Abstract
Deviations from absolute priority are simply the result of more accurate valuations of creditor interests. This paper argues that unsecured claims against a company in Chapter 11 are comprised of call options on the company’s assets. To the extent this is true, option-pricing formulas provide an explanation for the deviations from absolute priority in bankruptcy resolutions. These deviations are simply the difference between the nominal value of a claimant’s interest and the value of that claimant’s interest as determined by an option-based pricing analysis.