PhD defense: Tor Åge Myklebust
On Thursday 14 August 2014 Tor Åge Myklebust will hold a trial lecture on a prescribed topic and defend his thesis for the PhD degree at NHH with the title «Corporate Credit- and Energy Risk: Performance Sensitive Debt and Quanto Options».
Time and place for the defense:
12:15 in Kristian Gerhard Jebsen Center, NHH
Prescribed topic for the trial lecture:
«How has the 2008 crisis affected the market for corporate debt?»
The first part of the thesis consists of two papers on performance sensitive debt (PSD). These are debt contracts where the interest rate paid on a firm's debt is explicitly linked to a variable measuring its credit relevant performance.
In the first paper a model for pricing PSD is derived and empirically tested. We find that interest increasing PSD contracts are priced reflecting a substantial risk of shocks to borrower credit quality. This is counterintuitive since borrowers using such contracts are of an overall higher credit quality compared to borrowers using interest decreasing contracts. These contracts are priced as if no risk of shocks to borrower credit quality is present.
In the second paper I use a real option model to study how PSD financing affects the investment decisions of a company. Contrary to existing literature I argue that problems of asset substitution could not be solved by the use of PSD. Instead I offer an alternative explanation for the use of PSD, namely that the use of such contracts can lower incentives to underinvest.
The third paper develops a pricing formula for energy quanto options. These are options written on two underlying assets, an energy price and a measure of temperature. We solve the pricing problem analytically by using futures contracts on energy price and temperature as underlying assets. We also derive analytic hedging strategies.
Professor Svein-Arne Persson, Department of Finance, NHH Norwegian School of Economics
Professor Fred Espen Benth, Centre of Mathematics for Applications, University of Oslo
Members of the evaluation committee:
Associate Professor Jørgen Haug, NHH (leader)
Professor David Lando, Copenhagen Business School
Professor Bernt Arne Ødegaard, University of Stavanger
The trial lecture and thesis defence will be open to the public. Copies of the thesis will be available from: firstname.lastname@example.org