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NATIONAL BUREAU OF ECONOMIC RESEARCH

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NBER Working Papers and Publications

June 1983Contingent Claims Valuation of Corporate Liabilities: Theory and Empirical Tests
with E. Philip Jones, Scott P. Mason: w1143
Although the Contingent Claims Analysis model has become the premier theory of how value is allocated among claimants on firms,its empirical validity remains an open question. In addition to being of academic interest, a test of the model would have significant practical implications. If it can be established that the model predicts actual market prices, then the model can be used to price new and untraded claims, to infer firm values from prices of traded claims like equity and to price covenants separately. In this paper evidence is presented on how well a model which makes the usual assumptions in the literature does in predicting market prices for claims in standard capital structures. The results suggest that the usual assumption list requires modification before it can serve as a bas...

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