This paper solves for a firm's optimal cash holding policy within a continuous time, contingent claims framework that has been extended to incorporate most of the significant contracting frictions that have been identified in the corporate finance literature. Under the optimal policy the firm...

We study a continuous time model of a levered firm with fixed assets generating a cash flow which fluctuates with business conditions. Since external finance is costly, the firm holds a liquid (cash) reserve to help survive periods of poor business conditions. Holding liquid assets inside the...

Credit default swaps (CDSs) are derivative contracts that allow agents to shift the risk of default on an underlying credit from a credit protection buyer to a credit protection seller. Like other derivatives they are standardised relative to the underlying cash markets and in this way can help...

In this paper we study the pricing of credit risk as reflected in the market for credit default swaps (CDS) between 2003 and 2008. This market has newly emerged as the reference for credit risk pricing because of its use of standardized contract specifications and has achieved a higher level of...

This paper is an exploration of the relationships among the firm's financial structure, its choice of liquid asset holdings, and growth. We present a theoretical model of the firm where external finance is costly and where retaining earnings as liquid assets serves a precautionary motive. One of...