Author : Jan Ericsson
Publisher :
ISBN 13 :
Total Pages : 70 pages
Book Rating : 4.:/5 (129 download)
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.