The Leland–Toft optimal capital structure model under Poisson observations
Zbigniew Palmowski
José Luis Pérez
Budhi Surya
Kazutoshi Yamazaki
10.26686/wgtn.12713135.v1
https://openaccess.wgtn.ac.nz/articles/journal_contribution/The_Leland_Toft_optimal_capital_structure_model_under_Poisson_observations/12713135
We revisit the optimal capital structure model with endogenous bankruptcy
first studied by Leland \cite{Leland94} and Leland and Toft \cite{Leland96}.
Differently from the standard case, where shareholders observe continuously the
asset value and bankruptcy is executed instantaneously without delay, we assume
that the information of the asset value is updated only at intervals, modeled
by the jump times of an independent Poisson process. Under the spectrally
negative L\'evy model, we obtain the optimal bankruptcy strategy and the
corresponding capital structure. A series of numerical studies are given to
analyze the sensitivity of observation frequency on the optimal solutions, the
optimal leverage and the credit spreads.
2020-07-24 22:15:50
q-fin.PR
math.PR
Finance
Applied Mathematics
Banking, Finance and Investment
Statistics