Question
in structural model, company equity is similar to a call option on the company's assets with a strike price equal to the payoff value
in structural model, company equity is similar to a call option on the company's assets with a strike price equal to the payoff value of the debt. Assume that you know the following about a company: Current asset value 705 (millions) Expected return on 3.7 assets Risk free rate 1.9 Face value of debt 586 (millions) Time to debt 4 maturity Asset return 0.3 volatility (stdev) Using the option pricing model, what is the probability of default over the debt's time to maturity? Enter answer in percents.
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Fixed Income Analysis
Authors: Barbara S. Petitt
5th Edition
1119850541, 978-1119850540
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