The Geske model generalizes the Merton model to allow for
A) Coupon debt.
B) Jumps in the firm value process.
C) Non-normality in the firm value process.
D) Perpetual convertible preferred shares.

Question

Quizplus · Accepted Answer

The Geske model generalizes the Merton model by allowing for coupon debt, which means it can model firms with debt that pays periodic interest, unlike the Merton model that primarily deals with zero-coupon or bullet debt.

The Geske Model Generalizes the Merton Model to Allow for