FIN546 Structural models of credit risk

• Topics

  The course is a primer in the classical continuous asset pricing theory applied to pricing of credit risk and choice of capital structure. Structural models jointly address valuation of corporate securities and choice of financial structure. We cover the optimal (static) model capital strucure model including extensions as choice of debt maturity, several debt classes, creditor renogiations, and asymmetric and/or noisy information. We also cover the dynamic model where debt positions can be changed throughout time. Some recent/new applications are also included.

• Learning outcome

  Upon course completion, the candidate can:

  Knowledge

  • Discuss and summarize the current research frontier of the continuous time credit risk and capital structure theory.

  Skills

  • Formulate problems, plan and carry out research within the above mentioned topics.

  General competence

  • Communicate and discuss research with a peer audience.
  • Do independent research on the topics of this course.

• Teaching

  Plenary lectures. 6 lectures of 3 hours.

• Restricted access

  • PhD candidates at NHH.
  • PhD candidates at Norwegian institutions.
  • PhD candidates at other institutions.
  • PhD candidates from the ENGAGE.EU alliance.
  • Motivated master student’s may be admitted after application but are subject to the approval from the course responsible on a case by case basis.

• Recommended prerequisites

  Basic knowledge of asset pricing.

• Compulsory Activity

  Class participation.

  Compulsory activities (work requirements) are valid for one semester after the semester they were obtained.

• Assessment

  One group exercise (100%).

  Re-take is offered the semester after the course was offered for students with valid compulsory activities (work requirements).

• Grading Scale

  Pass-fail

• Computer tools

  Models are implemented in R and/or Maple.

• Literature

  The basics: Duffie, Dynamic Asset Pricing, Ch 5/Ch 11 Black/Scholes (1973) Merton (1973) Merton (1974) Duffie/Lando (2001) Leland (1994) Goldstein, Ju, Leland (2001) Extensions: Debt maturity: Leland/Toft 1998 Dynamic capital structure: Christensen, Floor, Lando, Miltersen (2014) Renegotiations (TBA) Asymmetric information:Duffie/Lando 2001, Lindset, Lund, Persson (2014)

  Banking: Dermine/Lajerie (2001), Atreya, Mjøs, Persson (2019), Nagel,Purnanandam (2019)

  More than one debt class: Lindset, Nygaard, Persson (2019)

  (reading list will be updated)