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A Structural Model with Jump Diffusion Processes

Dao, Thi Thanh Binh (2003), A Structural Model with Jump Diffusion Processes, AFFI (Association Française de Finance), 2003-12, Paris, France

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Type
Communication / Conférence
Date
2003
Conference title
AFFI (Association Française de Finance)
Conference date
2003-12
Conference city
Paris
Conference country
France
Metadata
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Author(s)
Dao, Thi Thanh Binh
Abstract (EN)
In this paper, we extend the framework of Leland’s 94 by examining corporate debt, equity and firm values with jump difffusion processes. We choose two kinds of jumps such as the uniform and double exponential jumps to modelise the distribution of the log jump sizes. By this choice, we are able to derive closed-form results in both models for equity, debt and firm values. Our results have the same forms as those of Leland’s 94. However, in both our models, the spreads are modified significantly in comparison with those of Leland due to jumps’ assumption.
Subjects / Keywords
Equity debt; Corporate debt; Leland
JEL
G3 - Corporate Finance and Governance