On flexibility, capital structure and investment decisions for the insured bank

@inproceedings{Ritchken1993OnFC,
  title={On flexibility, capital structure and investment decisions for the insured bank},
  author={Peter H. Ritchken and James B. Thomson and Ramon P. Degennaro and Anlong Li},
  year={1993}
}
Most models of deposit insurance assume that the volatility of a bank's assets is exogenously provided. Although this framework allows the impact of volatility on bankruptcy costs and deposit insurance subsidies to be explored, it is static and does not incorporate the fact that equityholders can respond to market events by adjusting previous investment and leverage decisions. This paper presents a dynamic model of a bank that allows for such behavior. The flexibility of being able to respond… CONTINUE READING

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