GROWTH OPTION AND DEBT MATURITY WITH EQUITY DEFAULT SWAPS IN A REGIME-SWITCHING FRAMEWORK
2018 ◽
Vol 23
(06)
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pp. 2250-2268
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We consider a firm with assets-in-place and a growth option. There is a funding gap for the expansion investment, which is covered by entering into an equity-for-guarantee swap or fee-for-guarantee swap. We explicitly derive all contingent claim prices with the pricing and timing of the growth option taking business cycle and debt maturity into account. For short-term loan, we produce an explanation why Chinese government suggests that guarantee fee rate should be approximately the fraction 50% of the interest rate of bank loans with the same maturity, but for long-term debt, we show this fraction is too small.
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2015 ◽
Vol 7
(12)
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pp. 1
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2013 ◽
Vol 48
(3)
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pp. 789-817
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2019 ◽
Vol 11
(3)
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pp. 127
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