Corporate Debt: Pricing and Default with Embedded Options

One important purpose of this application is to finance research for the two main participants, professor Svein-Arne Persson (project leader) and researcher Aksel Mjøs. The grant is assumed to finance 3 months annually for the period October 2008- October 2011, as well as travel and other related expenses. The plans for each year are as follows: Year 1: Re-submission of the article 'Level-dependent annuities: Default of Multiple Degrees' to the Journal of Finance and Quantitative Analysis based on a ref eree report (enclosed). Submission of 'Callable Risky Perpetual Debt with Protection Period' to Financial Markets and Portfolio Management based on invitation (enclosed). Year 2: Submission of the article 'Options on Defaultable Debt' to an appropriate journal. Year 3: Submission of the article 'Bundled Financial Claims: A model of Hybrid Capital' to an appropriate journal. Additional funding capacity in year 2 and 3 will be devoted to the indicated working papers and new research ideas, as well as i nternational conference participation and presentations. Examples of newly initiated research are: (1) 'Capital Structure - Bankruptcy and Liquidation', a master thesis by Kjetil Hollund (NHH) , (2) extended results for level dependent annuities c o-authored with Ph.D. student (NHH) Zheng Huang, (3) new results for valuing perpetual, risky cashflows co-authored with Associate Professor (NHH) Jøril Mæland.