The Valuation of a Firm's Investment Opportunities: A Reduced Form Credit Risk Perspective

Topics:
Insurance,
Investment and Capital Markets
Tags:
Capital Structures,
Cornell University,
Finance,
Investment,
Investment Opportunity,
Valuation
Source:
Cornell University

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Overview: This paper develops a valuation model for a firm's investment opportunities. Given standard market imperfections, the paper shows that maximizing the firm's equity value is consistent with the need to include a capital charge for an investment specific to a firm's capital structure and in excess of the investments market determined risk. A reduced form credit risk perspective is taken to enable a continuous time implementation. This continuous time implementation is illustrated within the paper.

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Format: PDF | Size: 309KB | Date: Aug 2004 | Pages: 22

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