Additionally, i also recommend the following books. Merton that is used to assess the credit risk of a companys debt. The nonstationary structure of the debt that leads to the termination of operations on a. Continuous time finance which includes a few overview chapters and a collection of merton s classic articles. A conceptual framework for analyzing the financial system page 3 ways in which these activities are carried out, however, have changed quite a bit thr ough the ages. World scientific reference on contingent claims analysis in corporate finance.
Dumas and lucianos \the economics of continuous time finance kerry backs \asset pricing and portfolio choice theory. The merton model is only a starting point for studying credit risk, and is obviously far from realistic. It covers individual financial choice, corporate finance, financial intermediation, capital markets, and selected topics on the interface between private and public finance. An application of modern option pricing theory journal of banking and finance 1 june 1977.
Continuous states stock price can be anything between 0 and 1 and continuous time time goes continuously. It covers individual finance choice, corporate finance, financial intermediation, capital markets, and selected topics on the interface between private and public finance. Discrete states and discrete time the number of possible stock prices and time steps are both nite. The blackscholesmerton model as an idealization of. Geske 10 extended the merton model to the case of bonds of di. Merton s widelyused text provides an overview and synthesis of finance theory from the perspective of continuous time analysis.
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