Equity expectations of bond issuing using the variance gamma model

Investments in bonds offer a relatively stable growth rate and lower risks compared to other investment options.However, it is important to consider the risks involved, particularly credit risk.To assess credit risk, bond price valuation is necessary.This process aims to determine a company's ability to meet its debt payment obligations.A crucial factor in bond valuation is the value of equity.Currently, the geometric Brownian motion (GBM) model is used to develop equity expectations in bond valuations.The GBM model assumes ln returns of assets follow Normal distribution.Another model approach was used in this study, namely the Variance Gamma (VG) model.The Variance Gamma distribution is a non-Gaussian distribution that has three parameters.The three parameters are used to control volatility, kurtosis, and skewness.