Research Article
Bond Rating Prediction Using the Option Approach
Hankuk University of Foreign Studies
Published: January 1989 · Vol. 19, No. 1 · pp. 89-112
Full Text
Abstract
Bond ratings should be evaluated based on the insolvency risk of the issuing firm, and the degree of insolvency risk can be objectively measured using option models. This study proposes an option approach as a new attempt at bond rating prediction and empirically analyzes its predictive power. The results indicate that the option approach demonstrates predictive reliability comparable to that of the conventional rating prediction method based on financial ratios, thereby suggesting the applicability of option models to bond evaluation.
