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  • Pengfei Luo (a1) and Zhaojun Yang (a2)

We consider a firm with assets-in-place and a growth option. There is a funding gap for the expansion investment, which is covered by entering into an equity-for-guarantee swap or fee-for-guarantee swap. We explicitly derive all contingent claim prices with the pricing and timing of the growth option taking business cycle and debt maturity into account. For short-term loan, we produce an explanation why Chinese government suggests that guarantee fee rate should be approximately the fraction 50% of the interest rate of bank loans with the same maturity, but for long-term debt, we show this fraction is too small.

Corresponding author
Address correspondence to: Zhaojun Yang, Department of Finance, Southern University of Science and Technology, Shenzhen 518055, China; e-mail:
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We thank an anonymous referee and an associate editor for helpful comments. All errors and omissions are our own. The research for this paper was supported by the National Natural Science Foundation of China (Project Nos. 71371068 and 71171078) and China Scholarship Fund for Studying Abroad (No. 201706130059).

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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
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