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The Leland–Toft optimal capital structure model under Poisson observations

journal contribution
posted on 2020-07-24, 22:15 authored by Zbigniew Palmowski, José Luis Pérez, Budhi SuryaBudhi Surya, Kazutoshi Yamazaki
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.

History

Preferred citation

Palmowski, Z., Pérez, J. L., Surya, B. A. & Yamazaki, K. (2020). The Leland–Toft optimal capital structure model under Poisson observations. Finance and Stochastics, 1-48. https://doi.org/10.1007/s00780-020-00431-6

Journal title

Finance and Stochastics

Publication date

2020-07-17

Pagination

1-48

Publisher

Springer Science and Business Media LLC

Publication status

Published online

Online publication date

2020-07-17

ISSN

0949-2984

eISSN

1432-1122

Language

en

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