The optimal capital structure of the firm with stable Lévy assets returns

Courtois, Olivier Le; Quittard-Pinon, François

doi:10.1007/s10203-007-0079-3

Cited by 13 publications

(3 citation statements)

References 23 publications

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“…With continuous monitoring, an analytical treatment becomes possible for a Brownian motion or if we impose strong restrictions on the structure of the considered Lévy process [44,52], such as the assumption that it is spectrally one-sided, i.e., jumps are either always up or always down. Another assumption that makes the factorization feasible is if the jumps are of phase type [4], which includes the Kou double exponential jump model [38] as a special case.…”

Section: Spitzer Identity and Wiener-hopf Factorizationmentioning

confidence: 99%

Spitzer Identity, Wiener-Hopf Factorization and Pricing of Discretely Monitored Exotic Options

2016

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The Wiener-Hopf factorization of a complex function arises in a variety of fields in applied mathematics such as probability, finance, insurance, queuing theory, radio engineering and fluid mechanics. The factorization fully characterizes the distribution of functionals of a random walk or a Lévy process, such as the maximum, the minimum and hitting times. Here we propose a constructive procedure for the computation of the Wiener-Hopf factors, valid for both single and double barriers, based on the combined use of the Hilbert and the z-transform. The numerical implementation can be simply performed via the fast Fourier transform and the Euler summation. Given that the information in the Wiener-Hopf factors is strictly related to the distributions of the first passage times, as a concrete application in mathematical finance we consider the pricing of discretely monitored exotic options, such as lookback and barrier options, when the underlying price evolves according to an exponential Lévy process. We show that the computational cost of our procedure is independent of the number of monitoring dates and * Corresponding author Email addresses: gianluca.fusai@unipmn.it, gianluca.fusai.1@city.ac.uk (Gianluca Fusai), g.germano@ucl.ac.uk, g.germano@lse.ac.uk (Guido Germano), daniele.marazzina@polimi.it (Daniele Marazzina) Preprint submitted to ElsevierNovember 27, 2015the error decays exponentially with the number of grid points.

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Section: Spitzer Identity and Wiener-hopf Factorizationmentioning

confidence: 99%

Spitzer Identity, Wiener-Hopf Factorization and Pricing of Discretely Monitored Exotic Options

2016

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“…In the study [4] the author investigated various properties of the debt and credit of a firm which keeps a constant profile of debt and chooses its bankruptcy level endogenously, to maximize the value of the equity. The paper [5] has a new structural default model under the assumption that a firm's asset return follows a dynamic displaying jumps of both signs. It makes use of stable Lévy processes and computes the values of the firm, debt and equity under this assumption.…”

Section: Literature Reviewmentioning

confidence: 99%

Modeling of the Bond Issue Parameters for the Capital Structure Optimization

Semernina

Odinokova²,

Nesterenko³

et al. 2019

Proceedings of the Fourth Workshop on Computer Modelling in Decision Making (CMDM 2019)

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The article proposes a computational model with eightstep algorithm for usage bond issuance as a systematic instrument to finance corporate assets by optimal capital structure. The crucial model points are methodologically accurate calculation of the average credit spread accounting the difference in maturity of marketable and modeled issues and the consideration of market factors. The model allows using debt financing as a financial manager's tool for funding and lowering cost of capital.Index Terms-bond issue, computing debt instruments parameters, optimal capital structure, cost of capital, financial simulation model

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“…Firstly, it offers an enhanced structural approach to credit modelling by considering driving risk processes with asymmetric and leptokurtic distributions. This in particular allows for a better portrayal of "extreme" events such as default, and therefore improves the calibration performance of the structural approach (see Chen andKou 2009, Le Courtois andQuittard-Pinon 2008, for example).…”

Section: Introductionmentioning

confidence: 99%