Optimal strategies in a risky debt context

Abstract

This paper analyses structural models for the evaluation of risky debt following Leland (J. Finance 49 (1994), pp. 1213–1252) with an approach of optimal stopping problem. Moreover, we introduce an investment control parameter and we optimize with respect to the failure threshold and coupon rate. We show that the value of the optimal coupon policy decreases if the strict priority rule is removed.

Keywords:

• corporate debt
• optimal capital structure
• default
• optimal stopping

AMS Classification:

• 60J60
• 62L15
• 91B28

Acknowledgements

Financial support from INDAM-GNAMPA and MIUR grant 206132713-001 is gratefully acknowledged. We also thank an anonymous referee for his/her remarks.

Notes

^1. [email protected]

^2. [email protected]

Additional information

Notes on contributors

Maria Elvira Mancino

1. 1. [email protected]

Monique Pontier

2. 2. [email protected]