Pricing corporate debt

University dissertation from Stockholm : Economic Research Institute, Stockholm School of Economics [Ekonomiska forskningsinstitutet vid Handelshögsk.] (EFI)

Author: Joel Reneby; Handelshögskolan I Stockholm.; [1998]

Keywords: Social Sciences Economics and Business Economics; Samhällsvetenskap Ekonomi och näringsliv Nationalekonomi; Corporate debt; Corporate bonds; Putable bonds; Contingent claims; Yield spreads; SOCIAL SCIENCES Business and economics Economics; SAMHÄLLSVETENSKAP Ekonomi Nationalekonomi;

Abstract: The thesis builds a model for pricing the liabilities of a firm. The liabilities - stocks, loans, bonds - fundamentally all depend on the value of the firm's assets. By looking at balance sheet data, such as the nominal amount of debt outstanding, and market prices, such as time series of stock prices, the value and volatility of the assets can be estimated. Finally, e.g. bank loans to the same firm can be priced in terms of these values. Thus, the purpose of the whole exercise is to use the information content in stock prices to infer the value of loans.

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