19 Settembre 2011, h 12:00
”Optimal Capital Structure with Endogenous Default and Volatility Risk”
This paper analyzes the capital structure of a firm in an infinite time horizon framework following Leland under the more general hypothesis that the firm’s assets value process belongs to a fairly large class of stochastic volatility models. In such a scheme, we describe and analyze the effects of stochastic volatility on all variables which constitute the capital structure. The endogenous failure level is derived in order to exploit the optimal amount of debt chosen by the firm. To this aim we derive and propose a corrected version of the smooth-fit principle under volatility risk in order to determine the optimal stopping problem solution. Exploiting optimal capital structure we found that the stochastic volatility framework seems to be a robust way to improve results in the direction of both higher spreads and lower leverage ratios in a quantitatively significant way.