This paper studies dynamic risk taking by a risk-averse manager who receives a bonus; the company may default on its contractual obligations (debt, fixed compensation). We show that risk-taking is time-independent, and is summarized by the so-called risk-aversion of derived utility. We highlight...

We characterize continuous-time risk taking and show that the introduction of deferral increases risk taking at any time when the realized asset value is large or small. For realized asset values in-between we derive the parameterizations of deferral for which risk taking decreases and discuss...

This paper studies the price processes of a claim on terminal endowment and of a claim on firm book value when the underlying variables follow a bivariate geometric Brownian motion. If the state-price process is multiplicatively separable into time and endowment functions, our main result shows...