Integrating the risk and term structures of interest rates.

Summary Merton (1974) analyses the risk structure of corporate bonds under the assumption of a flat term of interest rates. Wa clarify his results and extend them to the case of stochastic interest. In this case the price of a corporate bond is influences by the forward price of the issuing firm. The objective of the present paper is to account fot this influence. for thaht purpoise it is necessary to deal simultaneously with interest rate risk and with default risk. We demonstrate that several of Merton's conclusions are no longer valid for a stochastic term structure.