Liquidation risk in the presence of Chapters 7 and 11 of the US bankruptcy code

Bin Li (), Qihe Tang, Lihe Wang () and Xiaowen Zhou
Additional contact information
Bin Li: Department of Statistics and Actuarial Science, University of Waterloo, 200 University Ave. West, Waterloo, Ontario N2L 3G1, Canada
Qihe Tang: Department of Statistics and Actuarial Science, University of Iowa, 241 Schaeffer Hall, Iowa City, IA 52242, USA
Xiaowen Zhou: Department of Mathematics and Statistics, Concordia University, 1455 de Maisonneuve Blvd. West, Montreal, Quebec H3G 1M8, Canada

Journal of Financial Engineering (JFE), 2014, vol. 01, issue 03, 1-19

Abstract: We aim at quantitatively measuring the liquidation risk of a firm subject to both Chapters 7 and 11 of the US bankruptcy code. The firm value is modeled by a general time-homogeneous diffusion process in which the drift and volatility are level dependent and can be easily adjusted to reflect the state changes of the firm. An explicit formula for the probability of liquidation is established, based on which we gain a quantitative understanding of how the capital structures before and during bankruptcy affect the probability of liquidation.

Keywords: Bankruptcy; liquidation; partial differential equation; time-homogeneous diffusion; two-sided exit problem; G33; C02; Primary 91G80; Secondary 62P05; Secondary 60J60 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2345768614500238
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:jfexxx:v:01:y:2014:i:03:n:s2345768614500238

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2345768614500238

Access Statistics for this article

Journal of Financial Engineering (JFE) is currently edited by George Yuan

More articles in Journal of Financial Engineering (JFE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().