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Credit Default Swap spreads have been used as a leading indicator of distress. Default probabilities can be extracted from CDS spreads, but during distress it is important to take account of the stochastic nature of recovery value. The recent episodes of Landbanski, WAMU and Lehman illustrate...
Persistent link: https://www.econbiz.de/10005826491
Financial frictions have been documented as an important determinant of firm dynamics. In this paper I model bankruptcy … a model of firm dynamics that generate endogenous borrowing limits and I find that a) inefficient bankruptcy procedures …
Persistent link: https://www.econbiz.de/10008519503
We study a banking model in which banks invest in a riskless asset and compete in both deposit and risky loan markets. The model predicts that as competition increases, both loans and assets increase; however, the effect on the loans-to-assets ratio is ambiguous. Similarly, as competition...
Persistent link: https://www.econbiz.de/10008528611
As is well known, most models of credit risk have failed to measure the credit risks in the context of the global financial crisis. In this context, financial industry representatives, regulators and academics worldwide have given new impetus to efforts to improve credit risk modeling for...
Persistent link: https://www.econbiz.de/10008528651
We propose an original method to estimate the market price of risk under stress, which is needed to correct for risk aversion the CDS-implied probabilities of distress. The method is based, for simplicity, on a one-factor asset pricing model. The market price of risk under stress (the...
Persistent link: https://www.econbiz.de/10009019585