Pricing Corporate Securities as Contingent Claims
Kenneth D. Garbade
In 1973, Fischer Black, Myron Scholes, and Robert Merton pointed out that                  securities issued by a corporation can be priced as claims whose values are                  contingent on the value of the enterprise as a whole. The notion of treating                  corporate securities as contingent claims is intrinsically important, but it is also                  important because it integrates a variety of otherwise loosely related topics,                  including equity risk, credit risk, seniority and subordination, early redemption of                  callable debt, and conversion of convertible debt.Bringing together developments                  from the past thirty years in contingent valuation, this book examines the relative                  value of securities in a corporation's capital structure, including debt of                  different priorities, convertible debt, common stock, and warrants. The book                  emphasizes the importance of accounting for the institutional characteristics of                  default, bankruptcy, and voluntary recapitalization of a financially distressed                  firm, as well as the exercise of managerial discretion in calling debt for early                  redemption, servicing debt, paying dividends to common shareholders, and undertaking                  strategic actions such as leveraged recapitalizations and spin-offs.