Abstrakt
Our contribution aims to provide an introduction to the theory of corporate asset pricing models and explain the potential of their usage in the design of credit contracts. We describe the evolution of structural models starting from the basic Mertonian framework through the introduction of a default barrier, and ending with stochastic interest rate environment.
Further, with the use of game theory analysis, the parameters of an optimal capital structure and safety covenants are examined. Furthermore an EBIT-based structural model is introduced that considers stochastic default barrier.
Such set-up is able to catch the different optimal capital structures in various business cycle periods, as well as bankruptcy decisions dependent on the state of the economy. The effects of an exogenous change in the risk-free interest rate on the asset value, probability of default, and optimal debt ratio are also explained.