On the Valuation and Analysis of Risky Debt: A Theoretical Approach Using a Multivariate Extension of the Merton Model

28 Pages Posted: 16 Sep 2019

See all articles by Edwin O. Fischer

Edwin O. Fischer

University of Graz/Finance

Lisa-Maria Kampl

University of Graz

Ines Wöckl

University of Graz

Date Written: September 9, 2019

Abstract

We contribute to the literature on the valuation of risky debt by providing three nested multivariate extensions of the standard Merton model. First, we lay forth an approach to pricing risky debt irrespective of its interest payment structure and the specified redemption agreement. Second, we propose a technique for valuing multiple debt instruments within the same firm. Third, we provide an approach for pricing one or more debt instruments with continuous dividend payments.

Keywords: risky debt, debt valuation, debt analysis, expected yield

JEL Classification: G21, G31, G32

Suggested Citation

Fischer, Edwin O. and Kampl, Lisa-Maria and Wöckl, Ines, On the Valuation and Analysis of Risky Debt: A Theoretical Approach Using a Multivariate Extension of the Merton Model (September 9, 2019). Available at SSRN: https://ssrn.com/abstract=3450524 or http://dx.doi.org/10.2139/ssrn.3450524

Edwin O. Fischer

University of Graz/Finance ( email )

Universitätsstrasse
15/G2
Graz, 8010
Austria
+433163803510 (Phone)

Lisa-Maria Kampl

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Ines Wöckl (Contact Author)

University of Graz ( email )

Universitätsstrasse 15 / G2
Graz, Styria 8010
Austria

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