debt maturity, capital structure, small firms, privately held firms, G32,
In this paper, we elaborate a formula for determining the optimal strike price for a bond put option, used to hedge a position in a bond. This strike price is optimal in the sense that it minimizes, for a given budget, either Value-at-Risk or Tail Value-at-Risk. Formulas are derived for both zero-coupon and coupon bonds, which can also be understood as a portfolio of bonds. These formulas are valid for any short rate model that implies an affine term structure model and in particular that implies a lognormal distribution of future zero-coupon bond prices. As an application, we focus on the Hull-White one-factor model, which is calibrated to a set of cap prices. We illustrate our procedure by hedging a Belgian government bond, and take into account the possibility of divergence between theoretical option prices and real option prices. This paper can be seen as an extension of the work of Ahn et al. (1999), who consider the same problem for an investment in a share.JEL classification: G11, C61 IME-codes: IE43, IE50, IE51
Once a firm decides to issue debt, the characteristics of this debt instrument should be considered. One of the critical decisions involves debt maturity. Using a sample of 1091 Belgian small firms from 1996 until 2000, this study analyses the determinants of the corporate debt-maturity structure of small firms in a creditor-oriented system. Consistent with previous empirical evidence on large firms, the present results strongly support the maturity-matching principle. The hypothesis that firms with many growth opportunities will borrow on the short term as a response to the under-investment problem, is not supported. There is a clear relation between the credit worthiness of a firm and the debt-maturity structure. Firms with a better credit score borrow on the long term, whereas firms with a poor credit quality are apparently forced to borrow on the short term. This evidence contradicts the expected U-shaped relationship between credit worthiness and debt maturity. Size negatively influences debt maturity.
Using a novel brokerage dataset covering individual investors' login and stock trading behavior, we investigate the severity of the disposition effect as a function of attention.Our results show that more attentive investors trade less in line with the disposition effect, suggesting a comparative advantage in incorporating information into financial decision making. Furthermore, we find that high attention is related to a stronger tendency to sell moderate losses, as compared to large ones, while low attention increases an investor's likelihood to sell extreme, rather than moderate, profits. These results are in line with the theory of cognitive dissonance and saliency effects.
Using a novel brokerage dataset covering individual investors' login and stock trading behavior, we investigate the severity of the disposition effect as a function of attention. Our results show that more attentive investors trade less in line with the disposition effect, suggesting a comparative advantage in incorporating information into financial decision making. Furthermore, we find that high attention is related to a stronger tendency to sell moderate losses, as compared to large ones, while low attention increases an investor's likelihood to sell extreme, rather than moderate, profits. These results are in line with the theory of cognitive dissonance and saliency effects.
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