Bruche, Max (2002) A structural model of corporate bond pricing with co-ordination failure. Discussion paper, 410. Financial Markets Group, London School of Economics and Political Science, London, UK.
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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)|
|Additional Information:||© 2002 The Author|
|Library of Congress subject classification:||H Social Sciences > HF Commerce
H Social Sciences > HB Economic Theory
|Sets:||Research centres and groups > Financial Markets Group (FMG)
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