Optimal Liquidity Management and Hedging in the presence of a non predictable investment opportunity
In this paper, we develop a dynamic model that captures the interaction between the cash reserves, the risk management policy and the profitability of a non-predictable irreversible investment opportunity. We consider a firm that has assets in place generating a stochastic cash- ow stream. The firm has a non-predictable growth opportunity to expand its operation size by paying a sunk cost. When the opportunity is available, the firm can finance it either by cash or by costly equity issuance. We provide an explicit characterization of the firm strategy in terms of investment, hedging, equity issuance and dividend distribution.
|Date of creation:||23 Jan 2012|
|Publication status:||Published in Mathematics and Financial Economics, vol. 8, n°2, mars 2014, p. 193-227.|
|Contact details of provider:|| Postal: Manufacture des Tabacs, Aile Jean-Jacques Laffont, 21 Allée de Brienne, 31000 TOULOUSE|
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- Thomas W. Bates & Kathleen M. Kahle & René M. Stulz, 2009.
"Why Do U.S. Firms Hold So Much More Cash than They Used To?,"
Journal of Finance,
American Finance Association, vol. 64(5), pages 1985-2021, October.
- Thomas W. Bates & Kathleen M. Kahle & Rene M. Stulz, 2006. "Why Do U.S. Firms Hold So Much More Cash Than They Used To?," NBER Working Papers 12534, National Bureau of Economic Research, Inc.
- Bates, Thomas W. & Kahle, Kathleen M. & Stulz, Rene M., 2007. "Why Do U.S. Firms Hold So Much More Cash Than They Used To?," Working Paper Series 2006-17, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
- Julien Hugonnier & Semyon Malamud & Erwan Morellec, 2015. "Capital Supply Uncertainty, Cash Holdings, and Investment," Review of Financial Studies, Society for Financial Studies, vol. 28(2), pages 391-445.
- Julien HUGONNIER & Semyon MALAMUD & Erwan MORELLEC, "undated". "Capital Supply Uncertainty, Cash Holdings, and Investment," Swiss Finance Institute Research Paper Series 11-44, Swiss Finance Institute.
- Bjarne Hø jgaard & Michael Taksar, 1999. "Controlling Risk Exposure and Dividends Payout Schemes:Insurance Company Example," Mathematical Finance, Wiley Blackwell, vol. 9(2), pages 153-182. Full references (including those not matched with items on IDEAS)
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