collateral requirements and subordination of OTC positions in bankruptcy can ameliorate the counterparty risk externality, they …

"We examine how collateral affects the cost of debt capital. Theories based on borrower moral hazard and limited … pledgeable income predict that collateral increases the availability of credit and reduces its price. Testing these theories is … complicated by the very selection problem which they imply: creditors will demand collateral precisely from those borrowers who …

-pricing framework to value the systematic crash risk exposure of the collateral. We then apply Modigliani and Miller's (1958 …