We study the impact of ambiguity on the pricing and timing of the option to invest. There is a funding gap to undertake the investment, which is covered by entering into an equity-for-guarantee swap (EGS). Our model predicts that the more ambiguity-averse the agents, the less the option value,...

We develop a continuous-time model over business cycles to analyze the effects of credit default swap (CDS) trading on CDS firms’ financial decisions. We show that debtholders’ CDS hedging demand is procyclical. CDS trading postpones debt renegotiation and risktaking investment. CDS firms...

We develop a continuous-time model over business cycles to analyze the effects of credit default swap (CDS) trading on CDS firms’ financial decisions. We show that debtholders’ CDS hedging demand is procyclical. CDS trading postpones debt renegotiation and risktaking investment. CDS firms...