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Title:The valuation of corporate liabilities: Theory and tests PDF Logo
Authors:Ericsson, Jan
Reneby, Joel
Issue Date:2001
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 445
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.
Subjects:corporate bonds
credit risk
yield spreads
default
structural bond pricing models
JEL:G12
G13
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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