Integrated Equity and Credit Valuation

Predict, Not Extrapolate.

This report presents an integrated framework of credit and equity valuation using Modtris core action-based corporate model and intelligent Monte-Carlo simulation. Debt and equity are both part of a company’s balance sheet structure, and their valuation should be the outcome of one single algorithm that projects the future corporate balance sheet. There has been past effort of such integrated valuation, notably the option-based approach of Merton. The limitation of that approach is that debt is treated as static and asset changes independently. In reality, debt and asset interact strongly with each other and all other items on the balance sheet. A fundamentally driven model must model the entire balance sheet as a whole.

Integrated Equity and Credit Valuation (50 downloads)

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