Term Structure of Defaultable Bonds with Recovery of Market Value

This paper reproduces the main result of Duffie and Singleton [1] and extends it to defaultable bonds with both continuous and periodic coupon payments. Specifically, if the recovery of a defaultable bond after default follows the recovery of market value (RMV) assumption, its implied term structure of interest rates takes the form $\bar{r}\left(t\right)=r\left(t\right)+\left(1？R\right)\lambda \left(t\right)$ , where $r\left(t\right)$ is the risk-free rate, $\lambda \left(t\right)$ is the entity’s default intensity, and $R$ is the recovery rate of market value. These results are derived within the risk-neutral pricing framework using straightforward and elementary method.