Journal of Financial Economics Vol. 9 No. 3 1981
Risky debt, jump processes, and safety covenants
open access
Abstract
The usual assumptions in the continuous-time contingent claims pricing of risky debt are (1) the firm is in default only when the value of its remaining assets falls short of the currently due promised payment and (2) the firm value follows continuous diffusion-process dynamics. It is the joint relaxation of these two simplifying assumptions that motivate this paper in its study of the valuation of risky debt and safety covenants when the firm value follows (possibly) discontinuous sample paths. Explicit solutions are derived and compared to the work of Black and Cox (1976).
- DOI
- 10.1016/0304-405x(81)90030-1
- Volume
- 9
- Issue
- 3
- Pages
- 281-307
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref