Have the following question from a problem set:
"now price a bond that is of a 4 year maturity and if it defaults in year t+k incurs a loss of 20%, but it does not terminate, and continues to be traded up to and including the fourth year"
as I understand this is a defaultable bond pricing question; but the formula calls for the probabilities?
I do not want an answer but, could someone point me in the direction of the topic to read or maybe some helpful information?
Thank you in advance!