Firm and Corporate Bond Valuation: A Simulation Dynamic Programming Approach
This paper analyzes corporate bond valuation of a straight bond, and the convertibility feature, when interest rates are stochastic and the firm value is determined by the interaction of a series of stochastic variables. The sensitivity of the corporate debt value to some key parameters is also expl...
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| Autor principal: | |
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| Lenguaje: | English |
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Instituto de Economía, Pontificia Universidad Católica de Chile
2004
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| Acceso en línea: | http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0717-68212004012400002 |
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| Sumario: | This paper analyzes corporate bond valuation of a straight bond, and the convertibility feature, when interest rates are stochastic and the firm value is determined by the interaction of a series of stochastic variables. The sensitivity of the corporate debt value to some key parameters is also explored. The methodology applied here is based on a hybrid of simulation and dynamic programming proposed by Raymar and Zwecher in 1997 to value financial American-type options. This methodology proves to be extremely efficient to value American-type options when the sources of uncertainty are numerous |
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