Bruche, Max (2002) A structural model of corporate bond pricing with co-ordination failure. Financial Markets Group Discussion Papers (410). Financial Markets Group, The 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 bondholders could produce an effect that would explain the systematic mispricing of corporate debt produced by the Merton (1974) framework. In essence, fear of premature foreclosure by other debtors can lead to pre-emptive action, lowering the value of debt. This paper presents a continuous-time bond pricing model integrating this effect, and shows that co-ordination failure can indeed cause bonds to be traded at a discount.
| Item Type: | Monograph (Discussion Paper) |
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| Official URL: | http://fmg.ac.uk |
| Additional Information: | © 2002 The Author |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HF Commerce H Social Sciences > HB Economic Theory |
| JEL classification: | G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General |
| Date Deposited: | 20 Aug 2009 09:06 |
| Last Modified: | 11 Dec 2024 18:32 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24930 |
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