Page 171 - AFM Integrated Workbook STUDENT S18-J19
P. 171
Option pricing
4.2 Debt valuation
The BSOP model can also be used in debt valuation.
The value of a (risky) bond issued by a company can be calculated as
the value of an equivalent risk-free bond minus the value of a put-option
over the company's assets.
Therefore, if the value of equity has already been calculated as a call
option over the company's assets (as explained above), the value of
debt can then be calculated using the put-call parity equation.
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