Article ID Journal Published Year Pages File Type
5069888 Finance Research Letters 2006 8 Pages PDF
Abstract
This paper provides an alternative approach to the structural credit risk models. The first-passage-time approach extends the original Merton [1974. Journal of Finance 29, 449-470] model by accounting for the fact that the default may occur not only at the debt's maturity, but also prior to this date. Default happens when the firm value process crosses an exhaust barrier. In contrast, this paper defines default as the first time the firm value process crosses a barrier, and the area under the barrier is greater than the exogenous level. This technique is used to price risky debt as an example.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
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