A difficulty that arises when implementing structural bond pricing models is the estimation of the value and risk of the firm's assets, neither of which is directly observable. We perform a simulation experiment to evaluate a maximum likelihood method applicable to this problem. Contrasting the performance of the maximum likelihood estimators to that of estimators traditionally used in academia and industry, we find strong support for the maximum likelihood approach. In fact, the inefficiency of the traditional estimator may help explain the failure of past attempts to implement structural bond pricing models.
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Article provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 78 (2005) Issue (Month): 2 (March) Pages: 707-706 Download reference. The following formats are available: HTML,
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