Corporate bond pricing model with stochastically volatile firm value process

- We propose a new structural model for corporate bond pricing.
- The model assumes the Heston (1993) stochastically volatile firm value process.
- It also assumes the Black and Cox (1976) before-maturity default possibility.
- The models potential is demonstrated using a simulation study.
- A semi-analytic solution method for the corporate bond prices is also provided.

We propose a new structural model for corporate bond pricing that assumes stochastically volatile firm value process with before-maturity default possibility. We demonstrate the model's potential using a simulation study and provide a semi-analytic solution method for the bond prices.