@inproceedings{37b9e3db4cd6436cb761b943b5bf028a,
title = "Risk-taking, financial distress and innovation",
abstract = "We use our numerical technique to explore the optimality of risk-taking under financial distress. In our model, cash reserves are represented by a Brownian processes that includes an innovation parameter. When this innovation parameter goes to zero, our results show that risk-taking is optimal only when distress costs are extremely high. Thus, non-innovators need a hefty penalty to optimally take risks under financial distress. As the level of innovation increases however, it becomes optimal for innovators to undertake risky investments under financial distress without hefty penalties. The implications of our analysis might partially explain the financial crisis of 2007-2009.",
keywords = "Brownian motion, Financial distress, Numerical methods, Risk, Stochastic control",
author = "Arnav Sheth and Larry Shepp and Oded Palmon",
year = "2011",
doi = "10.2139/ssrn.1752372",
language = "English (US)",
isbn = "9789881821065",
series = "Proceedings of the World Congress on Engineering 2011, WCE 2011",
publisher = "Newswood Ltd.",
pages = "412--417",
booktitle = "Proceedings of the World Congress on Engineering 2011, WCE 2011",
note = "World Congress on Engineering 2011, WCE 2011 ; Conference date: 06-07-2011 Through 08-07-2011",
}