A binomial lattice based framework for the analysis of finite investment options with finite operational phase is developed. Numerical results show that optimal leverage ratios are not affected by option moneyness at the investment trigger and leverage ratios are lower when the operational phase is longer. In the case of bonds, where principal payment is due, it is shown that long term debt maturity is optimal and leverage ratios are higher for longer debt horizons. These results are reversed in the case of bank loans with no principal payments. Investment and default triggers in finite horizon and leverage levels along the investment trigger are also investigated. Key words: optimal capital structure; debt maturity; binomial lattice models; real options. JEL Classification: G3;G32;G33; G1
Optimal capital structure and investment options in finite horizon / Agliardi E.; N. Koussis. - In: FINANCE RESEARCH LETTERS. - ISSN 1544-6123. - STAMPA. - 8:(2011), pp. 28-38. [10.1016/j.frl.2010.10.001]
Optimal capital structure and investment options in finite horizon
AGLIARDI, ELETTRA;
2011
Abstract
A binomial lattice based framework for the analysis of finite investment options with finite operational phase is developed. Numerical results show that optimal leverage ratios are not affected by option moneyness at the investment trigger and leverage ratios are lower when the operational phase is longer. In the case of bonds, where principal payment is due, it is shown that long term debt maturity is optimal and leverage ratios are higher for longer debt horizons. These results are reversed in the case of bank loans with no principal payments. Investment and default triggers in finite horizon and leverage levels along the investment trigger are also investigated. Key words: optimal capital structure; debt maturity; binomial lattice models; real options. JEL Classification: G3;G32;G33; G1I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
