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| Author: | Uhrig-Homburg, M. |
| Title: | Valuation of Defaultable Claims - A Survey |
| Journal: | Schmalenbach Business Review
2002 : JAN, VOL. 54:1, p. 24-57 |
| Index terms: | PRICING MODELS SURVEYS ANALYTICAL REVIEW |
| Language: | eng |
| Abstract: | The literature on default-claim pricing falls into three categories. Building on the classical Merton model, the structural approach models the dynamics of the asset value and assumes that default is triggered when the equity value reaches an exogenous asset level. In a second class of structural models, the firm itself derives a default boundary endogenously. Finally, in the reduced- form approach default occurs according to an exogenous hazard rate process. In this paper the author surveys the default-claim literature. The author provides a general valuation framework for default-claim pricing. The author then gives an example designed to clarify the main difference between the structural and the reduced-form approach. |
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