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A comparative study of structural models of corporate bond yields: an exploratory investigation

Anderson, Ronald W. and Sundaresan, Suresh (2000) A comparative study of structural models of corporate bond yields: an exploratory investigation. Journal of Banking and Finance, 24 (1-2). pp. 255-269. ISSN 0378-4266

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Abstract

This paper empirically compares a variety of firm-value-based models of contingent claims. We formulate a general model which nests versions of the models introduced by [Merton, 1974], [Leland, 1994] and [Anderson and Sundaresan, 1996], and Mella-Barral and Perraudin (1997). We estimate these using aggregate time series data for the US corporate bond market, monthly, from August 1970 through December 1996. We find that models fit reasonably well, indicating that variations of leverage and asset volatility account for much of the time-series variations of observed corporate yields. The performance of the recently developed models which incorporate endogenous bankruptcy barriers is somewhat superior to the original Merton model. We find that the models produce default probabilties which are in line with the historical experience reported by Moodys.

Item Type: Article
Official URL: http://www.elsevier.com/wps/find/journaldescriptio...
Additional Information: © 2000 Elsevier
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
G - Financial Economics > G3 - Corporate Finance and Governance
G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy; Liquidation
Sets: Departments > Finance
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 20 Nov 2008 10:18
URL: http://eprints.lse.ac.uk/7629/

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