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Structural Models Of Corporate Bond Pricing With Maximum Likelihood Estimation
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Book Synopsis Structural Models of Corporate Bond Pricing with Maximum Likelihood Estimation by : Ka Leung Li
Download or read book Structural Models of Corporate Bond Pricing with Maximum Likelihood Estimation written by Ka Leung Li and published by . This book was released on 2009 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper empirically examines the proxy, volatility-restriction (VR) and maximum likelihood (ML) approaches to implementing structural corporate bond pricing models, and documents that ML estimation is the best among the three implementation methods. Empirical studies using either the proxy approach or the VR method conclude that barrier-independent models significantly underestimate corporate bond yields. Although barrier-dependent models tend to overestimate the yield on average, they generate a sizable degree of underestimation. The present paper shows that the proxy approach is an upwardly biased estimator of the corporate assets and makes the empirical framework work systematically against structural models of corporate bond pricing. The VR approach may generate inconsistent corporate bond prices or may fail to give a positive corporate bond price for some structural models. When the Merton, LS, BD and LT models are implemented with ML estimation, we find substantial improvement in their performances. Our empirical analysis shows that the LT model is very accurate for predicting short-term bond yields, whereas the LS and BD models are good predictors for medium-term and long-term bonds. The Merton model however significantly overestimates short-term bond yields and underestimates long-term bond yields. Unlike empirical studies in the past, the Merton model implemented with ML estimation does not consistently underestimate corporate bond yields.
Book Synopsis Do Structural Models for Corporate Bonds Work? by : Steven C. J. Simon
Download or read book Do Structural Models for Corporate Bonds Work? written by Steven C. J. Simon and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent empirical results on calibrating structural models for corporate bonds have been mixed. Most authors find that such models significantly underestimate the default component in credit spreads, when they are calibrated to observed default frequencies. Others found that structural models tend to generate to high values for the default component when bond prices are used to estimate the asset-value volatility. Using a simulation experiment, Ericsson and Reneby (2005) show that the empirical performance of such models can be improved upon when calibrated by means of maximum likelihood. We test whether this is also the case when a structural model is calibrated to actual bond yields, rather than simulated data. The tests in this paper use the structural model of Leland and Toft (1996), which has been shown to do a good job at explaining observed default frequencies.A first set of results indicates that the superior performance of the maximum likelihood method is lost when it is confronted with a real-live data set, rather than with simulated data. More precisely, implied default spreads seem too high. However, forcing the model to replicate observed default frequencies, significantly improves the results. We find that in this case the implied default spreads seem to be unbiased estimates of the true default component of credit spreads.
Book Synopsis Estimating Structural Bond Pricing Models Via Simulated Maximum Likelihood by : Max Bruche
Download or read book Estimating Structural Bond Pricing Models Via Simulated Maximum Likelihood written by Max Bruche and published by . This book was released on 2005 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Estimating Structural Bond Pricing Models by : Jan Ericsson
Download or read book Estimating Structural Bond Pricing Models written by Jan Ericsson and published by . This book was released on 2002 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: A difficulty which arises when implementing structural bond pricing models is the estimation of the value and risk of the firm's assets - neither of which is directly observable. We perform a simulation experiment in order to evaluate a maximum likelihood method applicable to this problem. The properties of the bond price estimators are examined using four theoretical bond pricing models: the Black amp; Scholes (1973) / Merton (1974) model, the Leland amp; Toft (1996) model, the Briys amp; de Varenne (1997) model, as well as the Ericsson amp; Reneby (2001) model. We contrast the performance of the maximum likelihood estimators to that of estimators traditionally used in academia and industry. The results are strongly supportive of the maximum likelihood approach. In fact, the inefficiency of the traditional estimator may explain the failure of past attempts to implement structural bond pricing models.
Book Synopsis Estimating Structural Models of Corporate Bond Prices by :
Download or read book Estimating Structural Models of Corporate Bond Prices written by and published by . This book was released on 2006 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Structural Models of Corporate Bond Pricing by : Young Ho Eom
Download or read book Structural Models of Corporate Bond Pricing written by Young Ho Eom and published by . This book was released on 2003 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Estimation of Parameters for Structural Credit Spread Models, Using the Maximum Likelihood Estimator Approach by : Kavi Gupta
Download or read book Estimation of Parameters for Structural Credit Spread Models, Using the Maximum Likelihood Estimator Approach written by Kavi Gupta and published by . This book was released on 2004 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Structural Models of Corporate Bond Pricing by :
Download or read book Structural Models of Corporate Bond Pricing written by and published by . This book was released on 2000 with total page 88 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Structural Models of Corporate Bond Prices by : Max Elmer Bruche
Download or read book Structural Models of Corporate Bond Prices written by Max Elmer Bruche and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Structural Models of Corporate Bond Pricing by : Young Ho Eom
Download or read book Structural Models of Corporate Bond Pricing written by Young Ho Eom and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Structural Framework for the Pricing of Corporate Securities by : Michael Genser
Download or read book A Structural Framework for the Pricing of Corporate Securities written by Michael Genser and published by Springer Science & Business Media. This book was released on 2006-01-20 with total page 199 pages. Available in PDF, EPUB and Kindle. Book excerpt: A treatment of structural credit risk models for simultaneous and consistent pricing of corporate securities. This book takes us from the economic principles of firm value models to the empirical implementation, through the development of an economic framework. It provides exposition of corporate securities pricing for academics and practitioners.
Book Synopsis Structural Models of Corporate Bond Pricing by : Ricardo Alexandre Martins Gomes Pereira
Download or read book Structural Models of Corporate Bond Pricing written by Ricardo Alexandre Martins Gomes Pereira and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Specifying a Consistent Joint Maximum-likelihood (JMLE) Approach to Testing Bond Models by : Buddhavarapu Sailesh Ramamurtie
Download or read book Specifying a Consistent Joint Maximum-likelihood (JMLE) Approach to Testing Bond Models written by Buddhavarapu Sailesh Ramamurtie and published by . This book was released on 1996 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Simple Multi-Factor Model of Corporate Bond Prices by : Clemens Mueller
Download or read book A Simple Multi-Factor Model of Corporate Bond Prices written by Clemens Mueller and published by . This book was released on 2001 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a multi-factor structural model of corporate bond prices. Bonds are valued in an arbitrage-free setting. The term structure of credit spreads is a function of a set of observable variables, including the issuer's leverage ratio, the riskfree interest rate and other stochastic factors that proxy for the issuer's likelihood of default. The set of factors may include both systematic and idiosyncratic components. We test the model using prices of Delta Airlines' bonds. Factors included in this empirical analysis are the growth rate of GDP and the volatility on Delta's stock. The root mean squared error between actual credit spreads and model-determined credit spreads decreases from 45 to 40 basis points when these factors are included in the analysis. Several extant models in the literature are special cases of the structure developed here and rejected in the empirical work.
Book Synopsis Encyclopedia of Financial Models, Volume I by : Frank J. Fabozzi
Download or read book Encyclopedia of Financial Models, Volume I written by Frank J. Fabozzi and published by John Wiley & Sons. This book was released on 2012-09-26 with total page 948 pages. Available in PDF, EPUB and Kindle. Book excerpt: Volume 1 of the Encyclopedia of Financial Models The need for serious coverage of financial modeling has never been greater, especially with the size, diversity, and efficiency of modern capital markets. With this in mind, the Encyclopedia of Financial Models has been created to help a broad spectrum of individuals ranging from finance professionals to academics and students understand financial modeling and make use of the various models currently available. Incorporating timely research and in-depth analysis, Volume 1 of the Encyclopedia of Financial Models covers both established and cutting-edge models and discusses their real-world applications. Edited by Frank Fabozzi, this volume includes contributions from global financial experts as well as academics with extensive consulting experience in this field. Organized alphabetically by category, this reliable resource consists of thirty-nine informative entries and provides readers with a balanced understanding of today's dynamic world of financial modeling. Volume 1 addresses Asset Pricing Models, Bayesian Analysis and Financial Modeling Applications, Bond Valuation Modeling, Credit Risk Modeling, and Derivatives Valuation Emphasizes both technical and implementation issues, providing researchers, educators, students, and practitioners with the necessary background to deal with issues related to financial modeling The 3-Volume Set contains coverage of the fundamentals and advances in financial modeling and provides the mathematical and statistical techniques needed to develop and test financial models Financial models have become increasingly commonplace, as well as complex. They are essential in a wide range of financial endeavors, and the Encyclopedia of Financial Models will help put them in perspective.
Book Synopsis A Structural Model of Corporate Bond Pricing with Co-ordination Failure by : Max Bruche
Download or read book A Structural Model of Corporate Bond Pricing with Co-ordination Failure written by Max Bruche and published by . This book was released on 2002 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A Gaussian Affine Term Structure Model of Interest Rates and Credit Spreads by : Zhiping Zhou
Download or read book A Gaussian Affine Term Structure Model of Interest Rates and Credit Spreads written by Zhiping Zhou and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate a no-arbitrage term structure model of U.S. Treasury yields and corporate bond spreads with both economic factors and latent factors as drivers of term structure dynamics. We consider two sets of economic factors: macro factors consisting of inflation and real activity, and financial market factors consisting of funding liquidity and market volatility. We show that financial market factors have limited effects on the Treasury yield curve but substantial impacts on the credit spread term structure. In particular, negative liquidity shocks widen credit spreads, and this effect is more pronounced for short-term corporate bonds. We also find that out-of-sample forecasts for credit spreads improve when financial market factors are incorporated and when no-arbitrage restrictions are imposed. We also propose a minimum-chi-square method for estimating the term structure models of interest rate and credit spreads, which is more efficient and accurate than the widespread maximum-likelihood estimation.
