On valuing corporate debt with the volatility of corporate assets evolving according to an Ornstein-Uhlenbeck process
In 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.
|Date of creation:||24 Jun 2002|
|Note:||Type of Document - Tex/WordPerfect/Handwritten; prepared on La Tex; to print on HP/PostScript/Franciscan monk; pages: 11 ; figures: non. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.|
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