Coupon Bonds and Liquidation Triggers: A Real Option Approach.

The time between the financial distress and the liquidation is referenced in prior work, but many structural models do not consider this gap. In this document, I implement a real option model in which liquidation starts only if a time variable exceed a pre-defined grace period. Simultaneously, I introduce coupon bonds and liquidation cost in order to have a more realistic model and I use parameters' value equal to those found in literature (no calibration). Then, I compare cumulative default probabilities, recovery rate and yield spread computed through my approach with those empirically found, in order to understand the reliability of the model.