Optimal Stopping Problem Associated with Jump-diffusion Processes

Ishikawa, Yoshinori

doi:10.1007/978-3-0348-0097-6_8

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C2 No-trade Valuation1

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2021

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“…17 See, for example, chapter 10 of Oksendal (2013), who analyzes a case with a finitedimensional diffusion. Ishikawa (2011) offers an analysis covering the case of jump-diffusion processes. We assume that the appropriate technical conditions hold throughout the paper.…”

Section: C2 No-trade Valuationmentioning

confidence: 99%

Leverage Dynamics without Commitment

DeMarzo¹,

He²

2021

The Journal of Finance

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We characterize equilibrium leverage dynamics in a trade-off model in which the firm can continuously adjust leverage and cannot commit to a policy ex ante. While the leverage ratchet effect leads shareholders to issue debt gradually over time, asset growth and debt maturity cause leverage to mean-revert slowly toward a target. Investors anticipate future debt issuance and raise credit spreads, fully offsetting the tax benefits of new debt. Shareholders are therefore indifferent toward the debt maturity structure, even though their choice significantly affects credit spreads, leverage levels, the speed of adjustment, future investment, and growth.

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Section: C2 No-trade Valuationmentioning

confidence: 99%