We develop a dynamic investment options framework with optimal capital structure and analyze the effect of debt maturity. We find that in the absence of financing constraints short-term debt maximizes firm value. In contrast with most literature results, in the absence of constraints, higher...

By examining the distribution of state prices obtained from binomial versions of Jarrow and Turnbull (1995), Lando (1998) and Duffie and Singleton (1999), we are able to suggest which credit risk parameters are of critical interest. We find that it appears worthwhile to parameterize credit risk...