NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Scott P. Mason

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NBER Working Papers and Publications

1986Valuing Financial Flexibility
in Financing Corporate Capital Formation, Benjamin M. Friedman, editor
December 1984Valuing Financial Flexibility
w1522
Two facts that corporations, underwriters and investors have been forced to confront are increased capital market volatility and increased complexity in the design of securities. However, these two facts, increased volatility and increased complexity, are not unrelated. Virtually all of the complexity in securities can be viewed as the inclusion of different options in a straight debt contract. Given the fact that the value of options is driven most significantly by volatility, the advantage of including options, i.e. financial flexibility, in securities has increased with increased market volatility. This would appear to explain why corporate issuers and institutional investors have shown substantial interest in securities which improve their flexibility in volatile markets. Therefore, te...

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June 1983Contingent Claims Valuation of Corporate Liabilities: Theory and Empirical Tests
with E. Philip Jones, Eric Rosenfeld: 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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