Capital Structure Arbitrage: Model Choice and Volatility Calibration
نویسندگان
چکیده
منابع مشابه
How Profitable Is Capital Structure Arbitrage?
This paper examines the risk and return of the so-called capital structure arbitrage, which exploits the mispricing between a company’s debt and equity. Specifically, a structural model provides a connection between a company’s equity price and its credit default swap (CDS) spread. Based on the deviation of CDS market quotes from their theoretical counterparts, a convergence-type trading strate...
متن کاملStock Return Volatility and Capital Structure Decisions∗
We comprehensively examine the effects of stock return volatility on firms’ financial and investment decisions. Consistent with theories of investment with financing frictions, firms with high volatility actively reduce their leverage, cut investment, increase cash holding, cut non-cash current assets such as inventories and account receivables, and cut dividend. The effects of volatility are s...
متن کاملArbitrage-free SVI volatility surfaces
In this article, we show how to calibrate the widely-used SVI parameterization of the implied volatility smile in such a way as to guarantee the absence of static arbitrage. In particular, we exhibit a large class of arbitrage-free SVI volatility surfaces with a simple closed-form representation. We demonstrate the high quality of typical SVI fits with a numerical example using recent SPX optio...
متن کاملEstimating the Volatility Structure of an Arbitrage-free Interest Rate Model via the Futures Markets
This paper considers a class of Heath-Jarrow-Morton (1992) term structure models, characterized by time deterministic volatilities for the instantaneous forward rate. The bias that arises from using observed futures yields as a proxy for the unobserved instantaneous forward rate is analyzed. The fact that futures contracts can be viewed as derivative instruments on the forward rate is used to d...
متن کاملTrading intensity, volatility, and arbitrage activity
The objective of this paper is to uncover the determinants of trading intensity in futures markets. In particular, the time between adjacent transactions (referred to as transaction duration) on the FTSE 100 index futures market is modeled using various augmentations of the basic autoregressive conditional duration (ACD) model introduced by Engle and Russell [Econometrica 66 (1998) 1127]. The d...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2008
ISSN: 1556-5068
DOI: 10.2139/ssrn.956839