Generalizing Merton's Approach of Pricing Risky Debt: Some Closed Form Results

Wang, Deng-Feng

doi:10.2139/ssrn.139072

Abstract

References (9)

Download This Paper | Share | Email |Add to Briefcase

Generalizing Merton's Approach of Pricing Risky Debt: Some Closed Form Results

Deng-Feng Wang

affiliation not provided to SSRN

September 1998

University of Waterloo Working Paper TD-UW-98

Abstract:
In this work, I generalize Merton's approach of pricing risky debt to the case where the interest rate is modeled by the CIR term structure. Closed form result for pricing the debt is given for the case where the firm value has non-zero correlation with the interest rate. This extends previous closed form pricing formula of zero-correlation case to the generic one of non-zero correlation between the firm value and the interest rate.

Number of Pages in PDF File: 7

JEL Classification: G12, G13, E43

working papers series

Download This Paper

Date posted: November 8, 1998

Suggested Citation

Wang, Deng-Feng, Generalizing Merton's Approach of Pricing Risky Debt: Some Closed Form Results (September 1998). University of Waterloo Working Paper TD-UW-98. Available at SSRN: http://ssrn.com/abstract=139072 or http://dx.doi.org/10.2139/ssrn.139072

Contact Information

Deng-Feng Wang (Contact Author)

affiliation not provided to SSRN