Robert S. Goldstein’s research while affiliated with University of Minnesota, Duluth and other places

... In almost all its subfields, such as return predictability, equity premium, options markets, credit spreads, the term structure of interest rates, and long-run risk, Bayesian learning theory is utilized actively, with contributions, including Pastor and Veronesi (2003), Brennan and Xia (2001), Xia (2001), Dufrense and Goldstein (2001), Cremers and Yan (2016). Recently, there has been 1 The leverage ratio is defined as debt over debt plus equity and can be re expressed as debt book ratio divided relative to firm value, by the sum of the debt book ratio and the market book ratio. In the article, market book value ratio is abbreviated as market book ratio, the same as debt book value ratio. ...

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Valuating the capital structure under incomplete information

... More recently, Abel (2017) uses a dynamic model featuring short-term debt to rationalize the negative relationship between leverage and profitability, while Antill and Grenadier (2019) develop a dynamic model of the firm in which owners can choose to optimally enter into either Chapter 11 or Chapter 7 of the U.S. Bankruptcy Code. Moreover, Dangl and Zechner (2021) studies the dynamics of leverage in firms with short-term versus long-term debt, while Benzoni et al. (2022) analyzes the dynamic aspects of the optimal financing policy when the firm faces fixed costs of debt issuance. Finally, Feldhütter and Schaefer (2023) investigates the link between bond prices and optimal financial policy. ...

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Risk-free vs risky components of debt

... It has been evidenced many times and for every ranking, from high yield to investment grade issuers (see a recent overview in Nozawa et al. (2019)) and even sovereign issuers (see Duyvesteyn and Martens (2015) and references therein). The plausible explanation for this discrepancy is that other factors can influence credit spreads, such as taxes, liquidity premia, and jump risk (Bai et al., 2020). These arguments led researchers to extend the Brownian model. ...

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Partial hedging in credit markets with structured derivatives: a quantitative approach using put options

... These financial statements are, however, subject to accounting errors or manipulation. In this regard, we may alternatively assume that outside investors receive noisy or delayed reports on the amount of actual investment (or even on the cash flow level itself), as in Duffie and Lando (2001) and Benzoni et al. (2020). However, we do not pursue this task because (1) the learning effect is not a primary interest of this paper, and (2) the equilibrium outcome in the secondary asset market would not change as long as we focus only on separating equilibrium. ...

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Informational role of investment and liquidation values

... (1994,1998) by allowing the firm to dynamically adjust new pari passu term debt over time. A key finding is that leverage commitment friction fully destroys the debt tax shield, but debt financing advantages reemerge in the presence of collateral (Demarzo 2019), fixed debt issuance cost (Benzoni et al. 2019), managerial discretion (Wong 2021) and self-sustained reputation in debt management (Malenko and Tsoy 2020b). Our study contributes to the literature by showing that ambiguity aversion serves as a commitment device that incurs debt repurchase motives and that the ability to adjust debt in the future generates positive externalities by making ambiguity sharing more efficient. ...

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Robust leverage dynamics without commitment

... In response to the event, investors immediately demanded a higher default insurance premium for General Motors, reflecting the sudden increase in GM's likelihood to fail. Collin-Dufresne, Goldstein & Hugonnier (2004), Jorion & Zhang (2007b) and Jorion & Zhang (2007a) show that this episode is not an isolated case. ...

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Portfolio Credit Risk: Top-Down vs. Bottom-Up Approaches

... This literature can be partitioned into two streams. The first stream estimates credit spreads directly (see Elton, Gruber, Agrawal, and Mann [15], Collin-Dufresne, Goldstein, and Martin [10]), and the second stream prices bonds or related securities using a reduced form model (see Duffee [12], Duffie, Pedersen, and Singleton [13], Driessen [11], and Longstaff, Mithal, and Neis [20]). A careful reading of these papers shows that this literature makes the assumption (either implicitly or explicitly) that a coupon bond is equivalent to a portfolio of risky zero-coupon bonds valued using a single term structure. ...

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The Valuation of Corporate Coupon Bonds

... Both studies illustrate that a reasonable calibration for the variance risk premium allows their stochastic volatility models to match historical corporate yield spreads for medium and longer maturities, offering a potential resolution of the credit spread puzzle (à la Huang andHuang, 2002, 2012). Other recent studies of the puzzle include Bai, Goldstein, and Yang (2018); Feldhü tter and Schaefer (2018); and Huang, Nozawa, and Shi (2018). ...

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Specification Analysis of Structural Credit Risk Models*

... Geske, Subrahmanyam, and Zhou (2016) show that accounting for the leverage effect greatly reduces option pricing errors 4 relative to the Black and Scholes (1973) model. Bai, Goldstein, and Yang (2019) show that the leverage effect is essential to explain the spread between index and individual banks equity options. Morellec and Zhdanov (2019) show risk-neutral skewness is related to the competitive landscape that surround a firm. ...

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Endogenous Option Pricing

... Second, it is related to the literature on the valuation of derivative securities in structural models, a problem that until recently (Geske et al., 2016;Bai et al., 2018) has received limited attention (Toft and Prucik, 1997). Bai et al. (2018) indeed show Merton's model explains the price of put options on a risky¯nancial sector better than a benchmark setting (Kelly et al., 2016). ...

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European Puts, Credit Protection, and Endogenous Default