Corporate valuations and the merton model

Andrea Gheno

No 55, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: In recent years both practitioners and academics have realised that traditional discounted cash flow models erroneously consider the option value embedded in firms. Hence equity and debt valuation methodologies based on option theory have recently become quite popular. Such methodologies take inspiration from the Merton (1974) model which was originally introduced to measure the impact of default risk on corporate bonds yields. Thirty years later the Merton model for its simplicity and rigour remains unrivalled and is the basis of some of the most sophisticated credit risk models. In this paper it will be shown how practitioners often improperly adapt the Merton model for aims beyond its original scope.

Keywords: Merton model; option pricing; default risk; corporate bond. (search for similar items in EconPapers)
JEL-codes: G13 G33 (search for similar items in EconPapers)
Pages: 17
Date: 2005-12
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://host.uniroma3.it/dipartimenti/economia/pdf/wp55.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0055

Access Statistics for this paper

More papers in Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre Via Silvio d'Amico 77, - 00145 Rome Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Telephone for information ().