This paper examines how financially constrained firms should hedge and what instruments to use under default risk and a debt contract which is characterized by an endogenous collateral. We find that in addition to futures, non-linear derivatives in the form of short butterfly options are required, as long as the default cost is sufficiently large.
E. Agliardi (2006). The hedging role of futures and butterfly options: a note. FINANCE LETTERS, 4 ,6, 156-163.
The hedging role of futures and butterfly options: a note.
AGLIARDI, ELETTRA
2006
Abstract
This paper examines how financially constrained firms should hedge and what instruments to use under default risk and a debt contract which is characterized by an endogenous collateral. We find that in addition to futures, non-linear derivatives in the form of short butterfly options are required, as long as the default cost is sufficiently large.File in questo prodotto:
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