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The paper considers the option of an investor to invest in a project that generates perpetual cash flows, of which the drift parameter is unobservable. The investor invests in a liquid financial market to partially hedge cash flow risk and estimation risk. We derive two 3-dimensional non-linear...
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This paper aims to clarify how contingent convertible bond (CCB) as a debt financing instrument affects the firm's investment policy, agency cost of debt and capital structure. We consider two different conversion thresholds of CCB: One is endogenous and the other is exogenous. We find that...
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This paper extends the Goetzmann, Ingersoll, and Ross (2003) model to the case of partial information, where the expected return of a hedge fund is not observable but known to be either high or low. The fund manager can dynamically update his belief about the true value of the expected return...
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