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Valuing Corporate Liabilities

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Author Info

  • Ericsson, Jan

    ()
    (McGill University)

  • Reneby, Joel

    ()
    (Stockholm School of Economics)

Abstract

We implement a structural bond pricing framework on a large panel of US industrial issues using an efficient maximum likelihood methodology. Although, like others before us, we underpredict yield spread levels when using only stock market data in the estimation, our errors are much less dispersed. In addition, we show that when our model underpredicts spreads, the errors are correlated with liquidity proxies, suggesting that an underestimation of total yield spreads may be economically plausible. When we include bond price information in our estimation, our errors become similar in magnitude to those found in recent implementations of reduced form models.

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Bibliographic Info

Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 15.

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Length: 66 pages
Date of creation: 15 Jun 2003
Date of revision:
Handle: RePEc:hhs:sifrwp:0015

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Related research

Keywords: Contingent claims; Structural models; Credit risk; Credit spreads; Liquidity premiums;

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References

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Citations

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Cited by:
  1. Akram, Q. Farooq & Rime, Dagfinn & Sarno, Lucio, 2008. "Arbitrage in the foreign exchange market: Turning on the microscope," Journal of International Economics, Elsevier, vol. 76(2), pages 237-253, December.
  2. Duan, Jin-Chuan & Fulop, Andras, 2009. "Estimating the structural credit risk model when equity prices are contaminated by trading noises," Journal of Econometrics, Elsevier, vol. 150(2), pages 288-296, June.
  3. Benjamin E. Hermalin & Michael S. Weisbach, 2012. "Information Disclosure and Corporate Governance," Journal of Finance, American Finance Association, vol. 67(1), pages 195-234, 02.
  4. Geir H. Bjønnes & Steinar Holden & Dagfinn Rime & Haakon O. Aa. Solheim, 2009. "'Large' vs. 'Small' Players: A Closer Look at the Dynamics of Speculative Attacks," CESifo Working Paper Series 2518, CESifo Group Munich.
  5. Dreber, Anna & Rand, David G. & Garcia, Justin R. & Wernerfelt, Nils & Lum, J. Koji & Zeckhauser, Richard, 2010. "Dopamine and Risk Preferences in Different Domains," SIFR Research Report Series 71, Institute for Financial Research.
  6. Jin-Chuan Duan & Andras Fulop, 2005. "Estimating the Structural Credit Risk Model When Equity Prices Are Contaminated by Trading Noises," IEHAS Discussion Papers 0517, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  7. Rydqvist, Kristian, 2010. "Tax Arbitrage with Risk and Effort Aversion - Swedish Lottery Bonds 1970-1990," SIFR Research Report Series 70, Institute for Financial Research.
  8. 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.

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