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Credit Risk, Capital Structure and the Pricing of Equity Options

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Credit Risk, Capital Structure and the Pricing of Equity Options [Paperback]

Michael Hanke (Author), M. Hanke (Author)

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Book Description

ISBN-10: 321100520X | ISBN-13: 978-3211005200 | Publication Date: May 15, 2003 | Edition: 1

This book is on option pricing in firm-value-based ("structural ) credit risk models. Using modern techniques (change of numeraire) instead of directly solving partial differential equations (the main approach in the literature), closed-form pricing formulae for options on equity can be derived for a range of well-known models from this class. A common feature of these models is the assumption of an exogenously given firm value process, which leads to an endogenous equity (stock) price process. The stock price process depends directly on the firm s capital structure. This allows us not only to study credit risk effects in option prices, but also to investigate option price changes resulting from changes in a firm s capital structure. Numerical results illustrate the implications of our models. Numerous figures and tables allow for an easy comparison of various structural credit risk models.

#outer_postBodyPS { display: none; } #psGradient { display: none; } #psPlaceHolder { display: none; } #psExpand { display: none; } This book is on option pricing in firm-value-based ("structural ) credit risk models. Using modern techniques (change of numeraire) instead of directly solving partial differential equations (the main approach in the literature), closed-form pricing formulae for options on equity can be derived for a range of well-known models from this class. A common feature of these models is the assumption of an exogenously given firm value process, which leads to an endogenous equity (stock) price process. The stock price process depends directly on the firm s capital structure. This allows us not only to study credit risk effects in option prices, but also to investigate option price changes resulting from changes in a firm s capital structure. Numerical results illustrate the implications of our models. Numerous figures and tables allow for an easy comparison of various structural credit risk models.

Product Details

Paperback: 224 pages
Publisher: Springer Vienna Architecture; 1 edition (May 15, 2003)
Language: English
ISBN-10: 321100520X
ISBN-13: 978-3211005200
Product Dimensions: 9.3 x 6.5 x 0.6 inches
Shipping Weight: 12.8 ounces

Average Customer Review: 5.0 out of 5 stars See all reviews (1 customer review)

Amazon Best Sellers Rank: #4,262,424 in Books (See Top 100 in Books)

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5.0 out of 5 stars Self-contained, concise, to the point, September 3, 2003

Konstanze (New York City) - See all my reviews

This review is from: Credit Risk, Capital Structure and the Pricing of Equity Options (Paperback)

For a graduate student in finance with an interest in derivatives, this is an excellent introduction to
* structural credit risk models (starting from Merton 1974, guiding the reader to very recent models)
* change of numeraire techniques
* the extension of structural credit models for option valuation.

Although - at first sight - it seems to be very technical, this is definitely the most accessible book in this area I have ever seen!

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