer Alexander^*

来源：Finance Research Letters, 2014, 11(4): 437-445.

DOI：10.1016/j.frl.2014.07.005

• Rating-trigger step-up/-down bonds
• Performance-sensitive bonds
• Performance-sensitive debt
• Sequential pricing

We develop a sequential pricing framework in a continuous time cash flow model allowing for repeated valuation of different cash flow claims. One claim is valued until a prespecified boundary is hit, which is subsequently used as the new valuation starting point for the next claim. This highly flexible pricing framework is applied to the pricing of rating-trigger step-up/-down corporate bonds, the coupon payments of which depend on the issuing company's credit rating. We present a simple closed-form pricing solution for this type of bonds including both a step-up and step-down threshold, as well as a lower default boundary.

• 出版日期2014-12