The purpose of this paper mainly lies in the valuation of subordinated corporate bonds using a valuation model for bonds with safety covenants.
First of all, this paper briefly introduces valuation models for risky bonds or securities and shows problems we may encounter when we value subordinated bonds.
The later part of this paper mainly focuses on the valuation model for subordinated bonds which Fischer Black and John C. Cox suggested in their paper of " Valuing Corporate Securities: Some Effects of Bonds Indenture Provisions" . And this paper shows problems of this model and suggests an alternative method. Finally, this paper values subordinated bonds with this method.
