학술논문
Financial contract structures and production decision: an option-based optimization
Document Type
Article
Author
Source
Journal of Information & Optimization Sciences; January 2005, Vol. 26 Issue: 1 p165-180, 16p
Subject
Language
ISSN
02522667
Abstract
This paper examines alternative financial contracts for production decisions under an optimal-based valuation. We demonstrate that while the optimal loan contract consists of only conventional loans, the firm is over-borrowing and thus has over-production since its risk-adjusted future price is expected to be greater than the risk-adjusted current price. If the optimal contract consists of both conventional loans and commodity loans explicitly incorporating characteristics of the firm's product market, the firm's over-borrowing and thus over-production will vanish. Our results demonstrate that the form of contract structures provides much needed price expectation stability to the product market.