The Valuation of Corporate Liabilities: Theory and Tests

Joel Reneby () and Jan Ericsson
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Joel Reneby: Dept. of Finance, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

No 445, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: We develop a structural bond pricing approach and implement it on a large panel of US industrial bonds using an efficient maximum likelihood methodology. We evaluate the model's ability to predict yield spread levels and changes out-of-sample. Errors are smaller and distinctly less variable than those found in previous implementations of structural as well as reduced form models. Furthermore, our analysis provide evidence that bond yield spreads incorporate a substantial liquidity component on top of the default spread structural models are designed to capture.

Keywords: corporate bonds; credit risk; yield spreads; default; structural bond pricing models (search for similar items in EconPapers)
JEL-codes: G12 G13 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2001-02-01, Revised 2003-01-07
New Economics Papers: this item is included in nep-acc and nep-fin
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0445

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