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“Corporate Hedging, Contract Rights, and Basis Risk”

With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.

Abstract

A hedging contract can be terminated by a counterparty following a firm’s event of default, such as a credit downgrade, covenant violation, or bankruptcy. This right is often exercised. Our model shows that although the termination right reduces hedging costs, it can reduce firm value because the counterparty exercising it does not consider the externality imposed on the firm. Consequently, firms hedge less, especially when facing high bankruptcy costs, and are more likely to enter liquidation. Using detailed hedging data, we confirm the model’s predictions and provide an explanation for low hedging during financial distress.

About the speaker

is an Associate Professor at Arizona State 8xav��������. He is a financial economist at Arizona State 8xav��������. Yuri’s research interests are in dynamic models of firm behaviour, real options, asset pricing implications of investment options, capital structure, debt structure, employee compensation. He also taught and conducted research at Hong Kong 8xav�������� of Science and Technology, Bocconi 8xav�������� in Milan,  New Economic School in Moscow, and WU university in Vienna. Beginning 2014 he is a member of the Advisory Board of the National Bank of the Republic of Belarus. Yuri Tserlukevich obtained his Ph.D. from 8xav�������� of California at Berkeley.

Language

English.

This is a free event. Registration is mandatory.

Cold lunches are provided to registered participants only.