Related papers: Merton's Default Risk Model for Private Company

In this paper, we developed the Merton's structural model for public companies under an assumption that liabilities of the companies are observed. Using Campbell and Shiller's approximation method, we obtain formulas of risk-neutral equity…

In the accompanied paper [14], a delayed nonlinear model for pricing corporate liabilities was developed. Using self-financed strategy and duplication we were able to derive two Random Partial Differential Equations (RPDEs) describing the…

In this study, we introduce new estimation methods for the required rate of returns on equity and liabilities of private and public companies using the stochastic dividend discount model (DDM). To estimate the required rate of return on…

The article presents a general discrete time dividend valuation model when the dividend growth rate is a general continuous variable. The main assumption is that the dividend growth rate follows a discrete time semi-Markov chain with…

In this study, we introduce new estimation methods for the required rate of return of the stochastic dividend discount model (DDM) and the private company valuation model, which will appear below. To estimate the required rate of return, we…

While defaults are rare events, losses can be substantial even for credit portfolios with a large number of contracts. Therefore, not only a good evaluation of the probability of default is crucial, but also the severity of losses needs to…

For a public company, pricing and hedging models of options and equity--linked life insurance products have been sufficiently developed. However, for a private company, because of unobserved prices, pricing and hedging models of the…

Based on the work of Suzuki (2002), we consider a generalization of Merton's asset valuation approach (Merton, 1974) in which two firms are linked by cross-ownership of equity and liabilities. Suzuki's results then provide no arbitrage…

In this work, I generalize Merton's approach of pricing risky debt to the case where the interest rate risk is modeled by the CIR term structure. Closed form result for pricing the debt is given for the case where the firm value has…

Default risk significantly affects the corporate policies of a firm. We develop a model in which a limited liability entity subject to Poisson default shock jointly sets its dividend policy and capital structure to maximize the expected…

In this letter, I consider the issue of pricing risky debt by following Merton's approach. I generalize Merton's results to the case where the interest rate is modeled by the CIR term structure. Exact closed forms are provided for the risky…

This paper presents a new method to assess default risk based on applying the CEV process to the KMV model. We find that the volatility of the firm asset value may not be a constant, so we assume the firm's asset value dynamics are given by…

We explore credit risk pricing by modeling equity as a call option and debt as the difference between the firm's asset value and a put option, following the structural framework of the Merton model. Our approach proceeds in two stages:…

The valuation of counterparty risk for single name credit derivatives requires the computa- tion of joint distributions of default times of two default-prone entities. For a Merton-type model, we derive some formulas for these joint…

The current research on credit risk is primarily focused on modeling default probabilities. Recovery rates are often treated as an afterthought; they are modeled independently, in many cases they are even assumed constant. This is despite…

In recent years research on credit risk modelling has mainly focused on default probabilities. Recovery rates are usually modelled independently, quite often they are even assumed constant. Then, however, the structural connection between…

We introduce an equilibrium asset pricing model, which we build on the relationship between a novel risk measure, the Expected Downside Risk (EDR) and the expected return. On the one hand, our proposed risk measure uses a nonparametric…

In this paper we propose a new model for pricing stock and dividend derivatives. We jointly specify dynamics for the stock price and the dividend rate such that the stock price is positive and the dividend rate non-negative. In its simplest…

This paper presents a convenient framework for modeling default process and pricing derivative securities involving credit risk. The framework provides an integrated view of credit valuation adjustment by linking distance-to-default,…

(Gradient) Expectation Maximization (EM) is a widely used algorithm for estimating the maximum likelihood of mixture models or incomplete data problems. A major challenge facing this popular technique is how to effectively preserve the…