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Lucent Technologies, Inc.: using structural models to value debt (and equity)

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Author Info

  • Jack Camiolo
  • Salvatore Cantale
  • Michael Purcell
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    Abstract

    Purpose – The purpose of this paper is to show how contingent claim valuation and, more precisely, structural models, can be used to value the debt and the equity of a corporation. The objective is to provide a general and unified valuation framework. Design/methodology/approach – A discrete version of the Geske model in a binomial-like environment is implemented. To make the analysis more applied, real data of a corporation – Lucent Technologies, Inc. are used – and the valuation is attempted. Findings – Structural models can be used as a practical valuation tool. The results that are obtained are close to market data. Additionally, the authors are able to determine the price of some non-traded claims (debt). Research limitations/implications – While the more direct implication is that structural models can be used as a practical valuation tool, more applied research is needed to better calibrate the models. Originality/value – To the applied finance literature is contributed by presenting a way of estimating the value of corporate debt and equity by calibrating a discrete version of Geske model. It is believed that this approach is not only interesting from the academic point of view, but can also serve as a useful tool for practitioners.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal International Journal of Managerial Finance.

    Volume (Year): 5 (2009)
    Issue (Month): 3 (July)
    Pages: 333-354

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    Handle: RePEc:eme:ijmfpp:v:5:y:2009:i:3:p:333-354

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    Related research

    Keywords: Assets valuation; Debts; Equity capital; Financial reporting; Organizational economics;

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