Pricing risky corporate bonds: An empirical study
This paper empirically studies a model for pricing risky corporate bonds proposed by Baaquie—based on the seminal Merton. The proposed model provides an exact solution for the price of a risky corporate bond with a finite maturity and explains the market price of corporate fixed coupon bonds as bein...
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| Veröffentlicht in: | The journal of futures markets 2023-01, Vol.43 (1), p.90-121 |
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| container_title | The journal of futures markets |
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| creator | Baaquie, Belal Ehsan Karim, Muhammad Mahmudul |
| description | This paper empirically studies a model for pricing risky corporate bonds proposed by Baaquie—based on the seminal Merton. The proposed model provides an exact solution for the price of a risky corporate bond with a finite maturity and explains the market price of corporate fixed coupon bonds as being the result of the market risk that is carried by the bond. Baaquie's model is empirically tested using 42 fixed coupon bonds issued by 23 US corporations, between 2011 and 2017. It is found that the proposed model estimates most bond prices quite accurately. Market time (similar to the concept of psychological time), which is distinct from calendar time, is quantified in the paper and is an exogenous behavioral parameter that plays a pivotal role in improving the accuracy of the pricing model for long‐maturity risky bonds. |
| doi_str_mv | 10.1002/fut.22379 |
| format | Article |
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| ispartof | The journal of futures markets, 2023-01, Vol.43 (1), p.90-121 |
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| language | eng |
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| source | Wiley Online Library Journals Frontfile Complete; EBSCOhost Business Source Complete |
| subjects | corporate bond Corporate bonds firm value market time Maturity Merton Prices risky bond price volatility of firm |
| title | Pricing risky corporate bonds: An empirical study |
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