The valuation of a firm’s investment opportunities: a reduced form credit risk perspective
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This paper develops a valuation model for a firm’s investment opportunities. Given standard market imperfections, we show that maximizing the firm’s equity value is consistent with the need to include a capital charge for an investment specific to a firm’s capital structure and in excess of the investment’s market determined risk. A reduced form credit risk perspective is taken to enable a continuous time implementation. This continuous time implementation is illustrated within the paper.
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- The valuation of a firm’s investment opportunities: a reduced form credit risk perspective
Review of Derivatives Research
Volume 10, Issue 1 , pp 39-58
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- Print ISSN
- Online ISSN
- Springer US
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- Present value
- Credit risk
- Reduced form models
- Industry Sectors
- Author Affiliations
- 1. Johnson Graduate School of Management, Cornell University, Ithaca, NY, 14853, USA
- 2. Kamakura Corporation, 2222 Kalakaua Ave., Suite 1400, Honolulu, HI, 96815, USA
- 3. University of Michigan Business School, Ann Arbor, MI, 48109, USA