Abstract
This paper discusses a theoretical explanation that relies on investment within the framework of a
regime-switching structural model whose investment cost is financed by equity and CoCos. The unexpected
return of the project is governed by a continuous and temporal Markov chain. Explicit solutions have been
proposed under a regime-switching structural model when the value of the cash flows generated by the firm
follows a double-exponential step-distribution diffusion process. The equilibrium price theory under the jump
diffusion model was developed using the structural model introduced by Leland (1994) and later extended by
Kou (2002) and Chen and Kou (2009). The study focused on the influence of contingent convertibles on
investment and financing policies and the inefficiencies related to debt overhang and asset substitution in the
presence of an investment option
Details
| Primary Language | English |
|---|---|
| Journal Section | Articles |
| Authors | |
| Publication Date | December 14, 2022 |
| Published in Issue | Year 2022 Volume: 27 |
