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Valuation of Put Options on Leveraged Equity

Realdon, Marco - Department of Economics and Related Studies, University …

This paper presents new closed form solutions for the valuation of European put options and of "down-an-in" barrier … options written on leveraged equity. Unlike in past literature (Toft and Prucyk, 1997) and in keeping with empirical evidence … significantly alter the valuation of equity put and "down-and-in" options as bankruptcy costs, bargaining power of equity holders …

Persistent link: https://www.econbiz.de/10005328394

Book Values and Market Values of Equity and Debt

Realdon, Marco - Department of Economics and Related Studies, University … - 2006

earnings volatility, because of the options to default or to voluntarily liquidate the firms. Debt value increases in earnings …

Persistent link: https://www.econbiz.de/10005328505

Convertible Subordinated Debt Valuation and "Conversion in Distress"

Realdon, Marco - Department of Economics and Related Studies, University …

This paper presents new formulae for the valuation of convertible debt and shows how it can be rational for convertible holders to convert not only when the debtor's equity value increases, ut also when the debtor approaches distress. Even if debt cannot be enegotiated, "conversion in distress"...

Persistent link: https://www.econbiz.de/10005328571

Extended-Gaussian Term Structure Models and Credit Risk Applications

Realdon, Marco - Department of Economics and Related Studies, University … - 2007

This paper presents three factor "Extended Gaussian" term struc- ture models (EGM) to price default-free and defaultable bonds. To price default-free bonds EGM assume that the instantaneous interest rate is a possibly non-linear but monotonic function of three latent factors that follow...

Persistent link: https://www.econbiz.de/10005129622

Valuation of the Firm's Liabilities when Equity Holders are also Creditors

Realdon, Marco - Department of Economics and Related Studies, University … - 2006

This paper presents a tractable structural model whereby controlling equity holders are also among the creditors of the firm. As the firm approaches distress, equity holders can depauperate the firm and expropriate other creditors by repaying their credit before bankruptcy. The bankruptcy...

Persistent link: https://www.econbiz.de/10005129638

Quadratic Term Structure Models in Discrete Time

Realdon, Marco - Department of Economics and Related Studies, University … - 2006

bonds are provided even in the presence of multiple correlated underlying factors. Pricing bond options requires simple …

Persistent link: https://www.econbiz.de/10005129640

The Target Rate and Term Structure of Interest Rates

Realdon, Marco - Department of Economics and Related Studies, University … - 2006

This paper presents a tractable bond valuation model, which further develops the approach proposed by Piazzesi (2005). The short term inter-bank interest rate is equal to the target rate set by the central bank plus a spread. Bond yields are driven by the intensities that determine the...

Persistent link: https://www.econbiz.de/10005523952

Equity Valuation Under Stochastic Interest Rates

Realdon, Marco - Department of Economics and Related Studies, University … - 2006

This paper presents an equity valuation model that employs risk-neutral valuation under stochastic interest rates along the lines of Ohlson and Feltham (1999). Closed form valuation formulae for equities are presented in a discrete time setting whereby the short term interest rate is modelled by...

Persistent link: https://www.econbiz.de/10005523978

Corporate Bond Valuation with Both Expected and Unexpected Default

Realdon, Marco - Department of Economics and Related Studies, University …

This paper presents three variants of a tractable structural model in which default may take place both expectedly and unexpectedly. The model has the merit of predicting realistically high short term credit spreads. Closed form solutions are provided for corporate bonds (and default swaps) when...

Persistent link: https://www.econbiz.de/10005523982

An Extended Structural Credit Risk Model (forthcoming in the Icfai Journal of Financial Risk Management; all copyrights rest with the Icfai University Press)

Realdon, Marco - Department of Economics and Related Studies, University … - 2007

This paper presents an extended structural credit risk model that pro- vides closed form solutions for fixed and floating coupon bonds and credit default swaps. This structural model is an "extended" one in the following sense. It allows for the default free term structure to be driven by the a...

Persistent link: https://www.econbiz.de/10005524002