Credit Risk and Underlying Asset Risk

Abstract

This paper develops the credit risk of simple risky bond (Merton 1974) as expected option return to the maturity and analytically presents that the credit risk is influenced by the underlying asset risks. The paper moreover shows that the direction and magnitude of the influence depends on what the underlying asset risks are. Simulation results indicate that the relations between the credit risk and the asset risks are different among asset risks. [ABSTRACT FROM AUTHOR] Copyright of Seoul Journal of Business is the property of Seoul National University, College of Business Administration and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)