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Credit risk and contagion: Continuous-time optimal contract approach

Research Project

Project/Area Number 20730204
Research Category

Grant-in-Aid for Young Scientists (B)

Allocation TypeSingle-year Grants
Research Field Public finance/Monetary economics
Research InstitutionThe University of Tokyo

Principal Investigator

NAKAMURA Hisashi  The University of Tokyo, 大学院・経済学研究科, 講師 (80418649)

Project Period (FY) 2008 – 2009
Project Status Completed (Fiscal Year 2009)
Budget Amount *help
¥4,290,000 (Direct Cost: ¥3,300,000、Indirect Cost: ¥990,000)
Fiscal Year 2009: ¥1,690,000 (Direct Cost: ¥1,300,000、Indirect Cost: ¥390,000)
Fiscal Year 2008: ¥2,600,000 (Direct Cost: ¥2,000,000、Indirect Cost: ¥600,000)
Keywords信用リスク評価 / 企業再生 / 情報開示 / 信用リスク / 企業再構成 / インパルス制御 / 伝染効果 / 連続時間
Research Abstract

This research project studies the role of restructuring in valuing optimally designed long-term securities in a continuous-time model with costly corporate information disclosure. In practice, Merton (1974)'s contingent-claim models have been long used for valuing corporate securities, based mostly on the assumption of some sufficiently complete security structure in markets. On the other hand, in the literature on corporate finance, it has been well known theoretically and empirically that the agency problem (i.e., conflicts of interest among agents) caused by informational asymmetry distorts corporate capital structure. However, the effect of the distortion on security valuation has not been well studied either in theory or in practice. This paper bridges such a gap between the security-valuation literature and the corporate-finance literature. Specifically, first, it shows that, in the agency problem, corporate leverage ratios are higher when restructuring is expected to be accepted in default than otherwise. Also, they can correlate with equity values negatively inter-temporarily. The risk of a jump to liquidation increases the default probability in short term, and decreases the probability of restructuring over time. As a result, this model can resolve the underestimation problem of short-term credit spreads.

Report

(3 results)
  • 2009 Annual Research Report   Final Research Report ( PDF )
  • 2008 Annual Research Report
  • Research Products

    (10 results)

All 2010 2009 Other

All Journal Article (1 results) Presentation (9 results)

  • [Journal Article] A Continuous-Time Analysis of Optimal Contracts with Restructuring in an Environment with Costly Information Disclosure: Theory and Applications

    • Related Report
      2009 Final Research Report
  • [Presentation] A Continuous-Time Analysis of Optimal Contracts with Restructuring in an Environment with Costly Information Disclosure : Theory and Applications2010

    • Author(s)
      中村恒
    • Organizer
      数理ファイナンス国際コンファレンス「Topics on Leading-edge Numerical Procedures and Models」(東京工業大、CRAFT主催2010.02)
    • Place of Presentation
      東京工業大学
    • Related Report
      2009 Annual Research Report
  • [Presentation] A Continuous-Time Analysis of Optimal Contracts with Restructuring in an Environment with Costly Information Disclosure : Theory and Applications2010

    • Author(s)
      中村恒
    • Organizer
      連邦準備理事会(米国ワシントンDC2010.01)
    • Place of Presentation
      ワシントンDC USA
    • Related Report
      2009 Annual Research Report
  • [Presentation] A Continuous-Time Analysis of Optimal Contracts with Restructuring in an Environment with Costly Information Disclosure : Theory and Applications2010

    • Author(s)
      中村恒
    • Organizer
      Ajou 大学金融工学部(韓国スウォン2010.01)に招待されて講演
    • Place of Presentation
      韓国スウォン
    • Related Report
      2009 Annual Research Report
  • [Presentation] A Continuous-Time Analysis of Optimal Contracts with Restructuring in an Environment with Costly Information Disclosure : Theory and Applications2009

    • Author(s)
      中村恒
    • Organizer
      カリフォルニア大サンタクルーズ校経済学部(2009.12)で発表
    • Place of Presentation
      カリフォルニア大サンタクルーズ校経済学部(カリフォルニア)USA
    • Related Report
      2009 Annual Research Report
  • [Presentation]

    • Organizer
      一橋大学商学部ファイナンス/保険ワークショップ
    • Related Report
      2009 Final Research Report
  • [Presentation] Topics on Leading-edge Numerical Procedures and Models

    • Organizer
      数理ファイナンス国際コンファレンス
    • Related Report
      2009 Final Research Report
  • [Presentation]

    • Organizer
      連邦準備理事会
    • Place of Presentation
      米国ワシントンDC
    • Related Report
      2009 Final Research Report
  • [Presentation]

    • Organizer
      Ajou大学金融工学部
    • Place of Presentation
      韓国スウォン
    • Related Report
      2009 Final Research Report
  • [Presentation]

    • Organizer
      カリフォルニア大サンタクルーズ校経済学部
    • Related Report
      2009 Final Research Report

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Published: 2008-04-01   Modified: 2016-04-21  

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