• norsk
    • English
  • English 
    • norsk
    • English
  • Login
View Item 
  •   Home
  • Handelshøyskolen BI
  • Student papers
  • Master of Science
  • View Item
  •   Home
  • Handelshøyskolen BI
  • Student papers
  • Master of Science
  • View Item
JavaScript is disabled for your browser. Some features of this site may not work without it.

An extension of the Merton model : The effect of including the cost of operating leverage

Rogstad, Eirik Westvig; Berhane, Musse Tewelde
Master thesis
Thumbnail
View/Open
1750544.pdf (2.089Mb)
URI
http://hdl.handle.net/11250/2488922
Date
2017
Metadata
Show full item record
Collections
  • Master of Science [1116]
Abstract
We ask whether the Merton’s structural model of credit risk is improved by

including the cost of operating leverage. We test this by extending the Merton

model and testing whether the estimated credit spread is closer to the observed

credit spread before or after the extension. We present two different extensions

where the difference is the assumption of seniority of the costs of operating

leverage. In the first we assume that the costs have the highest seniority, while in

the other, the costs rank pari passu with interests and dividends. We find that both

models improve the model slightly. Therefore, we conclude that our findings are a

small step in finding the complete model for estimating credit spreads.

Keywords: Merton model, Operating leverage, Credit spread puzzle, Default

probabilities
Description
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2017
Publisher
BI Norwegian Business School

Contact Us | Send Feedback

Privacy policy
DSpace software copyright © 2002-2019  DuraSpace

Service from  Unit
 

 

Browse

ArchiveCommunities & CollectionsBy Issue DateAuthorsTitlesSubjectsDocument TypesJournalsThis CollectionBy Issue DateAuthorsTitlesSubjectsDocument TypesJournals

My Account

Login

Statistics

View Usage Statistics

Contact Us | Send Feedback

Privacy policy
DSpace software copyright © 2002-2019  DuraSpace

Service from  Unit