ISBN-10:
3642058469
ISBN-13:
9783642058462
Pub. Date:
12/07/2010
Publisher:
Springer Berlin Heidelberg
A Game Theory Analysis of Options: Corporate Finance and Financial Intermediation in Continuous Time / Edition 2

A Game Theory Analysis of Options: Corporate Finance and Financial Intermediation in Continuous Time / Edition 2

by Alexandre C. Ziegler

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Product Details

ISBN-13: 9783642058462
Publisher: Springer Berlin Heidelberg
Publication date: 12/07/2010
Series: Springer Finance
Edition description: Softcover reprint of hardcover 2nd ed. 2004
Pages: 176
Product dimensions: 6.10(w) x 9.25(h) x 0.24(d)

Table of Contents

1 Methodological Issues.- 1.1 Introduction.- 1.2 Game Theory Basics: Backward Induction and Subgame Perfection.- 1.3 Option Pricing Basics: The General Contingent Claim Equation.- 1.4 The Method of Game Theory Analysis of Options.- 1.5 When is the Method Appropriate?.- 1.5.1 The Link Between Option Value and Expected Utility.- 1.5.2 When Will the Option’s Value be Correct?.- 1.6 What Kind of Problems is the Method Particularly Suited for?.- 1.7 An Example: Determining the Price of a Perpetual Put Option.- 1.7.1 Step 1: Structure of the Game.- 1.7.2 Step 2: Valuing the Option for a Given ExerciseStrategy.- 1.7.3 Step 3: Solving the Game.- 1.7.4 The Solution.- 1.8 Outline of the Book.- 2 Credit and Collateral.- 2.1 Introduction.- 2.2 The Risk-Shifting Problem.- 2.2.1 The Model.- 2.2.2 Profit-Sharing Contracts Between Lender and Borrower.- 2.2.3 Developing an Incentive Contract.- 2.2.4 Renegotiation-Proof Incentive Contracts.- 2.2.5 The Feasible Renegotiation-Proof Incentive Contract.- 2.2.6 The Financing Decision.- 2.2.7 The Effect of Payouts.- 2.3 The Observability Problem.- 2.3.1 Costly State Verification.- 2.3.2 Collateral.- 2.4 Conclusion.- 3 Endogenous Bankruptcy and Capital Structure.- 3.1 Introduction.- 3.2 The Model.- 3.3 The Value of the Firm and its Securities.- 3.3.1 The Value of Debt.- 3.3.2 The Value of the Firm.- 3.3.3 The Value of Equity.- 3.4 The Effect of Capital Structure on the Firm’s Bankruptcy Decision.- 3.4.1 The Equity Holders’ Optimal Bankruptcy Choice.- 3.4.2 The Principal-Agent Problem of EndogenousBankruptcy.- 3.4.3 Measuring the Agency Cost of Debt Arising fromEndogenous Bankruptcy.- 3.5 The Investment Decision.- 3.5.1 Underinvestment.- 3.5.2 Risk-Shifting.- 3.5.3 Measuring the Agency Cost of Debt Arising from Risk-Shifting.- 3.5.4 The Incentive Effects of Loan Covenants.- 3.6 The Financing Decision.- 3.6.1 Optimal Capital Structure.- 3.6.2 Interest Payments vs. Increase in the Face Value of Debt.- 3.6.3 Equilibrium on the Credit Market.- 3.6.4 Capital Structure and the Expected Life of Companies.- 3.7 An Incentive Contract.- 3.7.1 Impact of the Effective Interest Rate.- 3.7.2 Impact of the Rate of Growth in Debt.- 3.8 The Impact of Payouts.- 3.8.1 The Value of the Firm and its Securities.- 3.8.2 The Bankruptcy Decision.- 3.8.3 The Effect of the Payout Rate on Equity Value.- 3.8.4 Effect of a Loan Covenant on the Optimal Payout Rate.- 3.9 Conclusion.- 4 Junior Debt.- 4.1 Introduction.- 4.2 The Model.- 4.3 The Value of the Firm and its Securities.- 4.3.1 The Value of Senior Debt.- 4.3.2 The Value of Junior Debt.- 4.3.3 The Value of the Firm.- 4.3.4 The Value of Equity.- 4.4 The Equity Holders’ Optimal Bankruptcy Choice.- 4.5 The Firm’s Decision to Issue Junior Debt.- 4.6 The Influence of Junior Debt on the Value of Senior Debt.- 4.6.1 On the Impossibility of Perfect Immunization.- 4.6.2 On the Impossibility of Immunization Against Negative Wealth Effects.- 4.7 Conclusion.- 5 Bank Runs.- 5.1 Introduction.- 5.2 The Model.- 5.3 The Depositors’ Run Decision.- 5.4 Valuing the Bank’s Equity.- 5.5 The Shareholders’ Recapitalization Decision.- 5.6 The Bank’s Investment Incentives when Bank Runs are Possible.- 5.7 The Bank’s Funding Decision.- 5.7.1 On the Feasibility of Viable Financial Intermediation.- 5.7.2 Optimal Bank Capital when Asset Risk is Positive.- 5.7.3 Optimal Bank Capital with Zero Asset Risk.- 5.8 Determining the Equilibrium Deposit Spread.- 5.9 Conclusion.- 6 Deposit Insurance.- 6.1 Introduction.- 6.2 The Model.- 6.3 Valuing Deposit Insurance, Bank Equity and Social Welfare.- 6.3.1 The Cost of the Deposit Insurance Guarantee.- 6.3.2 The Value of Bank Equity.- 6.3.3 The Value of Social Welfare.- 6.4 The Guarantor’s Liquidation Strategy and Social Welfare.- 6.4.1 Minimizing the Cost of the Guarantee.- 6.4.2 Maximizing Social Welfare.- 6.4.3 Can Deposit Insurance Enhance Social Welfare?.- 6.5 The Incentive Effects of Deposit Insurance.- 6.5.1 The Investment Decision.- 6.5.2 The Financing Decision.- 6.6 The Impact of Deposit Insurance on the Equilibrium Deposit Spread.- 6.7 Deposit Insurance with Liquidation Delays.- 6.8 Deposit Insurance with Unobservable Asset Value.- 6.8.1 A First Approach: Extending the Model of Chapter 3.- 6.8.2 Merton’s Solution.- 6.9 Conclusion.- 7 Summary and Conclusion.- References.- List of Figures.- List of Symbols.

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