Generalizing Merton's Approach of Pricing Risky Debt: Some Closed Form Results
affiliation not provided to SSRN
University of Waterloo Working Paper TD-UW-98
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, E43working papers series
Date posted: November 8, 1998
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