Valuing Corporate Securities When the Firm’s Assets are Illiquid

Hatem Ben-Ameur (), Tarek Fakhfakh () and Alexandre Roch ()
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Hatem Ben-Ameur: HEC Montréal and GERAD
Tarek Fakhfakh: University of Sfax
Alexandre Roch: UQAM

Computational Economics, 2024, vol. 63, issue 2, No 6, 579-598

Abstract: Abstract We use stochastic dynamic programming to design and solve an extended structural setting for which the illiquidity of the firm’s assets under liquidation is interpreted as an intangible corporate security. This asset tends to reduce bond values, augment yield spreads, and, thus, partially explain the credit-spread puzzle. To assess our construction, we provide a sensitivity analysis of the values of corporate securities with respect to the illiquidity parameter.

Keywords: Structural model; Corporate securities; Illiquidity costs; Stochastic dynamic programming (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10614-022-10352-5

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