Valuing Corporate Securities: Some Effects of Bond Indenture Provisions

Black, Fischer; Cox, John C.

doi:10.1111/j.1540-6261.1976.tb01891.x

Cited by 1,836 publications

(1,038 citation statements)

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“…Thus, when the coefficient β 2 is chosen on some small level, for example β 2 = 0.7, greater A decreases D (1) . Contrary to D (1) , greater A decreases D (2) and D (3) . These payoffs to the bondholders at the default time are always less than A.…”

Section: Numerical Examplesmentioning

confidence: 70%

“…This is nothing but the first-passage-time model of Black & Cox [2], except for the default boundary. In this case, the payoff to the bondholder at maturity is…”

Section: Example 31mentioning

confidence: 99%

“…Black & Cox [2] proposed a more realistic model by allowing premature default. In their model, the default occurs when the firm value crosses some non-constant barrier.…”

Section: Introductionmentioning

confidence: 99%

“…The conditions for default considered here are the same as (part of) Black & Cox [2] and Fujita & Ishizaka [7]. But, contrary to Fujita-Ishizaka model, we consider that the payoff to the bondholder at time of default, provided that default occurs prior to maturity, depends on the firm value at time of default.…”

Section: Introductionmentioning

confidence: 99%

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On the Pricing of Defaultable Bonds Using the Framework of Barrier Options

Ishizaka

Takaoka

2003

Asia-Pacific Finan Markets

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In the framework of the structural approach of bond pricing, we extend the Fujita-Ishizaka model by considering more realistic payoffs. The payoff to the bondholder at time of default, provided that default occurs prior to maturity, depends on the firm value at time of default. We also find the new measure with the advantage to calculate the value of bond and its financial interpretation. In addition, we present some numerical exmaples.

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Section: Numerical Examplesmentioning

confidence: 70%

“…This is nothing but the first-passage-time model of Black & Cox [2], except for the default boundary. In this case, the payoff to the bondholder at maturity is…”

Section: Example 31mentioning

confidence: 99%

“…Black & Cox [2] proposed a more realistic model by allowing premature default. In their model, the default occurs when the firm value crosses some non-constant barrier.…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

On the Pricing of Defaultable Bonds Using the Framework of Barrier Options

Ishizaka

Takaoka

2003

Asia-Pacific Finan Markets

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“…One fruitful approach has been provided by the contingent claims analysis, pioneered by Merton (1974), Black & Cox (1976), Brennan & Schwartz (1978) and Leland (1994). A recent contribution in this strand of literature has been provided by Goldstein et al (2001), who take the EBIT-value of a firm to be the relevant state variable, upon which contingent claims can be valued.…”

Section: Introductionmentioning

confidence: 99%

Informational Asymmetry Between Managers and Investors in the Optimal Capital Structure Decision

Bank

Lawrenz

2005

SSRN Journal

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In this article, we consider the impact of asymmetric information between managers and investors on the optimal capital structure decision. This is done within a continuous-time framework, where the relevant state variable is given by the EBIT value of the firm; an approach taken by (2004) amongst others. Our setup differs in that we assume the EBIT to follow an Arithmetic Brownian motion, i.e. it can assume negative values. More importantly, we extend this framework in two directions: (i) We introduce a separate management claim. (ii) We introduce asymmetric information between managers and investors by assuming that claimants receive noisy signals, which they process according to rational expectation principles.Our results show, that managers always try to avoid debt, and that their optimal bankruptcy threshold is always lower, than the threshold set by equity holders. The introduction of asymmetric information changes the optimality conditions, and consequently the capital structure decision. It is shown, that the informational asymmetry can substantially lower the optimal leverage ratio, even without assuming that managers are entrenched.

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