Optimal Capital Structure With Scale Effects Under Spectrally Negative Lévy Models

Surya, Budhi Arta; Yamazaki, Kazutoshi

doi:10.1142/s0219024914500137

Cited by 11 publications

(2 citation statements)

References 41 publications

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“…In addition, while the majority of papers in financial economics assume a geometric Brownian motion for the asset value (V t ) t≥0 , we follow the works of Hilberink and Rogers [28], Kyprianou and Surya [37] and Surya and Yamazaki [54] and consider an exponential Lévy process with arbitrary negative jumps (i.e., a spectrally negative Lévy process). Although it is more desirable to also allow positive jumps as in Chen and Kou [19], as discussed in [28], negative jumps occur more frequently and effectively model the downward risks.…”

Section: Contributions Of the Papermentioning

confidence: 99%

The Leland–Toft optimal capital structure model under Poisson observations

et al. 2020

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This paper revisits the optimal capital structure model with endogenous bankruptcy, first studied by Leland (J. Finance 49:1213–1252, 1994) and Leland and Toft (J. Finance 51:987–1019, 1996). Unlike in the standard case where shareholders continuously observe the asset value and bankruptcy is executed instantaneously without delay, the information of the asset value is assumed to be updated periodically at the jump times of an independent Poisson process. Under a spectrally negative Lévy model, we obtain the optimal bankruptcy strategy and the corresponding capital structure. A series of numerical studies provide an analysis of the sensitivity, with respect to the observation frequency, of the optimal strategies, optimal leverage and credit spreads.

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Section: Contributions Of the Papermentioning

confidence: 99%

The Leland–Toft optimal capital structure model under Poisson observations

et al. 2020

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“…Negative jumps can model sudden downward movements of an asset price. These processes are suitable in the structural models of credit risk and generate non-zero limiting value of the credit spread as the maturity goes to zero as studied in [20,26,35,40,47]. Some recent applications of spectrally negative Lévy processes include the pricing of perpetual American and exotic options [1,6], optimal dividend problems [7,33,43], and capital reinforcement timing [21].…”

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confidence: 99%

An Analytic Recursive Method for Optimal Multiple Stopping: Canadization and Phase-Type Fitting

Leung

Yamazaki

Zhang

2015

Int. J. Theor. Appl. Finan.

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ABSTRACT. We study an optimal multiple stopping problem for call-type payoff driven by a spectrally negative Lévy process. The stopping times are separated by constant refraction times, and the discount rate can be positive or negative. The computation involves a distribution of the Lévy process at a constant horizon and hence the solutions in general cannot be attained analytically. Motivated by the maturity randomization (Canadization) technique by Carr [14], we approximate the refraction times by independent, identically distributed Erlang random variables. In addition, fitting random jumps to phase-type distributions, our method involves repeated integrations with respect to the resolvent measure written in terms of the scale function of the underlying Lévy process. We derive a recursive algorithm to compute the value function in closed form, and sequentially determine the optimal exercise thresholds. A series of numerical examples are provided to compare our analytic formula to results from Monte Carlo simulation.

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Optimality of Two-Parameter Strategies in Stochastic Control

Yamazaki

2018

XII Symposium of Probability and Stochastic Processes

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In this note, we study a class of stochastic control problems where the optimal strategies are described by two parameters. These include a subset of singular control, impulse control, and two-player stochastic games. The parameters are first chosen by the two continuous/smooth fit conditions, and then the optimality of the corresponding strategy is shown by verification arguments. Under the setting driven by a spectrally one-sided Lévy process, these procedures can be efficiently done thanks to the recent developments of scale functions. In this note, we illustrate these techniques using several examples where the optimal strategy as well as the value function can be concisely expressed via scale functions. AMS 2010 Subject Classifications: 60G51, 93E20, 49J40

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Optimal Capital Structure With Scale Effects Under Spectrally Negative Lévy Models

Cited by 11 publications

References 41 publications

The Leland–Toft optimal capital structure model under Poisson observations

The Leland–Toft optimal capital structure model under Poisson observations

An Analytic Recursive Method for Optimal Multiple Stopping: Canadization and Phase-Type Fitting

Optimality of Two-Parameter Strategies in Stochastic Control

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