TY  - JOUR
ID  - publications15174
UR  - http://tse-fr.eu/pub/25380
IS  - 1
A1  - Décamps, Jean-Paul
A1  - Villeneuve, Stéphane
N2  - Dynamic capital structure models with roll-over debt rely on widely accepted
arguments that have never been formalized. This paper clarifies the literature and provides a rigorous formulation of the equity holders' decision problem within a game theory framework. We spell out the linkage between default policies in a rational expectations equilibrium and optimal stopping theory. We prove that there exists a unique equilibrium in constant barrier strategies, which coincides with that derived in the literature. Furthermore, that equilibrium is the unique equilibrium when the firm loses all its value at default time. Whether the result
holds when there is a recovery at default remains a conjecture.
VL  - 24
TI  - Rethinking Dynamic Capital Structure Models with Roll-Over Debt
AV  - public
EP  - 96
Y1  - 2014/01//
PB  - Wiley
JF  - Mathematical Finance
KW  - strategic default
KW  - payoff dominant equilibrium
KW  - constrained optimal stopping time
SN  - 0960-1627
SP  - 66
ER  -