We consider a singular with state constraints version of the stochastic target problems studied in [22], [23] and more recently [6], among others. This provides a general framework for the pricing of contingent claims under risk constraints. Our extended version perfectly suits to market models with proportional transaction costs and to order book liquidation issues. Our main result is a direct...

We consider the problem of portfolio optimization in the presence of market impact, and derive optimal liquidation strategies. We discuss in detail the problem of finding the optimal portfolio under Expected Shortfall (ES) in the case of linear market impact. We show that, once market impact is taken into account, a regularized version of the usual optimization problem naturally emerges. We cha...

Multi-period measures of risk account for the path that the value of an investment portfolio takes. The most widely used such path-dependent indicator of risk is drawdown, which is a measure of decline from a historical peak in cumulative returns. In the context of probabilistic risk measures, the focus has been on one particular dimension of drawdown, its magnitude, and not on its temporal dim...

We investigate the impact of bankruptcy codes on firms’ capitalstructure choices. We develop a theoretical model to identify how firm characteristics may interact with the bankruptcy code in determining optimal capital structures. A novel and sharp empirical implication emerges from this model: that the difference in leverage choices under a relatively equity-friendly bankruptcy code (such as t...

Background: A business rescue plan should indicate the benefits of adopting a as opposed to immediate liquidation. Performing valuation is thus vital aspect process estimated values determine amount be divided between creditors and, if possible, shareholders. Conventional methods have underlying assumption that going concern (based on liquidy and solvency tests). However, company in not necessa...

Background: Non-unitary insolvency systems require an initial choice between liquidation and rehabilitation. For those systems, the decision to further support rehabilitation is often reinforced by estimate of a lesser return in liquidation. The creditors’ either accept or reject business rescue plan depends substantially on comparing proposed value with that mandated plan. Purpose: purpose thi...

The presence of information asymmetry increases the probability that a potential predator will provide liquidity rather than engaging in predatory trading during liquidation by a distressed trader. More information asymmetry is associated with lower expected losses from liquidation for the distressed trader in illiquid markets. There is a negative correlation between the degree of information a...

We extend the Rotemberg-Saloner’s (1986) [Rotemberg, J., Saloner, G., 1986. A supergame-theoretic model of price wars during booms. American Economic Review 76:390–407] ‘‘implicit collusion’’ framework to the consideration of capital market imperfections, captured by a non-zero probability of liquidation of firms in recessionary periods. We show that the Rotemberg-Saloner result of countercycli...

The current economic crisis is creating serious global effects on the real economy, especially in terms of solvency and economic stability of many companies, forced to interrupt their activities and to initiate bankruptcy proceedings. In this case, the assessment of the value of the industrial machinery that can be reused is a problem that often arises. In the literature different approaches to...

We present an optimal investment theorem for a currency exchange model with random and possibly discontinuous proportional transaction costs. The investor’s preferences are represented by a multivariate utility function, allowing for simultaneous consumption of any prescribed selection of the currencies at a given terminal date. We prove the existence of an optimal portfolio process under the a...