Quasi-Maximum Likelihood for Estimating Structural Models

Ben-Abdellatif Malek (), Ben-Ameur Hatem (), Chérif Rim () and Fakhfakh Tarek
Additional contact information
Ben-Abdellatif Malek: Department of Finance, School of Business, 199311 ESLSCA University , Giza 12511, Egypt
Ben-Ameur Hatem: Department of Decision Sciences, HEC Montréal, Montréal H3T 2A7, Canada
Chérif Rim: Department of Management, School of Business, The American University of Cairo, New Cairo 11835, Egypt
Fakhfakh Tarek: Faculty of Economics and Management, University of Sfax, Road of the Airport 4, 3018, Sfax, Tunisia

Studies in Nonlinear Dynamics & Econometrics, 2025, vol. 29, issue 4, 437-446

Abstract: The estimation of the structural model poses a major challenge because its underlying asset (the firm asset value) is not directly observable. We consider an extended structural model that accommodates alternative underlying Markov processes, arbitrary debt payment schedules, several seniority classes, multiple intangible assets, and various intangible corporate securities. We derive the likelihood function given the observed time series of the firm equity values. Then, we use dynamic programming to solve the model and, simultaneously, extract the associated time series of the firm asset values (the pseudo-observations). Finally, the likelihood function is approximated and optimized, which results in the quasi-maximum likelihood (QML) estimates of the model’s unknown parameters. QML is highly flexible and effective. To assess our construction, we perform an empirical investigation, highlight the credit-spread puzzle, and discuss a partial remedy via jumps and bankruptcy costs.

Keywords: structural model; estimation; quasi-maximum likelihood; jump-diffusion processes; credit-spread puzzle (search for similar items in EconPapers)
JEL-codes: C13 C51 C61 C63 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/snde-2023-0052 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

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:bpj:sndecm:v:29:y:2025:i:4:p:437-446:n:1001

Ordering information: This journal article can be ordered from
https://www.degruyte ... ournal/key/snde/html

DOI: 10.1515/snde-2023-0052

Access Statistics for this article

Studies in Nonlinear Dynamics & Econometrics is currently edited by Bruce Mizrach

More articles in Studies in Nonlinear Dynamics & Econometrics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().