@article{9f75edc1c06f46d1a0f8dd3cc310560a,
title = "Performance and determinants of the Merton structural model: Evidence from hedging coefficients",
abstract = "We empirically test the effectiveness of the Merton (1974) model in measuring the sensitivity of corporate bond returns to changes in equity value. We study the main variables that affect the performance of the model and relax the assumption of normally distributed rates of return. Results show that less than 6% of the bonds have a hedge ratio within 10% from the model predicted value. Volatility, time to maturity, size, distress, liquidity and information quality are found to be significant determinants of the efficacy of the model.",
keywords = "Corporate bond spreads, Credit risk, Distress, Hedge ratios, Normal Inverse Gaussian, Spread sensitivity, Variance Gamma",
author = "Flavia Barsotti and Viva, {Luca Del}",
note = "Funding Information: We are grateful for comments and suggestions to Carlo Bianchi, Stephen Schaefer, Ilya Strebulaev, Lenos Trigeorgis, the participants of the EFMA 2012 annual meeting, the C.R.E.D.I.T. 2009 meeting in Venice, the 2010 International Risk Management Conference in Florence and the seminar participants at the ESADE Business School. For their financial support, Luca Del Viva would like to thank the Spanish Ministry of Education and Science (ECO2011–24928) and Banco Sabadell. Any error is only the authors{\textquoteright} responsibility. Publisher Copyright: {\textcopyright} 2015 Elsevier B.V..",
year = "2015",
month = sep,
day = "1",
doi = "10.1016/j.jbankfin.2015.04.007",
language = "English",
volume = "58",
pages = "95--111",
journal = "Journal of Banking and Finance",
issn = "0378-4266",
publisher = "Elsevier",
}