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On valuing corporate debt with the volatility of corporate assets evolving according to an Ornstein-Uhlenbeck process

  • Bakhodir Ergashev

    (Washington University in St. Louis)

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.

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File URL: http://128.118.178.162/eps/fin/papers/0206/0206002.pdf
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Paper provided by EconWPA in its series Finance with number 0206002.

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Length: 11 pages
Date of creation: 24 Jun 2002
Date of revision:
Handle: RePEc:wpa:wuwpfi:0206002
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.
Contact details of provider: Web page: http://128.118.178.162

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