Anmerkungen:
In: Review of Derivatives Research, Vol. 11, No. 3, 2008
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 15, 2008 erstellt
Beschreibung:
The two major problems with typical structural models are the failure to attain a positive credit spread in the very short term, and overestimation of the overall level of the credit spread. We recognize the presence of option liabilities in a firm's capital structure and the effect they have on the firm's credit spread. Including option liabilities and employing a regime switching interest rate process to capture the business cycle resolves the above-mentioned drawbacks in explaining credit spreads. We find that the credit spread overestimation problem in one of the structural model, Collin-Dufresne, Goldstein (2001), can be resolved by combining option liabilities and the regime-switching interest rate process when dealing with an investment grade bond, whereas with junk bonds, only the regime-switching interest rate process is needed. We also examine vulnerable option values, debt values, and zero-coupon bond values with different model settings and leverage ratios