Real option, debt maturity and equity default swaps under negotiation

Gan, Liu; Luo, Pengfei; Yang, Zhaojun

doi:10.1016/j.frl.2016.04.028

Cited by 15 publications

(3 citation statements)

References 17 publications

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“…, at which the liquidation value of the firm's assets after deducting bankruptcy costs is 0, so as to discuss the situation that the liquidation value is less than 0. (7) Assuming that no consideration is given to the interaction between financial distress and economic distress, as long as the firm is in financial distress(Whenever Nash equilibrium game model adopted by Sarkar [13] and Liu Gan [14], we denote  as the equity holders' bargaining power, ( )…”

Section: Basic Setupmentioning

confidence: 99%

Research on Equity Refinancing, Debt Restructuring and Firm Pricing Based on Financial and Economic Distress

Tan¹,

Qin²,

Lin³

2019

Proceedings of the 2019 International Conference on Economic Management and Cultural Industry (ICEMCI 2019)

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This paper distinguishes financial and economic distress, and gives a comprehensive solution to firm's distress by means of integrative equity refinancing and debt restructuring. It constructs a model to price the firm under different financial conditions,especially when the liquidation value is less than 0. In the model, the relationships among financial distress, economic distress, equity refinancing, debt restructuring and renegotiation are clarified. The optimal restructuring boundary is also determined endogenously by maximizing the interests of both shareholders and creditors with the viewpoint of harmony.

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Section: Basic Setupmentioning

confidence: 99%

Research on Equity Refinancing, Debt Restructuring and Firm Pricing Based on Financial and Economic Distress

Tan¹,

Qin²,

Lin³

2019

Proceedings of the 2019 International Conference on Economic Management and Cultural Industry (ICEMCI 2019)

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“…( 2016 ), Gan et al. ( 2016 ), Tang and Yang ( 2017 , 2018 ), Luo and Yang ( 2019 ) and Yang ( 2020 ).…”

Section: Introductionmentioning

confidence: 99%

An Algorithm for the Pricing and Timing of the Option to make a Two-Stage Investment with Credit Guarantees

Dong

Yang

2021

Comput Econ

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We develop a jump-diffusion model for a guarantee-investment combination financing mode (G-I mode) that is recently popular in financial practice. We assume that a borrower has exclusively an option to invest in a project in two stages. The project’s cash flow follows a double exponential jump-diffusion process and it is increased by a growth factor once the second-stage investment is exercised. The first-stage investment cost is financed by a bank loan with the guarantee provided by an insurer, who promises to provide the second-stage investment cost as well as take the lender’s all default losses. In return for the guarantee and investment, the borrower pays a guarantee fee upon first investment and grants a fraction of equity upon second investment to the insurer. In sharp contrast to prior papers on guarantee, the guarantee costs are contracted prior to investment. We provide closed-form solutions and produce a numerical algorithm for the timing and pricing of the two investment options.

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“…This article is related to those of Cai, Yang, and Zhao (2019), Gan et al (2016), , Tang and Yang (2017), Wang, Yang, and Zhang (2015), Xiang and Yang (2015), and Yang and Zhang (2013). While the first article cited does not address loan guarantees, the others investigate two similar but different swaps, EGSs and FGSs.…”

Section: Introductionmentioning

confidence: 99%

Investment and asset securitization with an option‐for‐guarantee swap

Yang

2019

Euro Fin Management

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This article addresses the investment and financing decisions of entrepreneurs entering into option‐for‐guarantee swaps (OGSs). OGSs increase investment option value significantly. Entrepreneurs initially accelerate their investments and then postpone them as funding gaps grow. Guarantee costs increase with project risks when the funding gap is sufficiently small or large, but the opposite holds true otherwise. Investments are postponed when project risks, effective tax rates, or bankruptcy costs increase. Surprisingly, the higher the project risk, the more the entrepreneur will borrow, with a much higher leverage than predicted by classic models. Entrepreneurs can use OGSs to securitize their assets.

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Real option, debt maturity and equity default swaps under negotiation

Cited by 15 publications

References 17 publications

Research on Equity Refinancing, Debt Restructuring and Firm Pricing Based on Financial and Economic Distress

Research on Equity Refinancing, Debt Restructuring and Firm Pricing Based on Financial and Economic Distress

An Algorithm for the Pricing and Timing of the Option to make a Two-Stage Investment with Credit Guarantees

Investment and asset securitization with an option‐for‐guarantee swap

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