Share This Article:

Cross-Market Valuation with Full Information on the Company’s Capital Structure

Abstract Full-Text HTML Download Download as PDF (Size:281KB) PP. 69-75
DOI: 10.4236/jmf.2013.33A007    3,973 Downloads   5,630 Views  

ABSTRACT

Most models for forecasting a company’s value either use only information from single markets or compress information from other markets. We propose a model using a company’s full capital structure including the term structure and type of outstanding debt to assess its future value. We discuss the numerical properties of our model and demonstrate its usefulness when estimating the probability of default as a valuation example.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

P. Heider and P. Posch, "Cross-Market Valuation with Full Information on the Company’s Capital Structure," Journal of Mathematical Finance, Vol. 3 No. 3A, 2013, pp. 69-75. doi: 10.4236/jmf.2013.33A007.

References

[1] J. Hull, A. White and M. Predescu, “The Relationship between Credit Default Swap Spreads, Bond Yields, and Credit Rating Announcements,” Journal of Banking & Finance, Vol. 28, No. 11, 2004, pp. 2789-2811.
http://dx.doi.org/10.1016/j.jbankfin.2004.06.010
[2] B. Y. Zhang, H. Zhou and H. Zhu, “Explaining Credit Default Swap Spreads with the Equity Volatility and Jump Risks of Individual Firms,” Review of Financial Studies, Vol. 22, No. 12, 2009, pp. 5099-5131.
http://dx.doi.org/10.1093/rfs/hhp004
[3] J. Y. Campbell and G. B. Taskler, “Equity Volatility and Corporate Bond Yields,” The Journal of Finance, Vol. 58, No. 6, 2003, pp. 2321-2350.
http://dx.doi.org/10.1046/j.1540-6261.2003.00607.x
[4] P. Collin-Dufresne, R. S. Goldstein and J. S. Martin, “The Determinant of Credit Spread Changes,” The Journal of Finance, Vol. 56, No. 6, 2001, pp. 2177-2207.
http://dx.doi.org/10.1111/0022-1082.00402
[5] R. C. Merton, “On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,” Journal of Finance, Vol. 29, 1974, pp. 449-470.
[6] C. C. Finger, V. Finkelstein, G. Pan, T. Ta, J.-P. Lardy and J. Tierney, “Creditgrades,” Technical Report, RiskMetrics Group, Inc., 2002.
[7] J. Hull, “Options, Futures, and Other Derivatives,” Prentice Hall, Upper Saddle River, 2008.
[8] D. Xu and F. Nencioni, “Introducing the jp Morgan Implied Default Probability Model: A Powerful Tool for Bond Valuation,” JP Morgan Research, 2000.
[9] J. Hull, M. Predescu and A. White, “Bond Prices, Default Probabilities and Risk Premiums,” Journal of Credit Risk, Vol. 1, 2005, pp. 53-60.
[10] J. Hull, A. White and I. Nelken, “Merton’s Model, Credit Risk and Volatility Skews,” Journal of Credit Risk, Vol. 1, 2005, pp. 1-27.
[11] R. Stamicar and Ch. C. Finger, “Incorporating Equity Derivatives into the Creditgrades Model,” Riskmetrics.com, 2005.
[12] J. A. Nelder and R. Mead, “A Simplex Method for Function Minimization,” Computer Journal, Vol. 7, No. 4, 1965, pp. 308-313. http://dx.doi.org/10.1093/comjnl/7.4.308

  
comments powered by Disqus

Copyright © 2018 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.