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Valuing Risky Debt
This lesson develops the classical structural approach to pricing and hedging credit risk: Merton's (1974) contingent claims model of debt and equity claims. This model is used to make investment and risk management decisions in an over-the-counter (OTC) market for distressed bonds.
Keywords: Borrowing and Debt;
Coval, Joshua, and Erik Stafford. "Valuing Risky Debt". Harvard Business School Background Note 208-111, January 2008.