This thinking links to how corporate debt has being valued theoretically, starting with the work of Merton [1], by looking at debt as an option with non-linear

This thinking links to how corporate debt has being valued theoretically, starting with the work of Merton [1], by looking at debt as an option with non-linear payoff. The borrower can put the busted assets to the lender. In practice there are countless important complications that make a naive option theoretic analysis very incomplete, e.g., getting into debt makes a lot of sense if you can count on a bailout if things go pear shaped. [1] https://en.m.wikipedia.org/wiki/Merton_model https://en.m.wikipedia.org/wiki/Merton_model