A general method for valuing complex capital structures
Yaacov Kopeliovich and
Finance Research Letters, 2020, vol. 35, issue C
We develop a numerical method based on the Cox et al. (1979) binomial tree option valuation approach that can accommodate arbitrarily complex capital structures with varying debt maturities and seniorities, as well as preferred stock and warrants. The method provides straightforward valuation for common bond market features such as convertibility and prepayment options, as well as sinking fund provisions, that have proven challenging to model analytically.
Keywords: Capital structure; Binomial trees; Derivatives pricing (search for similar items in EconPapers)
JEL-codes: G12 G13 G32 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:35:y:2020:i:c:s1544612319303277
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