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Estimating Structural Bond Pricing Models

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Author Info
Jan Ericsson (McGill University, Montreal)

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Abstract

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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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB780212
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Publisher Info
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 (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:2:p:707-706

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  1. Max Bruche, 2006. "Estimating Structural Models Of Corporate Bond Prices," Working Papers wp2006_0610, CEMFI. [Downloadable!]
  2. Abel Elizalde, 2006. "Credit Risk Models Ii: Structural Models," Working Papers wp2006_0606, CEMFI. [Downloadable!]
  3. Kanak Patel & Ricardo Pereira, 2007. "Expected Default Probabilities in Structural Models: Empirical Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 34(1), pages 107-133, January. [Downloadable!] (restricted)
  4. Jing-zhi Huang & Hao Zhou, 2008. "Specification analysis of structural credit risk models," Finance and Economics Discussion Series 2008-55, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Juan Ignacio Pena & Santiago Forte, 2006. "CREDIT SPREADS: THEORY AND EVIDENCE ABOUT THE INFORMATION CONTENT OF STOCKS, BONDS AND CDSs," Business Economics Working Papers wb063310, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  6. Fulop, Andras, 2006. "Feedback Effects of Rating Downgrades," ESSEC Working Papers DR 06016, ESSEC Research Center, ESSEC Business School. [Downloadable!]
  7. Marco Realdon, 2006. "Valuation of the Firm's Liabilities when Equity Holders are also Creditors," Discussion Papers 06/16, Department of Economics, University of York. [Downloadable!]
  8. Marco Realdon, 2006. "Quadratic Term Structure Models in Discrete Time," Discussion Papers 06/01, Department of Economics, University of York. [Downloadable!]
  9. Duan, Jin-Chuan & Fulop, Andras, 2006. "Estimating the Structural Credit Risk Model When Equity Prices Are Contaminated by Trading Noises," ESSEC Working Papers DR 06015, ESSEC Research Center, ESSEC Business School. [Downloadable!]
  10. Ericsson, Jan & Reneby, Joel, 2003. "Valuing Corporate Liabilities," SIFR Research Report Series 15, Institute for Financial Research. [Downloadable!]
  11. Abel Elizalde, 2006. "Credit Risk Models Iii: Reconciliation Reduced - Structural Models," Working Papers wp2006_0607, CEMFI. [Downloadable!]
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This page was last updated on 2009-12-2.

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