Bond Systematic Risk and the Option Pricing Model
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- Author(s): MARK I. WEINSTEIN
- Published: Apr 30, 2012
- Pages: 1415-1429
- DOI: 10.1111/j.1540-6261.1983.tb03832.x
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.