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Title: | A game options approach to the investment problem with convertible debt financing |
Authors: | Egami, Masahiko ![]() ![]() ![]() |
Author's alias: | 江上, 雅彦 |
Keywords: | Convertible bond Investment decision Optimal stopping Game options |
Issue Date: | Aug-2010 |
Publisher: | Elsevier B.V. |
Journal title: | Journal of Economic Dynamics and Control |
Volume: | 34 |
Issue: | 8 |
Start page: | 1456 |
End page: | 1470 |
Abstract: | We consider a firm that operates a single plant and has an expansion option to invest in a new plant with convertible debt financing. This conversion feature introduces another complication not only because of the added conversion timing problem (by the bond holder) but also because the equity holder needs to take future conversion into account when evaluating her expansion/financing decision. We have two main objectives here. We use game options techniques to analyze optimal strategies involved in this convertible debt financed expansion problem. The first goal is to provide a comprehensive framework and procedure for solving the problem in a mathematically tractable way. Secondly, we illustrate our solution method through a concrete example with economic analysis. This includes a comparison with straight bond financing and comparative statics with respect to price volatility and conversion ratio. In this regard, we attempt to clarify how the conversion feature affects the equity holder's investment decisions. Throughout the paper, we study expansion options by viewing a firm's existing operation, bankruptcy threat, conversion decisions and financing decisions all together. |
Rights: | © 2010 Elsevier B.V. This is not the published version. Please cite only the published version. この論文は出版社版でありません。引用の際には出版社版をご確認ご利用ください。 |
URI: | http://hdl.handle.net/2433/126626 |
DOI(Published Version): | 10.1016/j.jedc.2010.04.001 |
Appears in Collections: | Journal Articles |

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