A simple analytical model for dynamics of time-varying target leverage ratios
Publication in refereed journal



摘要In this paper we have formulated a simple theoretical model for the dynamics of the time-varying target leverage ratio of a firm under some assumptions based upon empirical observations. In our theoretical model the time evolution of the target leverage ratio of a firm can be derived self-consistently from a set of coupled Ito's stochastic differential equations governing the leverage ratios of an ensemble of firms by the nonlinear Fokker-Planck equation approach. The theoretically derived time paths of the target leverage ratio bear great resemblance to those used in the time-dependent stationary-leverage (TDSL) model [Hui et al., Int. Rev. Financ. Analy. 15, 220 (2006)]. Thus, our simple model is able to provide a theoretical foundation for the selected time paths of the target leverage ratio in the TDSL model. We also examine how the pace of the adjustment of a firm's target ratio, the volatility of the leverage ratio and the current leverage ratio affect the dynamics of the time-varying target leverage ratio. Hence, with the proposed dynamics of the time-dependent target leverage ratio, the TDSL model can be readily applied to generate the default probabilities of individual firms and to assess the default risk of the firms.
著者Lo CF, Hui CH
期刊名稱European Physical Journal B: Condensed Matter and Complex Systems
出版社EDP Sciences: EPJ / Springer Verlag (Germany)
Web of Science 學科類別Physics; Physics, Condensed Matter; PHYSICS, CONDENSED MATTER

上次更新時間 2020-03-08 於 03:04