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Valuing Corporate Securities When the Firm’s Assets are Illiquid

Author

Listed:
  • Hatem Ben-Ameur

    (HEC Montréal and GERAD)

  • Tarek Fakhfakh

    (University of Sfax)

  • Alexandre Roch

    (UQAM)

Abstract

We use stochastic dynamic programming to design and solve an extended structural setting for which the illiquidity of the firm’s assets under liquidation is interpreted as an intangible corporate security. This asset tends to reduce bond values, augment yield spreads, and, thus, partially explain the credit-spread puzzle. To assess our construction, we provide a sensitivity analysis of the values of corporate securities with respect to the illiquidity parameter.

Suggested Citation

  • Hatem Ben-Ameur & Tarek Fakhfakh & Alexandre Roch, 2024. "Valuing Corporate Securities When the Firm’s Assets are Illiquid," Computational Economics, Springer;Society for Computational Economics, vol. 63(2), pages 579-598, February.
    • Handle: RePEc:kap:compec:v:63:y:2024:i:2:d:10.1007_s10614-022-10352-5
    DOI: 10.1007/s10614-022-10352-5
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    References listed on IDEAS

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