SIFR Research Report Series, Institute for Financial Research
Valuing Corporate Liabilities
() and Joel Reneby
Abstract: We implement a structural bond pricing framework on a
large panel of US industrial issues using an efficient maximum likelihood
methodology. Although, like others before us, we underpredict yield spread
levels when using only stock market data in the estimation, our errors are
much less dispersed. In addition, we show that when our model underpredicts
spreads, the errors are correlated with liquidity proxies, suggesting that
an underestimation of total yield spreads may be economically plausible.
When we include bond price information in our estimation, our errors become
similar in magnitude to those found in recent implementations of reduced
Keywords: Contingent claims; Structural models; Credit risk; Credit spreads; Liquidity premiums; (follow links to similar papers)
JEL-Codes: G12; G13; (follow links to similar papers)
66 pages, June 15, 2003
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