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| Author: | Lesseig, V. Stock, D. |
| Title: | The effect of interest rates on the value of corporate assets and the risk of premia of corporate debt |
| Journal: | Review of Quantitative Finance and Accounting
1998 : JUL, VOL. 11:1, p. 5-22 |
| Index terms: | INTEREST RATES RISK DEBT |
| Language: | eng |
| Abstract: | A number of paper have applied option pricing techniques to the valuation of risky debt. This paper deals with how a firm's relationship to interest rates affects its debt. A sequential binomial model is used to price the zero-coupon bonds of a firm whose value is related to interest rate changes. The results show that the strength of the relationship between the firm value and interest rates (interest-rate risk) can have a significant impact on the value of a firm's debt. |
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