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Download e-book for iPad: A Game Theory Analysis of Options: Corporate Finance and by Professor Alexandre Ziegler (auth.)

By Professor Alexandre Ziegler (auth.)

ISBN-10: 3540246908

ISBN-13: 9783540246909

ISBN-10: 3642058469

ISBN-13: 9783642058462

Modern choice pricing concept used to be built within the past due sixties and early seventies via F. Black, R. e. Merton and M. Scholes as an analytical device for pricing and hedging alternative contracts and over the counter warrants. How­ ever, already within the seminal paper by way of Black and Scholes, the applicability of the version used to be considered as a lot broader. within the moment a part of their paper, the authors confirmed levered firm's fairness could be considered as an alternative at the worth of the enterprise, and therefore will be priced by means of alternative valuation suggestions. A 12 months later, Merton confirmed how the default hazard constitution of cor­ porate bonds will be made up our minds through choice pricing options. alternative pricing types at the moment are used to cost nearly the whole diversity of monetary tools and fiscal promises corresponding to deposit assurance and collateral, and to quantify the linked dangers. through the years, choice pricing has advanced from a collection of particular versions to a common analytical framework for reading the creation strategy of monetary contracts and their functionality within the monetary intermediation method in a continuing time framework. notwithstanding, only a few makes an attempt were made within the literature to combine video game concept points, i. e. strategic monetary judgements of the brokers, into the continual time framework. this can be the original contribution of the thesis of Dr. Alexandre Ziegler. taking advantage of the analytical tractability of contin­ uous time types and the closed shape valuation versions for derivatives, Dr.

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Additional resources for A Game Theory Analysis of Options: Corporate Finance and Financial Intermediation in Continuous Time

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Although such an analysis is valuable for an understanding of project financing, it is much less accurate to understand firm financing. Indeed, in practice, most firms are not liquidated as their debt matures. Rather, they issue new debt and keep operating as long as they can meet their contractual payment obligations. Bankruptcy usually takes place whenever firms default on promised payments on their debt. At any point in time, equity holders can decide whether they want the firm to make the promised payments or default and trigger bankruptcy.

Fourth, some interesting properties of optimal capital structure are explored. Finally, an incentive contracts aiming at influencing equity holders' bankruptcy choice is developed. It is also interesting to contrast some of the results in this chapter with those of Chesney and Gibson [19]. Modelling firm equity as a knock-out call option, Chesney and Gibson [19] analyze the risk incentive effects of debt. While their approach is quite similar to that taken in this chapter, two important differences deserve mention.

1 Costly State Verification Townsend [85] analyzes the problem of costly state verification in a oneperiod setting. He assurnes that the project return has a continuous, strictly positive density function 9 (8) in an interval [SI, Su], SI > 0 and that lender and borrower can agree in advance as to when verification should take place or not. He then shows that, when only pure verification strategies are allowed, the optimal contract has the following properties: 7 - The payment to the lender is equal to some constant amount D whenever verification does not take place.

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A Game Theory Analysis of Options: Corporate Finance and Financial Intermediation in Continuous Time by Professor Alexandre Ziegler (auth.)

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