Optimal default and liquidation with tangible assets and debt renegotiation

Review of Financial Economics - Tập 27 - Trang 16-27 - 2015
Makoto Goto1, Teruyoshi Suzuki1
1Graduate School of Economics and Business Administration, Hokkaido University, Kita 9, Nishi 7, Kita-ku, Sapporo 060-0809, Japan

Tóm tắt

AbstractWe propose a pricing model for corporate securities issued by a levered firm with the possibility of debt renegotiation, where the firm's earnings follow a geometric Brownian motion with stochastic collaterals. While equity holders can default the firm when the earnings become insufficient, they may liquidate it by repaying the face value of debt when the value of collaterals becomes sufficiently high. Unlike the existing models, the bivariate structure enables us to distinguish strategic default, liquidity default and ordinary liquidation, which makes the contribution of strategic debt service to credit spreads lower than that obtained in the previous models.

Tài liệu tham khảo

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Review of Financial Economics

Tập 27

16-27

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