Bruche, Max (2003) Corporate bond prices and co-ordination failure. Discussion paper, 438. Financial Markets Group, London School of Economics and Political Science, London, UK.
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Abstract
It has been suggested (Morris, Shin 2001) that co-ordination failure between holders of debt can affect the price of debt. In essence, fear of premature foreclosure by other debtors can lead to preemptive action, affecting the value of debt. Using a continuous-time framework related to a Merton (1974)-type structural model, this paper demonstrates how such co-ordination failures can affect the prices of corporate bonds. As it turns out, the resulting model is version of a structural model that allows default before maturity, a model feature that has proven to be popular with practitioners.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | http://fmg.lse.ac.uk |
| Additional Information: | © 2003 The Author |
| Library of Congress subject classification: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| Sets: | Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online Collections > LSE Financial Markets Group (FMG) Working Papers |
| Identification Number: | 438 |
| Date Deposited: | 12 Aug 2009 09:49 |
| URL: | http://eprints.lse.ac.uk/24825/ |
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