Optimal Design of Corporate Market Debt Programmes in the Presence of Interest-Rate and Inflation Risks

This paper provides a joint quantitative analysis of capital structure decisions and debt structure decisions within a standard continuous-time capital-structure model.

Author(s) :

Lionel Martellini

Professor of finance at EDHEC Business School and scientific director of EDHEC-Risk Institute.

Vincent Milhau

Senior research engineer, EDHEC-Risk Institute

In the presence of interest rate and inflation risks, we are able to obtain quasiclosed form expressions for the price of various forms of indexed- and non-indexed bonds issued by the firm, which allows us to generate computationally efficient estimates for the optimal debt structure. Our analysis shows that debt-structure decisions have a strong impact on capital structure decisions. It also suggests that substantial increases in firm value can be generated by optimal debt structures.
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Optimal Design of Corporate Market Debt Programmes in the Presence of Interest-R...
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Type : Publication EDHEC
Date : le 28/03/2011
Extra information : For more information, please contact Joanne Finlay, EDHEC Research and Development Department [ joanne.finlay@edhec.edu ] The contents of this paper do not necessarily reflect the opinions of EDHEC Business School.
Research Cluster : Finance

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