03-046
CORPORATE
BOND PRICING AND DIFFERENT SOURCES OF ASSET RETURN VOLATILITY
George Chacko, Peter Hecht,
and Jens Hilscher
This paper presents
a pricing model for defaultable bonds. Default is defined by
a cash flow, not value, covenant. The cash flow (total distributions)
yield is stochastic. We find that different sources of volatility,
cash flow versus discount rate news, affect prices asymmetrically.
Controlling for total asset return volatility, cash flow volatility
is still important for bond pricing.
FIN
25 pages
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