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Bond Systematic Risk and the Option Pricing Model
Author(s) -
WEINSTEIN MARK I.
Publication year - 1983
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1983.tb03832.x
Subject(s) - bond , black–scholes model , economics , systematic risk , point (geometry) , embedded option , bond valuation , constant (computer programming) , econometrics , financial economics , computer science , mathematics , finance , volatility (finance) , geometry , programming language
In this paper we examine the behavior of the systematic risk of corporate bonds. A model that assumes β is constant is compared with a model that allows systematic risk to vary in a manner consistent with the Black‐Scholes‐Merton Options Pricing Model. This procedure captures some fundamental properties of the movement of bond β and provides a starting point for improved models of the process generating bond returns.