Author:
Palmowski Zbigniew,Pérez José Luis,Surya Budhi Arta,Yamazaki Kazutoshi
Abstract
AbstractThis paper revisits the optimal capital structure model with endogenous bankruptcy, first studied by Leland (J. Finance 49:1213–1252, 1994) and Leland and Toft (J. Finance 51:987–1019, 1996). Unlike in the standard case where shareholders continuously observe the asset value and bankruptcy is executed instantaneously without delay, the information of the asset value is assumed to be updated periodically at the jump times of an independent Poisson process. Under a spectrally negative Lévy model, we obtain the optimal bankruptcy strategy and the corresponding capital structure. A series of numerical studies provide an analysis of the sensitivity, with respect to the observation frequency, of the optimal strategies, optimal leverage and credit spreads.
Publisher
Springer Science and Business Media LLC
Subject
Statistics, Probability and Uncertainty,Finance,Statistics and Probability
Cited by
11 articles.
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