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Abstract: Sustaining efficiency and stability by properly controlling the equity toasset ratio is one of the most important and difficult challenges in bankmanagement. Due to unexpected and abrupt decline of asset values, a bank mustclosely monitor its net worth as well as market conditions, and one of itsimportant concerns is when to raise more capital so as not to violate capitaladequacy requirements. In this paper, we model the tradeoff between avoidingcosts of delay and premature capital raising, and solve the correspondingoptimal stopping problem. In order to model defaults in a bank-s loan-creditbusiness portfolios, we represent its net worth by Levy processes, and solveexplicitly for the double exponential jump diffusion process and for a generalspectrally negative Levy process.



Autor: Masahiko Egami, Kazutoshi Yamazaki

Fuente: https://arxiv.org/



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