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World Scientific Reference On Contingent Claims Analysis In Corporate Finance (In 4 Volumes) (Hardcover)
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World Scientific Reference On Contingent Claims Analysis In Corporate Finance (In 4 Volumes) (Hardcover)
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Black and Scholes (1973) and Merton (1973, 1974) (hereafter
referred to as BSM) introduced the contingent claim approach (CCA)
to the valuation of corporate debt and equity. The BSM modeling
framework is also named the 'structural' approach to risky debt
valuation. The CCA considers all stakeholders of the corporation as
holding contingent claims on the assets of the corporation. Each
claim holder has different priorities, maturities and conditions
for payouts. It is based on the principle that all the assets
belong to all the liability holders.The BSM modeling framework
gives the basic fundamental version of the structural model where
default is assumed to occur when the net asset value of the firm at
the maturity of the pure-discount debt becomes negative, i.e.,
market value of the assets of the firm falls below the face value
of the firm's liabilities. In a regime of limited liability, the
shareholders of the firm have the option to default on the firm's
debt. Equity can be viewed as a European call option on the firm's
assets with a strike price equal to the face value of the firm's
debt. Actually, CCA can be used to value all the components of the
firm's liabilities, equity, warrants, debt, contingent convertible
debt, guarantees, etc.In the four volumes we present the major
academic research on CCA in corporate finance starting from 1973,
with seminal papers of Black and Scholes (1973) and Merton (1973,
1974). Volume I covers the foundation of CCA and contributions on
equity valuation. Volume II focuses on corporate debt valuation and
the capital structure of the firm. Volume III presents empirical
evidence on the valuation of debt instruments as well as
applications of the CCA to various financial arrangements. The
papers in Volume IV show how to apply the CCA to analyze sovereign
credit risk, contingent convertible bonds (CoCos), deposit
insurance and loan guarantees. Volume 1: Foundations of CCA and
Equity ValuationVolume 1 presents the seminal papers of Black and
Scholes (1973) and Merton (1973, 1974). This volume also includes
papers that specifically price equity as a call option on the
corporation. It introduces warrants, convertible bonds and taxation
as contingent claims on the corporation. It highlights the strong
relationship between the CCA and the Modigliani-Miller (M&M)
Theorems, and the relation to the Capital Assets Pricing Model
(CAPM). Volume 2: Corporate Debt Valuation with CCAVolume 2
concentrates on corporate bond valuation by introducing various
types of bonds with different covenants as well as introducing
various conditions that trigger default. While empirical evidence
indicates that the simple Merton's model underestimates the credit
spreads, additional risk factors like jumps can be used to resolve
it. Volume 3: Empirical Testing and Applications of CCAVolume 3
includes papers that look at issues in corporate finance that can
be explained with the CCA approach. These issues include the effect
of dividend policy on the valuation of debt and equity, the pricing
of employee stock options and many other issues of corporate
governance. Volume 4: Contingent Claims Approach for Banks and
Sovereign DebtVolume 4 focuses on the application of the contingent
claim approach to banks and other financial intermediaries.
Regulation of the banking industry led to the creation of new
financial securities (e.g., CoCos) and new types of stakeholders
(e.g., deposit insurers).
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