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Credit insurance and investment: A contingent claims analysis approach

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  • Lai, Van Son
  • Soumaré, Issouf

Abstract

This paper develops a continuous-time contingent claims analysis model to study the impact of credit insurance on investment. We find that under shareholders' wealth maximization, the presence of credit insurance yields high investment relative to the level of investment without credit insurance. We also obtain a U shape relationship between the project debt maturity and its investment size, with more investment undertaken with short and long maturities and less investment with intermediate maturities.

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  • Lai, Van Son & Soumaré, Issouf, 2010. "Credit insurance and investment: A contingent claims analysis approach," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 98-107, March.
    • Handle: RePEc:eee:finana:v:19:y:2010:i:2:p:98-107
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    Cited by:

    1. Lee, Hangsuck & Ryu, Doojin & Son, Jihoon, 2022. "Insurance-adjusted valuation, decision making, and capital return," International Review of Financial Analysis, Elsevier, vol. 84(C).
    2. Hu, Bin & Hu, Yan-Ping, 2024. "A pricing model system for small and micro loan insurance considering limited claims," International Review of Financial Analysis, Elsevier, vol. 93(C).
    3. Yongjian Li & Xueping Zhen & Xiaoqiang Cai, 2016. "Trade credit insurance, capital constraint, and the behavior of manufacturers and banks," Annals of Operations Research, Springer, vol. 240(2), pages 395-414, May.
    4. M. Kabir Hassan & Issouf Soumaré, 2015. "Guarantees and Profit-Sharing Contracts in Project Financing," Journal of Business Ethics, Springer, vol. 130(1), pages 231-249, August.
    5. Jacques, Sébastien & Lai, Van Son & Soumaré, Issouf, 2011. "Synthetizing a debt guarantee: Super-replication versus utility approach," International Review of Financial Analysis, Elsevier, vol. 20(1), pages 27-40, January.
    6. Bo Li & Zijia Du & Minxue Wang, 2022. "Financing preference and the role of credit insurance in a green supply chain," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3882-3897, December.

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