Factors Affecting the Valuation of Corporate Bonds

45 Pages Posted: 5 Nov 2008

See all articles by Edwin J. Elton

Edwin J. Elton

New York University (NYU) - Department of Finance

Martin J. Gruber

New York University (NYU) - Department of Finance

Deepak Agrawal

New York University (NYU)

Christopher Mann

Moody's Investors Service; Bank of Tokyo-Mitsubishi, Ltd.

Multiple version iconThere are 3 versions of this paper

Date Written: October 2000

Abstract

The valuation of corporate debt is an important issue in asset pricing. While there has been an enormous amount of theoretical modeling of corporate bond prices, there has been relatively little empirical testing of these models. Recently there has been extensive development of rating based reduced form models. These models take as a premise that bonds when grouped by ratings are homogeneous with respect to risk. For each risk group the models require estimates of several characteristics such as the spot yield curve, the default probabilities and the recovery rate. These estimates are then used to compute the theoretical price for each bond in the group. The purpose of this article is to examine the pricing of corporate bonds when bonds are grouped by ratings, and to investigate the ability of characteristics, in addition to bond ratings, to improve the performance of rating based models. Most of our testing will be conducted in models which are in the spirit of the theory developed by Duffie and Singleton (1997) and Duffie (1999).

Suggested Citation

Elton, Edwin J. and Gruber, Martin J. and Agrawal, Deepak and Mann, Christopher, Factors Affecting the Valuation of Corporate Bonds (October 2000). NYU Working Paper No. S-CDM-01-09. Available at SSRN: https://ssrn.com/abstract=1295822

Edwin J. Elton (Contact Author)

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
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New York, NY 10012-1126
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212-998-0361 (Phone)
212-995-4233 (Fax)

Martin J. Gruber

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
Ste 9-190
New York, NY 10012-1126
United States
212-998-0333 (Phone)
212-995-4233 (Fax)

Deepak Agrawal

New York University (NYU)

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Christopher Mann

Moody's Investors Service ( email )

99 Church Street
New York, NY 10007
United States

Bank of Tokyo-Mitsubishi, Ltd. ( email )

Japan

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