Credit Risk: Modeling, Valuation and Hedging 3.2.2 ~ 3.3.4 整理 : 田宇正.

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Presentation transcript:

Credit Risk: Modeling, Valuation and Hedging ~ 整理 : 田宇正

Overview Corporate Bonds Pricing Default Time: Merton → Black & Cox Coupon / Zero Consol / Finite Maturity Optimal Capital Structure Equity Value Maximization (Bond Value Minimization)

Corporate Zero-Coupon Bond Black & Cox Model See Proposition 3.2.1

Corporate Coupon Bond Proposition 3.2.2

Corporate Consol Bond

Optimal Capital Structure #1 (1/2) Black & Cox: Consol Bond, No Dividend, Constant Barrier, Fully Recover

Optimal Capital Structure #1 (2/2) Black & Cox: Consol Bond, No Dividend, Constant Barrier, Fully Recover

Optimal Capital Structure #2 (1/2) Leland: Black & Cox + Non-Fully Recover, Tax Benefits, Bankruptcy Cost

Optimal Capital Structure #2 (2/2) Leland: Black & Cox + Non-Fully Recover, Tax Benefits, Bankruptcy Cost

Optimal Capital Structure #3 Leland & Toft: Leland + Finite Maturity Stationary Debt Structure: at any time t, the debt outstanding is composed of coupon bonds of maturities form the interval [t..t+T] and the face value uniformly distributed over this interval.

Further Developments State Variables: default time is in terms of some SV (operating earnings, etc). Stratigic Debt Service: allow renegotiation in case of distress. Probabilistic Approaches: decompose defaultable claims into (1) down-and-out call, (2) down-and-out digital claim, (3) digital claim which pays $1 when default occurs. Comparative Studies: fixed cost of bankruptcy.