Research On Several Problems Of Performance-Sensitive Bonds Under Jump Risk

At present,Performance-sensitive debt(PSD)is a new type of bond in corporate private debt market.In the PSD pricing contract,when the company's operating performance is poor,PSD coupon will increase due to risk compensation.It is the characteristics of coupon changes that PSD is very popular in foreign countries,and can bring a lot of benefits to its financial markets,which is worth our domestic capital market reference.Therefore,it is of great practical significance to study the influence of PSD on Chinese capital market in theory.Based on the corporate capital structure combined with PSD and equity,this paper aims to clarify how the PSD under the risk of jump impacts on the capital structure of the company,the asset substitution level and the debt overhang,the real option value and the optimal investment opportunity.This paper aims to study the pricing of performance-sensitive debt and optimal capital structure by assuming that the cash flows follow a double exponential jump diffusion process.Based on equilibrium pricing,the price of PSD is provided and the closed-form expressions of the value of firm capital are obtained.Numerical analysis shows that the debt level,sensitivity and the jump risk has a significant effect on the optimal default threshold,the value of firm,asset substitution,debt overhang and so on.PSD can increase equity value;Under the condition of low debt level,straight bond can increase higher firm value than PSD,but if the debt level is much higher,firm value can be economically significant with PSD;The jump risk can increases the value of equity,reduces the optimal default threshold and asset substitution;Under the condition of higher performance sensitive rate,,debt value and firm value reduce with the jump risk;In addition,PSD can mitigate debt overhang.This paper also considers the problem of investment and financing decision-making based on PSD under the risk of jumping,and use the equilibrium pricing theory to explicitly derive the value of the option to invest in the project,the value of the optimal bankruptcy level and the optimal investment threshold.Numerical analysis shows the level of debt can reduce the value of the option,increase the optimal bankruptcy level and the optimal investment level,the firm value is the U-type function of the debt level;the jump intensity can increase the value of the firm and the value of the option.In particular,the up-jump probability and PSD(compared to straight bonds)can reduce the optimal bankruptcy level,improve the optimal investment level,firm value and option value.