Purpose – Seek to compare the consequences of single‐source versus multiple‐source lending for a borrower who has loans that can be prematurely terminated. Design/methodology/approach – The considered model framework is an option‐theoretic firm value model similar to Merton (1974) but...

Purpose – The purpose of this article is to determine the optimal use of collateral in order to maximize the borrower's wealth by reducing the interest rate payments. This analysis is to shed light on the fundamental question whether good or bad borrowers pledge more collateral....

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...