In this article, we employ the concept of value-at-risk to model a kind of risk-averse behaviour of a firm which seeks to maximize profit a la Greenwald-Stiglitz [5]. It is shown that there exists a unique well-defined solution function, which relates output to the firm's net worth, but that this function is not monotone. The latter is due to the fact that whenever the VaR-constraint is not binding, the firm behaves in a risk-neutral fashion. It is also shown that in this context, the Modigliani-Miller theorem applies only in the special case where there is no risk of bankruptcy.

Tulli, V., Weinrich, G. (2009). A firm's optimizing behaviour under a value-at-risk constraint. OPTIMIZATION, 58(2), 213-226 [10.1080/02331930701761573].

A firm's optimizing behaviour under a value-at-risk constraint

TULLI, VANDA
;
2009

Abstract

In this article, we employ the concept of value-at-risk to model a kind of risk-averse behaviour of a firm which seeks to maximize profit a la Greenwald-Stiglitz [5]. It is shown that there exists a unique well-defined solution function, which relates output to the firm's net worth, but that this function is not monotone. The latter is due to the fact that whenever the VaR-constraint is not binding, the firm behaves in a risk-neutral fashion. It is also shown that in this context, the Modigliani-Miller theorem applies only in the special case where there is no risk of bankruptcy.
Articolo in rivista - Articolo scientifico
Bankruptcy; Debt financing; Optimization; Value-at-risk;
English
2009
58
2
213
226
none
Tulli, V., Weinrich, G. (2009). A firm's optimizing behaviour under a value-at-risk constraint. OPTIMIZATION, 58(2), 213-226 [10.1080/02331930701761573].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/6737
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