Sovereign Debt Contract and Optimal Consumption-Investment Strategies

We present a model in which a sovereign country optimally decides on its consumption and investment policies as well as on the optimal time to default. In the paper we allow the sovereign borrower to keep the fraction of its augmented wealth in so-called international reserves. We further assume that these reserves can be deposited at the risk-free rate. In this framework, we obtain analytical solutions for optimal consumption and investment rules, as well as formulas for optimal default boundary and the value of the risky loan. In the paper we assume that in the case of default the lender can impose economic and political sanctions against the borrower and also can seize an implicit collateral. We show that when the country is getting very close to its default wealth level, then its relative risk aversion decreases and the country increases its consumption rate and the risky investment fraction at the expense of available liquid reserves.sovereign debt; international reserves; strategic default

Portfolio Optimization with Concave Transaction Costs

In this paper we study the optimal portfolio management for the constant relative-risk averse investor who maximizes an expected utility of his terminal wealth and who faces transaction costs during his trades. In our model the investor's portfolio consists of one risky and one risk-free asset, and we assume that the transaction cost is a concave function of the traded volume of the risky asset. We find that under such transaction cost formulation the optimal trading strategies and boundaries of the no-transaction region are different than those when transaction costs are proportional, i.e. when they are linear in the traded volume. When transaction costs are concave, we show that the no-transaction region is narrower than when transaction costs are proportional, and it is not a positive cone. Under our transaction cost formulation, when the investor's wealth is relatively high, the optimal trading strategy consists in bringing the post-trade portfolio position inside the no-transaction region, whereas proportional transaction costs induce the investor trading to the boundary of the no-transaction region. We also examine the impact of the risky asset volatility and the risk aversion parameter on the shape of the no-transaction region. When comparing different transaction cost structures, we show that the financial securities' market tends to be more liquid with concave transaction costs than with alternative cost specifications.concave transaction costs; optimal trading strategy

Stock Market Performance and the Term Structure of Credit Spreads

We build a structural two-factor model of default where the stock market index is one of the stochastic factors. We allow the firm to adjust its leverage ratio in response to changes in the business climate for which the past performance of the stock market index acts as a proxy. We assume that the firm's log-leverage ratio follows a mean-reverting process and that the past performance of the stock index negatively affects the firms target leverage ratio. We show that for most credit ratings our model may explain actual yield spreads better than other well-known structural credit risk models. Also, our model shows that the past performance of the stock index returns and the firm's assets beta have a significant impact on credit spreads. Hence, our model can explain why credit spreads may be different within the same credit rating groups and why spreads are lower during economic expansions and higher during recession

Synergistic Effects of Cardanol- and High Oleic Soybean Oil Vinyl Monomers in Miniemulsion Polymers

International audienc

Biobased Latexes from Natural Oil Derivatives

International audienceVinyl monomers from eugenol (EBM) and guaiacol (GBM) were copolymerized in miniemulsion process with high oleic soybean oil-based (HOSBM) counterpart to yield latexes with higher biobased content. Fully renewable monomer feed yields a broad range of new emulsion polymers with the number-average molecular weight varying at 25,000-650,000 g/mol. Increasing GBM/EBM content in the reactive feed leads to increasing latex molecular weight due to the decreasing unsaturation degree (lower content of HOSBM). Monomer feed unsaturation effect found to be more pronounced for latexes from EBM and HOSBM, since GBM shows higher reactivity in free radical polymerization if compared to GBM. Presence of oil-derived unsaturated fragments in emulsion polymers provides an opportunity to crosslink latexes in a controlled way and adjust the resulting polymer networks mechanical properties. Biobased latexes from 25-90 wt.% of GBM/EBM and 10-75 wt.% of HOSBM were synthesized, characterized and tested in terms of thermomechanical properties of latex crosslinked films and coatings. It is demonstrated that characteristics of latex films and coatings are determined by nature and ratio of aliphatic oil residues of HOSBM and aromatic fragments of EBM/GBM in the macromolecular backbone. Incorporation of rigid fragments of GBM/EBM enhances Young's modulus of the films, whereas the soft plant oil-based units contribute to flexibility of films and coatings. All crosslinked latex films exhibited decent properties and performance in terms of hardness, impact resistance, as well as adhesion to the steel substrate. By combination of aliphatic fatty acid fragments of HOSBM with aromatic GBM/EBM structure, durable latexes can be synthesized with ability to balance thermomechanical properties of the latex polymer networks in a broad range

Synergistic Effect of Cardanol- and High Oleic Soybean Oil Vinyl Monomers In Miniemulsion Polymers

Along with characterization of vinyl monomers from high oleic soybean oil (HOSBM) and cardanol (CBM) in free radical (co)polymerization, a series of stable latexes based on various ratios of these fully renewable plant-based monomer mixtures have been synthesized using a miniemulsion process. The combination of aliphatic fatty acid fragments of HOSBM with aromatic CBM structure led to the formation of durable latexes from fully renewable feeds as well as the ability of the resulting cross-linked latex films to balance thermomechanical properties. Biobased latexes were synthesized from 10 to 75 wt % of CBM and 25–90 wt % of HOSBM in the feed, characterized, and tested in films and coatings performances. The synergistic effects of both the constituents in the films and coatings were observed. The incorporation of cardanol-based fragments enhances the Young’s modulus of the films, whereas the plant oil-based units contribute to softer and more flexible films. Even small (10 wt %) fractions of CBM can provide noticeable strength to the soft latex polymer material based entirely on HOSBM. All cross-linked latex films in this study exhibit decent properties and performance in terms of pendulum and pencil hardness, water and solvent resistance, as well as adhesion to the steel substrate. To the best of our knowledge, latexes from fully renewable plant-based monomer mixtures have not been reported before in literature

Stock market performance and the term structure of credit spreads

We build a structural two-factor model of default where the stock market index is one of the stochastic factors. We allow the firm to adjust its leverage ratio in response to changes in the business climate for which the past performance of the stock market index acts as a proxy. We assume that the firm's log-leverage ratio follows a mean-reverting process and that the past performance of the stock index negatively affects the firms target leverage ratio. We show that for most credit ratings our model may explain actual yield spreads better than other well-known structural credit risk models. Also, our model shows that the past performance of the stock index returns and the firm's assets beta have a significant impact on credit spreads. Hence, our model can explain why credit spreads may be different within the same credit rating groups and why spreads are lower during economic expansions and higher during recession

Versatile Platform for Controlling Properties of Plant Oil-Based Latex Polymer Networks

A series of latexes from acrylic monomers (made from olive, soybean, linseed, and hydrogenated soybean oils), significantly different in terms of fatty acid unsaturation, were synthesized using miniemulsion copolymerization with styrene. The number-average molecular weight and the glass transition temperature of the resulting copolymers with high levels of biobased content (up to approximately 60 wt %) depend essentially on the amount of unsaturation (the number of double bonds in triglyceride fatty acid fragments of plant oil-based monomers) in the reaction feed. When plant oil-based latex films are oxidatively cured, the linear dependence of the cross-link density on reaction feed unsaturation is observed. Dynamic mechanical and pendulum hardness measurements indicate that the properties of the resulting plant oil-based polymer network are mainly determined by cross-link density. On the basis of the linear dependence of the cross-link density on monomer feed unsaturation, it can be concluded that the latex network formation and thermomechanical properties can be adjusted by simply combining various plant oil-based monomers at certain ratios (“given” unsaturations) in the reaction feed. Assuming a broad variety of plant/vegetable oils available for new monomers synthesis, this can be considered as a promising platform for controlling properties of plant oil-based latex polymer networks