A closed-form solution to the risk-taking motivation of subordinated debtholders

Yuval Heller, SharonPeleg-Lazar and Alon Raviv

Papers from arXiv.org

Abstract: Black and Cox (1976) claim that the value of junior debt is increasing in asset risk when the firm's value is low. We show, using closed-form solution, that the junior debt's value is hump-shaped. This has interesting implications for the market-discipline role of banks' junior debt.

Date: 2020-06
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Published in Economics Letters, Volume 181, August 2019, Pages 169-173

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Related works:
Journal Article: A closed-form solution to the risk-taking motivation of subordinated debtholders (2019)
Working Paper: A closed-form solution to the risk-taking motivation of subordinated debtholders (2019)
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