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The valuation of a firm’s investment opportunities: a reduced form credit risk perspective

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  • R. Jarrow
  • A. Purnanandam

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  • R. Jarrow & A. Purnanandam, 2007. "The valuation of a firm’s investment opportunities: a reduced form credit risk perspective," Review of Derivatives Research, Springer, vol. 10(1), pages 39-58, January.
    • Handle: RePEc:kap:revdev:v:10:y:2007:i:1:p:39-58
    DOI: 10.1007/s11147-007-9012-8
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    1. Viral Acharya & Jing-zhi Huang & Marti Subrahmanyam & Rangarajan Sundaram, 2006. "When does Strategic Debt-service Matter?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(2), pages 363-378, October.
    2. Edward Zaik & John Walter & Gabriela Retting & Christopher James, 1996. "Raroc At Bank Of America: From Theory To Practice," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(2), pages 83-93, June.
    3. Goldstein, Robert & Ju, Nengjiu & Leland, Hayne, 2001. "An EBIT-Based Model of Dynamic Capital Structure," The Journal of Business, University of Chicago Press, vol. 74(4), pages 483-512, October.
    4. Darrell Duffie & Robert Jarrow & Amiyatosh Purnanandam & Wei Yang, 2008. "Market Pricing of Deposit Insurance," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 22, pages 551-577, World Scientific Publishing Co. Pte. Ltd..
    5. Mella-Barral, Pierre & Perraudin, William, 1997. "Strategic Debt Service," Journal of Finance, American Finance Association, vol. 52(2), pages 531-556, June.
    6. Leland, Hayne E, 1994. "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Journal of Finance, American Finance Association, vol. 49(4), pages 1213-1252, September.
    7. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409, World Scientific Publishing Co. Pte. Ltd..
    8. repec:bla:jfinan:v:53:y:1998:i:4:p:1213-1243 is not listed on IDEAS
    9. Leland, Hayne E & Toft, Klaus Bjerre, 1996. "Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads," Journal of Finance, American Finance Association, vol. 51(3), pages 987-1019, July.
    10. Robichek, Alexander A. & Myers, Stewart C., 1966. "Problems in the Theory of Optimal Capital Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 1(2), pages 1-35, June.
    11. Fan, Hua & Sundaresan, Suresh M, 2000. "Debt Valuation, Renegotiation, and Optimal Dividend Policy," The Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 1057-1099.
    12. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    13. Froot, Kenneth A. & Stein, Jeremy C., 1998. "Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach," Journal of Financial Economics, Elsevier, vol. 47(1), pages 55-82, January.
    14. Anderson, Ronald W & Sundaresan, Suresh, 1996. "Design and Valuation of Debt Contracts," The Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 37-68.
    15. Mella-Barral, Pierre, 1999. "The Dynamics of Default and Debt Reorganization," The Review of Financial Studies, Society for Financial Studies, vol. 12(3), pages 535-578.
    16. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    17. Purnanandam, Amiyatosh, 2008. "Financial distress and corporate risk management: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 87(3), pages 706-739, March.
    18. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    19. repec:bla:jfinan:v:44:y:1989:i:1:p:19-40 is not listed on IDEAS
    20. Robert Jarrow, 2017. "Derivatives," World Scientific Book Chapters, in: THE ECONOMIC FOUNDATIONS OF RISK MANAGEMENT Theory, Practice, and Applications, chapter 3, pages 19-28, World Scientific Publishing Co. Pte. Ltd..
    21. Hayne E. Leland., 1998. "Agency Costs, Risk Management, and Capital Structure," Research Program in Finance Working Papers RPF-278, University of California at Berkeley.
    22. Smith, Clifford W. & Stulz, René M., 1985. "The Determinants of Firms' Hedging Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(4), pages 391-405, December.
    23. Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
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    Citations

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    Cited by:

    1. Denis-Alexandre Trottier & Van Son Lai & Anne-Sophie Charest, 2017. "CAT Bond Spreads Via HARA Utility and Nonparametric Tests," Working Papers 2017-002, Department of Research, Ipag Business School.
    2. Marc Atlan & Hélyette Geman & Dilip Madan & Marc Yor, 2007. "Correlation and the pricing of risks," Annals of Finance, Springer, vol. 3(4), pages 411-453, October.
    3. Robert Jarrow, 2017. "Operational Risk," World Scientific Book Chapters, in: THE ECONOMIC FOUNDATIONS OF RISK MANAGEMENT Theory, Practice, and Applications, chapter 8, pages 69-70, World Scientific Publishing Co. Pte. Ltd..
    4. Krvavych, Yuriy & Sherris, Michael, 2006. "Enhancing insurer value through reinsurance optimization," Insurance: Mathematics and Economics, Elsevier, vol. 38(3), pages 495-517, June.
    5. Eisenberg, Larry, 2011. "Destabilizing properties of a VaR or probability-of-ruin constraint when variances may be infinite," Journal of Financial Stability, Elsevier, vol. 7(1), pages 10-18, January.
    6. Xin Guo & Robert A. Jarrow & Yan Zeng, 2009. "Modeling The Recovery Rate In A Reduced Form Model," Mathematical Finance, Wiley Blackwell, vol. 19(1), pages 73-97, January.

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    More about this item

    Keywords

    Present value; Credit risk; Reduced form models; G31; G13;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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