SSE/EFI Working Paper Series in Economics and Finance
No 445:
The Valuation of Corporate Liabilities: Theory and Tests
Joel Reneby ()
and Jan Ericsson ()
Abstract: We develop a structural bond pricing approach and
implement it on a large panel of US industrial bonds using an efficient
maximum likelihood methodology. We evaluate the model's ability to predict
yield spread levels and changes out-of-sample. Errors are smaller and
distinctly less variable than those found in previous implementations of
structural as well as reduced form models. Furthermore, our analysis
provide evidence that bond yield spreads incorporate a substantial
liquidity component on top of the default spread structural models are
designed to capture.
Keywords: corporate bonds; credit risk; yield spreads; default; structural bond pricing models; (follow links to similar papers)
JEL-Codes: G12; G13; (follow links to similar papers)
61 pages, February 1, 2001, Revised January 7, 2003
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