Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/104909 
Year of Publication: 
1997
Series/Report no.: 
Tübinger Diskussionsbeiträge No. 96
Publisher: 
Eberhard Karls Universität Tübingen, Wirtschaftswissenschaftliche Fakultät, Tübingen
Abstract: 
Simple formulas for the price of corporate discount and coupon bonds are found using the Longstaff and Schwartz valuation approach for the debt claims of a firm, where default is triggered by a special State variable: the firm's asset-to-debt-ratio. Instead of keeping the total amount of debt constant over time, it is shown that closed form solutions exist under the alternative assumption that the level of leverage is expected to remain constant over time under the risk-neutralized measure. This encourages a more conservative view on the capital structure policy of the firm which might be appropriate in case the firm is neither willing nor able to reduce its expected level of leverage considerably over time.
Document Type: 
Working Paper

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