A firm's optimizing behaviour under a Value-at-Risk constraint

Gerd Weinrich, Vanda Tulli

Risultato della ricerca: Contributo in rivistaArticolo in rivistapeer review

2 Citazioni (Scopus)

Abstract

In this paper we employ the concept of Value-at-Risk to model a kind of risk-averse behaviour of a firm which seeks to maximize profit à la Greenwald-Stiglitz [Greenwald, B.C., Stiglitz, J.E., 1993, Financial Market Imperfections and Business Cycles, Quarterly Journal of Economics 108 (1), 77-114]. It is shown that there exists a unique well-defined solution function which relates output to the firm's net worth, but that this function is not monotone. The latter is due to the fact that, whenever the VaR-constraint is not binding, the firm behaves in a risk-neutral fashion. It is also shown that in this context the Modigliani-Miller theorem applies only in the special case where there is no risk of bankruptcy.
Lingua originaleEnglish
pagine (da-a)213-226
Numero di pagine14
RivistaOptimization
Stato di pubblicazionePubblicato - 2009

Keywords

  • Value-at-Risk
  • bankruptcy
  • debt financing
  • optimization

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