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Dynamic Debt With Intensity‐Based Models

Year: 2025

Type: article

Abstract: ABSTRACT This article proposes a dynamic debt model where the face value of debt can change. In particular, our dynamic debt setting allows debt changes ruled by intensity processes that are linked to the firm value through the correlation between the stochastic processes. Analytical solutions are obtained, and we extend the proposed dynamic debt model to the case of subordinated debt. While empirical behaviors are emulated, the impacts of dynamic debt over the credit spreads are explored. In this model, the possibility of debt increases magnifies credit spreads and the reverse occurs for the possibility of debt decreases.

Source: Journal of Futures Markets

DOI: 10.1002/fut.70057

Authors: João Miguel Reis, José Carlos Dias

Institutions: Universidade Europeia, Unidade de Investigação em Desenvolvimento Empresarial, Iscte – Instituto Universitário de Lisboa

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,240

OpenAlex ID: W4415996467

FWCI:

Cites: 29

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