Mergers and acquisitions are prominent forms of transactions that combine two firms in a way that one unit with a new asset and a new liability side arises. Since both the equity and the debt positions of the merging entities are affected by such a deal, it is not clear whether positive...

In this paper, we apply Markowitz's approach of portfolio selection to government bond portfolios. As a main feature of our analysis, we use term structure models to estimate expected returns, return variances, and covariances of different bonds. Our empirical study for the German market shows...

Assessing the risk of bank failures is the paramount concern of bank regulation. This paper argues that in order to assess the default risk of a bank, it is important to consider its financing decisions as an endogenous dynamic process. We provide a continuous-time model, where banks choose the...

Purpose – The purpose of this article is to determine the optimal use of collateral in order to maximize the borrower's wealth by reducing the interest rate payments. This analysis is to shed light on the fundamental question whether good or bad borrowers pledge more collateral....

In this paper, we analyse the optimal exercise strategies for corporate warrants issued by levered firms. For the analysis, we distinguish between two exercise variants, namely the traditional block exercise and competitive exercise in equilibrium. We find that the optimal exercise date under...

Standard discounted cash flow approaches suffer from a rudimental modeling of the possibility of a default, as the main characteristics such as the default probability and potential bankruptcy costs are commonly disregarded. This paper aims at providing a tractable extension of the well-known...