In this paper, we analyze the ability of putable debt to add firm value. To stress the impact of a put feature, we compare the resulting optimal firm values and capital structures to those of a firm with straight that can be renegotiated. For this purpose, we consider a time-independent firm...

Agency conflicts and asymmetric information are two possible explanations that may rationalize the use of a step-up provision in the bond indenture. Within a continuous-time framework with bankruptcy costs and tax benefits, we analyse the optimal step-up bond design with respect to both...

In this paper, we analyze the exercise behavior of warrant holders and its impact on warrant values. For this purpose, we propose a parametric model to describing the exercise volume of warrants and calibrate it to exercise data of 40 warrants from the German market. We find that few too-early...

Mergers and acquisitions are prominent forms of transactions that combine two firms in a way that one unit with a new asset and a new liability side arises. Since both the equity and the debt positions of the merging entities are affected by such a deal, it is not clear whether positive...

Standard discounted cash flow approaches suffer from a rudimental modeling of the possibility of a default, as the main characteristics such as the default probability and potential bankruptcy costs are commonly disregarded. This paper aims at providing a tractable extension of the well-known...

Correlated defaults and systemic risk are clearly priced in credit portfolio securities such as CDOs or index CDSs. In this paper we study an extensive CDX data set for evidence whether correlated defaults are also present in the underlying CDS market. We develop a cash flow based top-down...

In this paper, we apply Markowitz's approach of portfolio selection to government bond portfolios. As a main feature of our analysis, we use term structure models to estimate expected returns, return variances, and covariances of different bonds. Our empirical study for the German market shows...

A recent proposal to enhance banking stability recommends the use of contingent convertibles (CoCos). Since these hybrid securities are mandatorily converted into equity when banks are in need of a recapitalization, they are credited for reducing banks’ likelihood of financial distress. In...