Paper presentation

Yann Braouezec presented today at the Polytechnique/Columbia "New Directions in Quantitative Finance" conference a paper we co authored about corporate policy.



The paper is called How the Corporate Liquidity Process Affects the Value of the Firm. It is quite theoretic at this stage, but we hope that it can be the right extention of existing theories (Merton, Modigliani Miller, Leland, etc).

It is mainly a stochastic control formulation of the choice of the optimal corporate policy (dividend rate, coupon and nominal) of a reallistic discrete time model of the evolution of a firm. Such a model is able to render at the same time liquidity and solvency critical situations for a firm.
An interesting point is that the model can be reformulated as a more usual model but including an endogeneous stochastic barrier, which is quite innovative (usual stochastic barriers are defined a determinsitic way).