Article
Optimal Liquidity management and Hedging in the presence of a Non-Predictable Investment Opportunity
Stéphane Villeneuve et Xavier Warin
Mathematics and Financial Economics
vol. 8, n° 2, mars 2014, p. 193–227
Référence
Stéphane Villeneuve et Xavier Warin, « Optimal Liquidity management and Hedging in the presence of a Non-Predictable Investment Opportunity », Mathematics and Financial Economics, vol. 8, n° 2, mars 2014, p. 193–227.
Résumé
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.
Mots-clés
strategic default; payoff dominant equilibrium; constrained optimal stopping time;
Partenaire de recherche
Regulation, Liquidity and Solvency Risks
Remplace
Stéphane Villeneuve et Xavier Warin, « Optimal Liquidity Management and Hedging in the presence of a non predictable investment opportunity », IDEI Working Paper, n° 694, 23 janvier 2012.