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CREDIT RISK OF A LEVERAGED FIRM IN A CONTROLLED
OPTIMAL STOPPING FRAMEWORK
by
Yuegang Zhou
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Ful
llment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
August 2008
Copyright 2008 Yuegang Zhou
(APPLIED MATHEMATICS)
A Dissertation Presented to the
Object Description
| Title | Credit risk of a leveraged firm in a controlled optimal stopping framework |
| Author | Zhou, Yuegang |
| Author email | zyuegang@gmail.com |
| Degree | Doctor of Philosophy |
| Document type | Dissertation |
| Degree program | Applied Mathematics |
| School | College of Letters, Arts and Sciences |
| Date defended/completed | 2008-04-25 |
| Date submitted | 2008 |
| Restricted until | Unrestricted |
| Date published | 2008-06-09 |
| Advisor (committee chair) | Zhang, Jianfeng |
| Advisor (committee member) |
Ma, Jin Deng, Yongheng |
| Abstract | This is an investigation of how a firm allocates capital into multiple investment opportunities. This framework analyzes the firm-owners' behavior as one of the factors influencing the credit quality of the firm. Based on the equity value maximization, criterion is constructed for the firm's investment strategy decisions. The combination of investment portfolio and credit risk is an optimal stopping problem of a controlled diffusion process. This model indicates that the firm's objective is equivalent to minimize the discounted expected cost payout due to the debt issuance. There exists a constant bankruptcy-triggering asset level for the optimal stopping control problem. Although multiple projects exist, the firm will choose only a specific project, which has the lowest bankruptcy-triggering boundary. An investigation of the changes in security values when a firm switches its investment project will show that it is preferable for both the debt-holders and the firm-owners to take on a new investment opportunity if the asset value is low. For the case in which the investment switch will damage the debt-holders' benefits, this model provides a mechanism of debt-renegotiation to achieve the switch, which increases in both equity and debt values. |
| Keyword | credit risk; optimal strategy; optimal stopping time; endogenous bankruptcy |
| Language | English |
| Part of collection | University of Southern California dissertations and theses |
| Publisher (of the original version) | University of Southern California |
| Place of publication (of the original version) | Los Angeles, California |
| Publisher (of the digital version) | University of Southern California. Libraries |
| Type | texts |
| Legacy record ID | usctheses-m1257 |
| Rights | Zhou, Yuegang |
| Repository name | Libraries, University of Southern California |
| Repository address | Los Angeles, California |
| Repository email | http://www.usc.edu/isd/libraries/services/ask_a_librarian/email/ |
| Filename | etd-Zhou-20080609 |
| Archival file | uscthesesreloadpub_Volume26/etd-Zhou-20080609.pdf |
Description
| Title | Page 1 |
| Full text | CREDIT RISK OF A LEVERAGED FIRM IN A CONTROLLED OPTIMAL STOPPING FRAMEWORK by Yuegang Zhou FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Ful llment of the Requirements for the Degree DOCTOR OF PHILOSOPHY August 2008 Copyright 2008 Yuegang Zhou (APPLIED MATHEMATICS) A Dissertation Presented to the |
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