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Chinese Journal of Management Science ›› 2014, Vol. 22 ›› Issue (8): 29-36.

• Articles • Previous Articles     Next Articles

The Pricing of the Corporate Securities and the Optimal Capital Structure Under a Jump Diffusion Process

XIANG Hua, YANG Zhao-jun   

  1. College of Finance and Statistics, Hunan University, Changsha 410079, China
  • Received:2012-09-15 Revised:2013-03-07 Online:2014-08-20 Published:2014-08-23

Abstract: Taking the fact that geometric Brownian motion can't capture the dynamics of the asset value in a complicate environment, it is assumed that the asset value is driven by a double exponential jump diffusion process. In this paper, the pricing of corporate securities and the problem of optimal capital structure are studied. The main contributions are summed up as follows.Firstly, based on equilibrium pricing, the price of corporate securities is provided and the closed-form expressions of the value of securities are obtained. In addition, the comparative static analysis is presented, which indicates that the jump risk has a significant effect on the value of capital, optimal capital structure, yield spread. Compared with geometric Brownian motion, the jump risk reduces firm value, debt vale and the optimal leverage, but it increases the yield spread and the value of equity.

Key words: double exponential jump diffusion process, pricing of corporate securities, optimal capital structure, jump risk

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