Robust Security Design
dc.contributor.author | Rajan, Uday | |
dc.contributor | Lee, Seokwoo | |
dc.date.accessioned | 2017-02-17T13:42:54Z | |
dc.date.available | 2017-02-17T13:42:54Z | |
dc.date.issued | 2016-08 | |
dc.identifier | 1338 | en_US |
dc.identifier.uri | https://hdl.handle.net/2027.42/136095 | |
dc.description.abstract | We consider the optimal contract between an entrepreneur and investors in a single-period model when both parties have limited liability, are risk-neutral toward cash flow risk, and are ambiguity-averse. Ambiguity aversion is modeled by multiplier preferences for robustness toward model uncertainty, as in Hansen and Sargent (2001). Efficient ambiguity-sharing implies that the first-best contract consists of either convertible debt or levered equity. As is customary, in the second-best contract, moral hazard is alleviated by giving more cash to investors in low cash flow states. Under many settings in our model, the optimal security has an equity-like component in high cash flow states, providing a contrast to the results in Innes (1990). | en_US |
dc.subject | Optimal Security Design | en_US |
dc.subject | Robustness | en_US |
dc.subject | Moral Hazard | en_US |
dc.subject | Ambiguity aversion | en_US |
dc.subject | limited liability | en_US |
dc.subject | optimal contract | en_US |
dc.subject.classification | Finance | en_US |
dc.title | Robust Security Design | en_US |
dc.type | Working Paper | en_US |
dc.subject.hlbsecondlevel | Finance | en_US |
dc.subject.hlbtoplevel | Business | |
dc.contributor.affiliationum | Ross School of Business | en_US |
dc.contributor.affiliationumcampus | Ann Arbor | |
dc.description.bitstreamurl | http://deepblue.lib.umich.edu/bitstream/2027.42/136095/1/1338_Lee.pdf | |
dc.owningcollname | Business, Stephen M. Ross School of - Working Papers Series |
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