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Default Risk, Asset Pricing, and Debt Control

Titelangaben

Grüne, Lars ; Semmler, Willi:
Default Risk, Asset Pricing, and Debt Control.
In: Journal of Financial Econometrics. Bd. 3 (2005) Heft 1 . - S. 79-106.
ISSN 1479-8417
DOI: https://doi.org/10.1093/jjfinec/nbi006

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Abstract

The pricing and control of firms' debt has become a major issue since Merton's (1974) seminal paper. Yet, Merton as well as other recent theories presume that the asset value of the firm is independent of the debt of the firm. However, when using debt finance firms may have to pay a premium for an idiosyncratic default risk and may face debt constraints. We demonstrate that firm specific debt constraints and endogeneous risk premia, based on collateralized borrowing, affect the asset value of the firm and, in turn, the collateral value of the firm. In order to explore the interdependence of debt finance and asset pricing of firms we endogenize default premia and borrowing constraints in a production based asset pricing model. In this context the dynamic decision problem of maximizing the present value of the firm faces an additional constraint giving rise to the debt dependent firm value. We solve for the asset value of the firm with debt finance by the use of numerical dynamic programming and set valued numerical techniques. This allows us to solve the debt control problem and to compute sustainable debt as well as the firm's debt value.

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Publikationsform: Artikel in einer Zeitschrift
Begutachteter Beitrag: Ja
Institutionen der Universität: Fakultäten
Fakultäten > Fakultät für Mathematik, Physik und Informatik
Fakultäten > Fakultät für Mathematik, Physik und Informatik > Mathematisches Institut
Fakultäten > Fakultät für Mathematik, Physik und Informatik > Mathematisches Institut > Lehrstuhl Mathematik V (Angewandte Mathematik)
Fakultäten > Fakultät für Mathematik, Physik und Informatik > Mathematisches Institut > Lehrstuhl Mathematik V (Angewandte Mathematik) > Lehrstuhl Mathematik V (Angewandte Mathematik) - Univ.-Prof. Dr. Lars Grüne
Titel an der UBT entstanden: Ja
Themengebiete aus DDC: 500 Naturwissenschaften und Mathematik
500 Naturwissenschaften und Mathematik > 510 Mathematik
Eingestellt am: 02 Mär 2021 10:45
Letzte Änderung: 17 Mai 2021 12:06
URI: https://eref.uni-bayreuth.de/id/eprint/63569