On valuing corporate debt with the volatility of corporate assets evolving according to an Ornstein-Uhlenbeck process
AbstractIn this paper the problem of valuing corporate debt with possibility of default is considered. It is assumed that the volatility of the value of a firm's assets evolves according to an Ornstein-Uhlenbeck process and default occurs only if the value of corporate assets falls below an exogenously specified, time dependent barrier. In the case of a particular choice of default barrier the explicit formulas for the present value of a corporate debt, the total value of the firm, the value of equity, the expected default time and the variation of default time are derived.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0206002.
Length: 11 pages
Date of creation: 24 Jun 2002
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Coporate debt; Ornstein-Uhlenbeck process; default time;
Find related papers by JEL classification:
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-07-31 (All new papers)
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