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Credit insurance and investment: A contingent claims analysis approach

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  • Lai, Van Son
  • Soumaré, Issouf

Abstract

This paper develops a continuous-time contingent claims analysis model to study the impact of credit insurance on investment. We find that under shareholders' wealth maximization, the presence of credit insurance yields high investment relative to the level of investment without credit insurance. We also obtain a U shape relationship between the project debt maturity and its investment size, with more investment undertaken with short and long maturities and less investment with intermediate maturities.

Suggested Citation

  • Lai, Van Son & Soumaré, Issouf, 2010. "Credit insurance and investment: A contingent claims analysis approach," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 98-107, March.
  • Handle: RePEc:eee:finana:v:19:y:2010:i:2:p:98-107
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    References listed on IDEAS

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    1. repec:spr:annopr:v:240:y:2016:i:2:d:10.1007_s10479-014-1602-x is not listed on IDEAS
    2. M. Kabir Hassan & Issouf Soumaré, 2015. "Guarantees and Profit-Sharing Contracts in Project Financing," Journal of Business Ethics, Springer, vol. 130(1), pages 231-249, August.
    3. Jacques, Sébastien & Lai, Van Son & Soumaré, Issouf, 2011. "Synthetizing a debt guarantee: Super-replication versus utility approach," International Review of Financial Analysis, Elsevier, vol. 20(1), pages 27-40, January.

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