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A framework for valuing corporate securities

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Author Info
Jan Ericsson, Joel Reneby

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Abstract

We suggest a methodology for valuing corporate securities that allows the straightforward derivation of closed form solutions for complex scenarios. The tractability of the framework stems from its modularity—we provide a number of intuitive building blocks that are sufficient for valuation in typical situations. A further advantage of our approach is that it makes economic interpretation far easier than what is typically possible with other approaches, such as solving systems of partial differential equations. As examples we consider a corporate coupon bond with discrete payments, and debt subject to strategic debt service.

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File URL: http://taylorandfrancis.metapress.com/link.asp?target=contribution&id=45AUR3TBR892VPPT
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Publisher Info
Article provided by Taylor and Francis Journals in its journal Applied Mathematical Finance.

Volume (Year): 5 (1998)
Issue (Month): 3-4 (September)
Pages: 143-163
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Handle: RePEc:taf:apmtfi:v:5:y:1998:i:3-4:p:143-163

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Related research
Keywords: Option Pricing Barrier Options Corporate Debt Credit Risk

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Longstaff, Francis A & Schwartz, Eduardo S, 1995. " A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July. [Downloadable!] (restricted)
  2. Anderson, Ronald W & Sundaresan, Suresh, 1996. "Design and Valuation of Debt Contracts," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 9(1), pages 37-68. [Downloadable!] (restricted)
  3. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring. [Downloadable!] (restricted)
  4. Jesus Saa-Requejo & Pedro Santa-Clara, 1997. "Bond Pricing with Default Risk," University of California at Los Angeles, Anderson Graduate School of Management 1127, Anderson Graduate School of Management, UCLA. [Downloadable!]
  5. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
    Other versions:
  6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June. [Downloadable!] (restricted)
  7. Anderson, Ronald W. & Sundaresan, Suresh & Tychon, Pierre, 1996. "Strategic analysis of contingent claims," European Economic Review, Elsevier, vol. 40(3-5), pages 871-881, April. [Downloadable!] (restricted)
  8. Mella-Barral, Pierre & Perraudin, William, 1997. " Strategic Debt Service," Journal of Finance, American Finance Association, vol. 52(2), pages 531-56, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marco Realdon, 2006. "Book Values and Market Values of Equity and Debt," Discussion Papers 06/11, Department of Economics, University of York. [Downloadable!]
  2. Iryna V. Ivaschenko, 2003. "How Much Leverage is Too Much, or Does Corporate Risk Determine the Severity of a Recession?," IMF Working Papers 03/3, International Monetary Fund. [Downloadable!]
  3. Reneby, Joel & Ericsson, Jan, 2001. "The Valuation of Corporate Liabilities: Theory and Tests," Working Paper Series in Economics and Finance 445, Stockholm School of Economics, revised 19 Dec 2002. [Downloadable!]
  4. Alon Raviv, 2004. "Bank Stability and Market Discipline: Debt-for-Equity Swap versus Subordinated Notes," Finance 0408003, EconWPA. [Downloadable!]
  5. Dan Galai & Alon Raviv & Zvi Wiener, 2003. "Liquidation Triggers and the Valuation of Equity and Debt," Finance 0305002, EconWPA. [Downloadable!]
    Other versions:
  6. Ericsson, Jan & Reneby, Joel, 1996. "Stock Options as Barrier Contingent Claims," Working Paper Series in Economics and Finance 137, Stockholm School of Economics, revised 01 Feb 2002. [Downloadable!]
    Other versions:
  7. Marco Realdon, . "About Debt and the Option to Extend Debt Maturity," Discussion Papers 03/20, Department of Economics, University of York. [Downloadable!]
  8. Maria Carmen Badia Batlle & M. Mercedes Galisteo Rodriguez & M. Teresa Preixens Benedicto, 2006. "Un modelo de riesgo de credito basado en opciones compuestas con barrera. Aplicacion al mercado continuo espanol," Working Papers in Economics 156, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
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