The Leland–Toft optimal capital structure model under Poisson observations
journal contribution
posted on 2020-07-24, 22:15authored byZbigniew 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