Effects of Positive Jumps of Assets on Endogenous Bankruptcy and Optimal Capital Structure: Continuous- and Periodic-Observation Models
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Publication:5162845
Abstract: In this paper, we study the optimal capital structure model with endogenous bankruptcy when the firm's asset value follows an exponential L'evy process with positive jumps. In the Leland-Toft framework cite{LelandToft96}, we obtain the optimal bankruptcy barrier in the classical continuous-observation model and the periodic-observation model, recently studied by Palmowski et al. cite{palmowski2019leland}. We further consider the two-stage optimization problem of obtaining the optimal capital structure. Detailed numerical experiments are conducted to study the sensitivity of the firm's decision-making with respect to the observation frequency and positive jumps of the asset value.
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Cited in
(10)- Time‐average stochastic control based on a singular local Lévy model for environmental project planning under habit formation
- Optimal capital structure and simultaneous bankruptcy of firms in corporate networks
- Modelling the duration of firms in Chapter 11 bankruptcy using a flexible model
- Optimal Stopping for Exponential Lévy Models with Weighted Discounting
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