Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 89: A Framework for Valuing Corporate Securities

Jan Ericsson and Joel Reneby ()
Additional contact information
Jan Ericsson: Department of Economics, Postal: Catholic University of Louvain, Place Montesquieu 3, B-1348 Louvain-la-Neuve, Belgium
Joel Reneby: Department of Economics and Finance, Postal: Stockholm School of Economics, Box 6501, 113 83 Stockholm, Sweden.

Abstract: We suggest a methodology for valuing corporate securities that allows the straightforward derivation of closed form solutions for complex capital structure scenarios. The tractability of the approach stems from its modularity - we provide a number of intuitive building blocks that are sufficient for valuation in most typical situations. A\ further advantage of our approach is that it makes economic interpretation far easier than what is typically possible with other approaches such as solving partial differential equations. As examples we consider a corporate coupon bond with discrete payments and debt subject to strategic debt service.

Keywords: Barrier contingent claims; corporate securities

JEL-codes: G13

25 pages, First version: December 1995. Revised: December 3, 1998. Earlier revisions: October 1998.

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