Contingent Claims Valuation of Corporate Liabilities: Theory and Empirical Tests

E. Philip Jones, Scott P. Mason and Eric Rosenfeld

No 1143, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Although the Contingent Claims Analysis model has become the premier theory of how value is allocated among claimants on firms,its empirical validity remains an open question. In addition to being of academic interest, a test of the model would have significant practical implications. If it can be established that the model predicts actual market prices, then the model can be used to price new and untraded claims, to infer firm values from prices of traded claims like equity and to price covenants separately. In this paper evidence is presented on how well a model which makes the usual assumptions in the literature does in predicting market prices for claims in standard capital structures. The results suggest that the usual assumption list requires modification before it can serve as a basis for valuing corporate claims.

Date: 1983-06
Note: ME
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Citations: View citations in EconPapers (8)

Published as Jones, Philip E., Scott P. Mason and Eric Rosenfeld. "Contingent Claims Valuation of Corporate Liabilities: Theory and Empirical Tests." Corporate Capital Structures in the United States, edited by Benjamin M. Friedman. Chicago: University of Chicago Press, (1985), pp. 239-261.
Published as Contingent Claims Valuation of Corporate Liabilities: Theory and Empirical Tests , E. Philip Jones, Scott P. Mason, Eric Rosenfeld. in Corporate Capital Structures in the United States , Friedman. 1985

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