A Merton-Like Approach to Pricing Debt based on a non-Gaussian Asset Model

Details A Merton-Like Approach to Pricing Debt based on a non-Gaussian Asset Model A Merton-Like Approach to Pricing Debt based on a non-Gaussian Asset Model

2005-01-17

arxiv.org/abs/cond-mat/0501395v1

Physics

Condensed Matter

Other Condensed Matter

Contribution to the Workshop on Complexity, Metastability and Nonextensivity, Erice 2004

Scientific paper

This paper is a contribution to the Proceedings of the Workshop Complexity, Metastability and Nonextensivity held in Erice 20-26 July 2004, to be published by World Scientific. We propose a generalization to Merton's model for evaluating credit spreads. In his original work, a company's assets were assumed to follow a log-normal process. We introduce fat tails and skew into this model, along the same lines as in the option pricing model of Borland and Bouchaud (2004, Quantitative Finance 4) and illustrate the effects of each component. Preliminary empirical results indicate that this model fits well to empirically observed credit spreads with a parameterization that also matched observed stock return distributions and option prices.

Affiliated with

Also associated with

No associations

Rating

A Merton-Like Approach to Pricing Debt based on a non-Gaussian Asset Model does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with A Merton-Like Approach to Pricing Debt based on a non-Gaussian Asset Model, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and A Merton-Like Approach to Pricing Debt based on a non-Gaussian Asset Model will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-237914