Defaultable Bonds via HKA
  To construct a no-arbitrage defaultable bond market, we work on the state price density framework. Using the heat kernel approach (HKA for short) with the killing of a Markov process, we construct a single defaultable bond market that enables an explicit expression of a defaultable bond and credit spread under quadratic Gaussian settings. Some simulation results show that the model is not only tractable but realistic. 
Yuta Inoue and Takahiro Tsuchiya
q-fin.CP