Redouane Elkamhi

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We provide results for the valuation of European style contingent claims for a large class of speci…cations of the underlying asset returns. Our valuation results obtain in a discrete time, in…nite state-space setup using the no-arbitrage principle and an equivalent martingale measure. Our approach allows for general forms of heteroskedasticity in returns,(More)
Recent evidence shows that corporate policies change significantly following financial covenant violations. These changes are attributed to increased creditor influence over borrowing firms in ways that benefit both shareholders and debtholders. In this paper, I investigate whether shareholders engage in activities counter to creditors’ interests following(More)
Assessments of the trade-off theory have typically compared the present value of tax benefits to the present value of bankruptcy costs. We show that this comparison overwhelmingly favors tax benefits, suggesting that firms are under-leveraged. However, when we allow firms to experience even modest financial distress costs prior to bankruptcy (e.g.,(More)
Structural credit risk models have faced difficulties in matching observed market credit spreads while simultaneously matching default rates, recoveries, leverage and risk premia a shortcoming that has become known as the credit spread puzzle. We ask whether stochastic asset volatility, as an extension to this model class, has the ability to help resolve(More)
In a model of dual agency problems where borrower-lender and bank-nonbank incentives may conflict, we predict a hockey stick relation between bank skin in the game and covenant tightness. As bank participation declines covenant tightness increases until reaching a low threshold, at which point the relation sharply reverses and covenant protection is removed(More)
Abstract: We explore how rival firms respond when firms in their industry violate debt covenants. We find that rival firms increase advertising expense, and that this increase is proportional to the size of industry violators’ pre-existing market share. We also find that rival firm product-market share increases in the industry market share of violators,(More)
In this paper we solve for the optimal portfolio allocation in a dynamic setting, where both conditional correlation and dependence between extremes are considered. We demonstrate that there are substantial economic costs for investors in disregarding either the dynamics of conditional correlation or the clustering of extreme events. The welfare loss(More)