Corporate bond prices and co-ordination failure

Max Bruche

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: It has been suggested (Morris, Shin 2001) that co-ordination failure between holders of debt can affect the price of debt. In essence, fear of premature foreclosure by other debtors can lead to preemptive action, affecting the value of debt. Using a continuous-time framework related to a Merton (1974)-type structural model, this paper demonstrates how such co-ordination failures can affect the prices of corporate bonds. As it turns out, the resulting model is version of a structural model that allows default before maturity, a model feature that has proven to be popular with practitioners.

JEL-codes: G30 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2003-01-31
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Citations: View citations in EconPapers (1)

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