Title page for 954208029


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Student Number 954208029
Author Chun-Chieh Yang(楊浚杰)
Author's Email Address ohmygodnew@gmail.com
Statistics This thesis had been viewed 1204 times. Download 610 times.
Department Finance
Year 2007
Semester 2
Degree Master
Type of Document Master's Thesis
Language English
Title A Lattice Approach for Pricing the Capital Structure with
Generalized Interest Rate Processes.
Date of Defense 2008-06-17
Page Count 59
Keyword
  • Correlation of processes.
  • Default risk
  • Muliti-Binomail
  • Abstract In the past research, Broadie and Kaya (2007), the authors have
    derived a lattice to price the capital structure under constant interest rates.
    But the pricing is determined by the states of debt, the randomness of interest
    rates should not be ignored. Accordingly, we extend the pricing model of
    capital structure to a model simultaneously considering stochastic interest
    rates and its correlation with asset value, following the past research, Hilliard
    et al. (1996). Finally, the contributions to our model are that we particularly
    take some important factors into consideration, including the default risk, the
    stochastic interest rates, and the asset value varied with market rates.
    Table of Content 中文摘要                         i
    Abstract                        iii
    誌謝                           iv
    1 Introduction                      1
    2 Methodology                       4
    2.1 Changing Variables . . . . . . . . .. . . . . . . . . 4
    2.2 Pricing Procedure . . . . . . . . . . . . . . . . . . 8
    3 Modeling the Capital Structure with Generalized Interest
    Rates                          10
    3.1 The Structure of Lattice . . . . . . . . . . . . . . 11
    3.2 The Capital Structure of Firm   . . . . . . . . . 13
    4 Numerical Results                   17
    4.1 Computation with the Hilliard et al. (1996) . . . . .18
    4.2 Computation with the Broadie and Kaya (2007) . . . . 22
    4.3 Results in Our Model . . . . . . . . . . . . . . . . 26
    5 Effects of Stochastic Interest Rates          30
    6 Conclusion                       39
    Appendices                        41
    A Verifying the Probability               41
    B Some Typo in Broadie and Kaya (2007)          42
    C The Value of Leland’s Closed-Form Solution      43
    Reference                        45
    Reference Boyle, Phelim P. (1988), “A lattice framework for option pricing with two
    state variables”, Journal of Financial and Quantitative Analysis, 23(1),
    1–12.
    Broadie, Mark, Chernov, Mikhail, and Sundaresan, Suresh (2007), “Optimal
    debt and equity values in the presence of chapter 7 and chapter 11”,
    Journal of Finance, 62, 1339–1375.
    Broadie, Mark and Kaya, Ozgur (2007), “A binomial lattice method for
    pricing corporate debt and modeling chapter 11 proceedings”, Journal of
    Financial and Quantitative Analysis, 42(2).
    Cox, John C., Ingersoll, Jonathan E., and Ross, Stephen A. (1985), “A theory
    of the term structure of interest rates”, Econometrica, 53(2).
    Cox, John C., Ross, Stephen A., and Rubinstein, Mark (1979), “Option
    pricing: A simplified approach”, Journal of Financial Economics, (3).
    Dixit, Avinash K. and Pindyck, Robert S. (1994),
    Investment Under Uncertainty, Princeton.
    Fran¸cois, Pascal and Morellec, Erwan (2004), “Capital structure and asset
    prices: Some effects of bankruptcy procedures”, Journal of Business, 77,
    387–441.
    Hilliard, Jimmy E., Schwartz, Adam L., and Tucker, Allan A. (1996), “Bivariate
    binomial options pricing with generalized interest rate processes”,
    Journal of Financial Research, XIX(4).
    Hull, John (2006), Option, Futures, And Other Derivatives, Pearson Education,
    6th edition.
    Hull, John and White, Alan (1994), “Numerical procedures for implementing
    term structure models i: Single factor models”, Journal of Derivatives, (3).
    Leland, Hayne E. (1994), “Corporate debt value, bond covenants, and optimal
    capital structure”, Journal of Finance, XLIX(4).
    Longstaff, Francis A. and Schwartz, Eduardo S. (2001), “Valuing american
    options by simulation: A simple least-squares approach”, Journal of Financial
    Studies, 14(1), 113–147.
    Merton, Robert C. (1973), “Theory of rational option pricing”, Bell Journal
    of Economics and Management Science, 141–183.
    Nelson, Daniel B. and Ramaswamy, Krishna (1990), “Simple binomial processes
    as diffusion approximation in financial models”, Review of Financal
    Studies.
    Vasicek, Oldrich (1977), “An equilibrium characterization of the term structure”,
    Journal of Financial Economics, 5, 177–188.
    46
    Advisor
  • Chuang-Chang Chang(張傳章)
  • Files
  • 954208029.pdf
  • approve immediately
    Date of Submission 2008-06-28

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