Abstract
Cheung and Satchell (2008a and b) address the default-triggered acquisition (DTA) issue, and derives some analytical results for risky bond pricing based on the assumption that acquisitions only take place in the instance of a default. This paper aims to examine the viability of this assumption. Rather than modelling from the bond investors' point of view, Cheung (2008c) analyses the DTA problem from the potential acquirers' perspective, and develops a structural model of a potential acquirer's position, i.e. the European option-to-acquire, with analytical results. This paper considers pre-default acquisition opportunities, and extends its argument into an exploration of the corresponding American option-to-acquire. Numerical results are derived for a comprehensive numerical comparative static analysis. The comparison of the European and American positions allows some insight into the circumstances in which DTAs are important.
| Original language | English |
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| Publication status | Unpublished - 2008 |