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Risky Debt and Optimal Coupon Policy and Other Optimal Strategies

In: Stochastic Processes And Applications To Mathematical Finance

Author

Listed:
  • Diana DOROBANTU

    (Laboratoire de Statistique et Probabilités. Université Paul Sabatier, Toulouse, F31 062 TOULOUSE cedex, France)

  • Monique PONTIER

    (Laboratoire de Statistique et Probabilités. Université Paul Sabatier, Toulouse, F31 062 TOULOUSE cedex, France)

Abstract

The model developed is a structural valuation model of risky debt which includes a dynamic of debt. The value of the firm follows either a Brownian dynamic or a mixed Brownian-Poisson dynamic. The default threshold is endogenous; thus the optimal default threshold changes as the firm's value changes. Another optimal control problem is setting with respect to a couple (coupon or dividend policy, stopping time). Hence a local time is introduced in the firm value dynamic, being the optimal coupon or dividend policy. Once again an optimal threshold is given.

Suggested Citation

  • Diana DOROBANTU & Monique PONTIER, 2007. "Risky Debt and Optimal Coupon Policy and Other Optimal Strategies," World Scientific Book Chapters, in: Jiro Akahori & Shigeyoshi Ogawa & Shinzo Watanabe (ed.), Stochastic Processes And Applications To Mathematical Finance, chapter 5, pages 85-95, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812770448_0005
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