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Villeneuve, Stéphane
and Warin, Xavier
(2014)
Optimal Liquidity management and Hedging in the presence of a Non-Predictable Investment Opportunity.
Mathematical Finance, vol. 8 (n°2).
pp. 193-227.
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Abstract
In this paper, we develop a dynamic model that captures the interaction between a firm’s cash reserves, the risk management policy and the profitability of a non-predictable irreversible investment opportunity. We consider a firm that has assets in place generating a stochastic cash-flow stream. The firm has a non-predictable growth opportunity to expand its operation size by paying a sunk cost. When the opportunity is available, the firm can finance it either by cash or by costly equity issuance. We provide an explicit characterization of the firm strategy in terms of investment, hedging, equity issuance and dividend distribution.
| Item Type: | Article |
|---|---|
| Language: | English |
| Date: | March 2014 |
| Refereed: | Yes |
| Uncontrolled Keywords: | strategic default, payoff dominant equilibrium, constrained optimal stopping time |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse), TSM Research (Toulouse) |
| Site: | UT1 |
| Date Deposited: | 09 Jul 2014 17:39 |
| Last Modified: | 02 Apr 2021 15:48 |
| OAI Identifier: | oai:tse-fr.eu:27677 |
| URI: | https://publications.ut-capitole.fr/id/eprint/15754 |
Available Versions of this Item
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Optimal Liquidity Management and Hedging in the presence of a non predictable investment opportunity. (deposited 09 Jul 2014 17:22)
- Optimal Liquidity management and Hedging in the presence of a Non-Predictable Investment Opportunity. (deposited 09 Jul 2014 17:39) [Currently Displayed]
