A Stochastic Delay Model For Pricing Debt And Loan Guarantees: Theoretical Results
We consider that the price of a firm follows a non linear stochastic delay differential equation. We also assume that any claim value whose value depends on firm value and time follows a non linear stochastic delay differential equation. Using self-financed strategy and replication we are able to derive a Random Partial Differential Equation (RPDE) satisfied by any corporate claim whose value is a function of firm value and time. Under specific final and boundary conditions, we solve the RPDE for the debt value and loan guarantees within a single period and homogeneous class of debt.
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| Length: | |
| Date of creation: | Oct 2012 |
| Date of revision: | Oct 2012 |
| Handle: | RePEc:arx:papers:1210.0570 |
| Contact details of provider: | Web page: http://arxiv.org/
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References listed on IDEAS
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