Optimal capital structure and endogenous default
type: Item
instance of: scholarly article
title: Optimal capital structure and endogenous default
zbMATH Open document ID: 1002.91019
author: Bianca Hilberink
author: L. C. G. Rogers
published in: Finance and Stochastics
publication date: 2002-12-01T00:00:00Z
review text: The authors study a firm where the value of assets evolves as a diffusion until falling below some critical bankruptcy level. The firm is partly financed by debt whose maturity profile is maintained constant through time, by the simultaneous issuance of new debt and retirement of old. This debt is of equal seniority and attracts coupons at a fixed rate. Additionally, the firm receives tax benefits on the coupon payments to bondholders. The shareholders set the bankruptcy level so as to maximize the value of the firm equity under the constraints that the value of equity must remain non-negative at all times and that the firm assets may not be sold off to pay coupons. The value of the firm assets are supposed to make downward jumps. The value of the firm and the value of its debt have no closed form expression, but some transforms are found which can be inverted numerically.
Mathematics Subject Classification ID: 91B28
zbMATH DE Number: 1837547
zbMATH Keywords: credit risk
zbMATH Keywords: optimal capital structure
zbMATH Keywords: bankruptcy level
zbMATH Keywords: firm equity
reviewed by: Aleksandr D. Borisenko
MaRDI profile type: Publication
full work available at URL: s007800100058
OpenAlex ID: W2018881312
DOI: 10.1007/S007800100058
description: scientific article; zbMATH DE number 1837547