Effects of positive jumps of assets on endogenous bankruptcy and optimal capital structure: Continuous- and periodic-observation models

Dante Mata López; José Luis Pérez; Kazutoshi Yamazaki

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arXiv · 2008.10651

Effects of positive jumps of assets on endogenous bankruptcy and optimal capital structure: Continuous- and periodic-observation models

Dante Mata López·José Luis Pérez·Kazutoshi Yamazaki

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Abstract

In this paper, we study the optimal capital structure model with endogenous bankruptcy when the firm's asset value follows an exponential L\'evy process with positive jumps. In the Leland-Toft framework \cite{LelandToft96}, we obtain the optimal bankruptcy barrier in the classical continuous-observation model and the periodic-observation model, recently studied by Palmowski et al.\ \cite{palmowski2019leland}. We further consider the two-stage optimization problem of obtaining the optimal capital structure. Detailed numerical experiments are conducted to study the sensitivity of the firm's decision-making with respect to the observation frequency and positive jumps of the asset value.

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Dante Mata López, José Luis Pérez, Kazutoshi Yamazaki. 2020-08-24. Effects of positive jumps of assets on endogenous bankruptcy and optimal capital structure: Continuous- and periodic-observation models. https://arxiv.org/abs/2008.10651

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