TRAP@NCI

Mimicking Credit Ratings by a Perpetual-Debt Structural Model

Barone, Gaia (2018) Mimicking Credit Ratings by a Perpetual-Debt Structural Model. In: 10th World Congress of the Bachelier Finance Society, 16th-20th July 2018, Trinity College, Dublin. (Submitted)

[img]
Preview
PDF
Download (449kB) | Preview

Abstract

In this paper, we outlined the general lines of a structural model that is based on the Leland model (1994), but differs from its assumptions about the tax regime. In the revised model, that we will call Perpetual Debt Structural Model (PDSM), stocks are equivalent to a portfolio that contains a perpetual American option to default.This paper aims to offer a first empirical test of the model. Essentially, the question is: «Is the PDSM is sufficiently flexible to give default probabilities consistent with those historically estimated by Moody’s?». The answer is positive. The paper contains a simple firm-level application.

Item Type: Conference or Workshop Item (Paper)
Subjects: H Social Sciences > HG Finance
H Social Sciences > HG Finance > Credit. Debt. Loans.
Divisions: School of Business > Staff Research and Publications
Depositing User: CAOIMHE NI MHAICIN
Date Deposited: 13 Sep 2018 11:40
Last Modified: 24 Sep 2018 08:56
URI: http://trap.ncirl.ie/id/eprint/3116

Actions (login required)

View Item View Item