Skip Navigation

This Article
Right arrow Full Text (PDF)
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Similar articles in ISI Web of Science
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrow Search for citing articles in:
ISI Web of Science (15)
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Acharya, V. V.
Right arrow Articles by Carpenter, J. N.
Right arrow Search for Related Content
Related Collections
Right arrow G12 - Asset Pricing; Trading volume; Bond Interest Rates
Right arrow G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Right arrow G33 - Bankruptcy; Liquidation
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

Rev Fin 2002; 15:1355-1383
© 2002 the Society for Financial Studies

Corporate Bond Valuation and Hedging with Stochastic Interest Rates and Endogenous Bankruptcy

Viral V. Acharya
London Business School

Jennifer N. Carpenter
New York University

Address correspondence to Jennifer N. Carpenter, Stern School of Business, New York University, 44 W. 4th Street, Suite 9-190, New York, NY 10012, or e-mail: jcarpen0{at}stern.nyu.edu..

Abstract

This paper analyzes corporate bond valuation and optimal call and default rules when interest rates and firm value are stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate bond sensitivity to interest rates and firm value. Although endogenous and exogenous bankruptcy models can be calibrated to produce the same prices, they can have very different hedging implications. We show that empirical results on the relation between corporate spreads and Treasury rates provide evidence on duration, and we find that the endogenous model explains the empirical patterns better than do typical exogenous models.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 REV FINANC STUDHome page
L. Chen, P. Collin-Dufresne, and R. S. Goldstein
On the Relation Between the Credit Spread Puzzle and the Equity Premium Puzzle
Rev. Financ. Stud., September 1, 2009; 22(9): 3367 - 3409.
[Abstract] [Full Text] [PDF]

Home page
 JOURNAL OF FINANCIAL ECONOMETRICSHome page
P. Carr and L. Wu
Stock Options and Credit Default Swaps: A Joint Framework for Valuation and Estimation
J. Financial Econometrics, July 21, 2009; (2009) nbp010v1.
[Abstract] [Full Text] [PDF]

Home page
 REV FINANC STUDHome page
D. T. Brown, B. A. Ciochetti, and T. J. Riddiough
Theory and Evidence on the Resolution of Financial Distress
Rev. Financ. Stud., December 1, 2006; 19(4): 1357 - 1397.
[Abstract] [Full Text] [PDF]

Home page
 REV FINANC STUDHome page
Y. H. Eom, J. Helwege, and J.-Z. Huang
Structural Models of Corporate Bond Pricing: An Empirical Analysis
Rev. Financ. Stud., April 1, 2004; 17(2): 499 - 544.
[Abstract] [Full Text] [PDF]


Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.