Showing 1 - 10 of 10
We develop a structural credit risk model to examine how the interactions of liquidity and default risk affect corporate bond pricing. By explicitly modeling debt rollover and by endogenizing the holding costs via collateralized financing, our model generates rich links between liquidity risk...
Persistent link: https://www.econbiz.de/10010969437
Entrepreneurs face significant non-diversifiable business risks. We build a dynamic incomplete markets model of entrepreneurial finance to demonstrate the important implications of nondiversifiable risks for entrepreneurs' interdependent consumption, portfolio allocation, financing, investment,...
Persistent link: https://www.econbiz.de/10005720323
This paper proposes a simple homogeneous dynamic model of investment and corporate risk management for a financially constrained firm. Following Froot, Scharfstein, and Stein (1993), we define a corporation's risk management as the coordination of investment and financing decisions. In our...
Persistent link: https://www.econbiz.de/10005830351
We analyze a model of optimal capital structure and liquidity choice based on a dynamic tradeoff theory for financially constrained firms. In addition to the classical tradeoff between the expected tax advantages of debt and bankruptcy costs, we introduce a cost of external financing for the...
Persistent link: https://www.econbiz.de/10010796667
We estimate a structural model of household liquidity management in the presence of long-term mortgages. Households face counter-cyclical idiosyncratic labor income uncertainty and borrowing constraints, which affect optimal choices of leverage, precautionary saving in liquid assets and illiquid...
Persistent link: https://www.econbiz.de/10010821795
Although the threat of rare economic disasters can have large effect on asset prices, difficulty in inference regarding both their likelihood and severity provides the potential for disagreements among investors. Such disagreements lead investors to insure each other against the types of...
Persistent link: https://www.econbiz.de/10008614656
I build a dynamic capital structure model that demonstrates how business-cycle variations in expected growth rates, economic uncertainty, and risk premia influence firms' financing and default policies. Countercyclical fluctuations in risk prices, default probabilities, and default losses arise...
Persistent link: https://www.econbiz.de/10008615795
Nonlinearity is an important consideration in many problems of finance and economics, such as pricing securities, computing equilibrium, and conducting structural estimations. We extend the transform analysis in Duffie, Pan, and Singleton (2000) by providing analytical treatment of a general...
Persistent link: https://www.econbiz.de/10008876853
Firms face uncertain financing conditions and are exposed to the risk of a sudden rise in financing costs during financial crises. We develop a tractable model of dynamic corporate financial management (cash accumulation, investment, equity issuance, risk management, and payout policies) for a...
Persistent link: https://www.econbiz.de/10008839449
We build a dynamic capital structure model to study the link between firms' systematic risk exposures and their time-varying debt maturity choices, as well as its implications for the term structure of credit spreads. Compared to short-term debt, long-term debt helps reduce rollover risks, but...
Persistent link: https://www.econbiz.de/10010569815