The Pricing of Small and Medium-sized Enterprise Collective Bonds with Embedded Option Based on the Copula Function

Abstract

Because of collective bonds of small and medium-sized enterprises have several sub-issuers, the method of pricing is different from common corporate bonds to a great extent. In this paper, the Copula function is used to compute the united default distribution of the sub-issuers of small and medium-sized enterprises collective bond, and the option of the bond is being considered in the modeling, so the bond’s credit spread and price can be calculated correctly.