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                Department of Mathematical Sciences
                   The Johns Hopkins University

              THE 2002 ACHESON DUNCAN LECTURE: Part II

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Steven Shreve                                          April 26, 2002
Department of Mathematical Sciences                    304 Whitehead Hall 
Carnegie-Mellon University                             Refreshments: 9:30 AM 
                                                       Seminar: 10:00 AM 

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             A UNIFIED MODEL FOR CREDIT DERIVATIVES
 

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                               ABSTRACT

A framework is provided for pricing derivatives on defaultable bonds and 
other credit-risky contingent claims.  The framework includes structural 
models (those in which the time of default is determined by the value of 
the issuing firm), general reduced-form models (those in which default is 
exogenous), and reduced-form models in which default can occur only
at specific times, such as coupon payment dates.  Within the general 
framework, multiple recovery conventions for contingent claims are 
considered:  recovery of a fraction of par, recovery of a fraction of 
a no-default version of the same claim, and recovery of a fraction
of the pre-default value of the claim.  A stochastic-integral 
representation for credit-risky contingent claims is provided, and the 
integrand for the credit exposure part of this representation is 
identified.  In the case of intensity-based reduced-form models, credit 
spread and credit-risky term structure are studied.