A structural model of corporate bond pricing with co-ordination failure
AbstractIt has been suggested (Morris, Shin 2001) that co-ordination failure between bondholders could produce an effect that would explain the systematic mispricing of corporate debt produced by the Merton (1974) framework. In essence, fear of premature foreclosure by other debtors can lead to pre-emptive action, lowering the value of debt. This paper presents a continuous-time bond pricing model integrating this effect, and shows that co-ordination failure can indeed cause bonds to be traded at a discount.
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Bibliographic InfoPaper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 24930.
Length: 33 pages
Date of creation: Mar 2002
Date of revision:
Find related papers by JEL classification:
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
- J1 - Labor and Demographic Economics - - Demographic Economics
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