Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/298835 
Year of Publication: 
2023
Citation: 
[Journal:] Credit and Capital Markets – Kredit und Kapital [ISSN:] 2199-1235 [Volume:] 56 [Issue:] 2 [Year:] 2023 [Pages:] 197-232
Publisher: 
Duncker & Humblot, Berlin
Abstract: 
This paper is concerned with the valuation and analysis of default-risky debt instruments with arbitrary interest and principal payments. For the valuation, we use three nested multivariate extensions of the standard Merton (1974) model for pricing risky zero-coupon bonds. First, we present a valuation framework for pricing single risky debt instruments with arbitrary interest and principal payments. We then extend this framework to enable the valuation of multiple debt instruments issued by the same firm. Finally, we further extend the model to additionally take continuous dividend payments to the equity holders into account. Based on these debt valuation frameworks, we calculate various key figures for the analysis of risky debt from the point of view of risk-neutral and risk-averse investors (e.g., promised and expected yields, default probabilities, recovery rates, distance to default, and expected payments).
Subjects: 
risky debt valuation
Merton Model
JEL: 
G12
G21
G31
G32
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.