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Ericsson, Jan; Jeanneret, Alexandre; Lu, Yiliu - 2021

We propose an explanation for default contagion based on a Lucas model with two independent debt-financed trees. The transmission mechanism is that variations in the size of one tree impact the level of risk premium and the default decision for all borrowers. If a negative shock hits one tree,...

Persistent link: https://www.econbiz.de/10013229878

A Model of Deferred Callability in Defaultable Debt

Mjøs, Aksel - 2009

protection period. The existence of this call feature affects the issuer's optimal bankruptcy decision, in addition to the value … underlying asset process to incorporate a time dependent bankruptcy level before the expiration of the embedded option. We …

Persistent link: https://www.econbiz.de/10013159486

Costly External Finance, Liquidity Risk, and Default Risk

Yang, Jun - 2011

I use the 2007-2008 financial crisis to gauge how internal financial resources and external financial constraints mitigate or worsen the impact of the crisis on default risk of US industrial firms. I identify heterogeneity in short-term funding needs at the onset of the crisis by exploiting...

Persistent link: https://www.econbiz.de/10013128496

Modelling Default Risk : A New Structural Approach

Yildirim, Yildiray - 2011

This paper provides an alternative approach to the structural credit risk models. The first-passage-time approach extends the original Merton (Journal of Finance 29, 449-470) model by accounting for the fact that the default may occur not only at the debt's maturity, but also prior to this date....

Persistent link: https://www.econbiz.de/10013130480

Credit Derivatives and Corporate Default Prediction

Ye, Xiaoxia; Yu, Fan; Zhao, Ran - 2021

There have been 128 defaults among U.S. CDS reference entities between 2001 and 2020. Within this sample, the five-year CDS spread is a significant predictor of corporate default in models with equity market covariates and firm attributes. This finding holds for forecast horizons up to 12...

Persistent link: https://www.econbiz.de/10013213330

The Mills Ratio and the Behavior of Redeemable Bond Prices in the Gaussian Structural Model of Corporate Default

Spencer, Peter D. - 2017

This paper shows that forward default intensities in the Black and Cox (1976) model of corporate default can be expressed in terms of the Mills Ratio (Mills, 1926). The behavior of the forward default intensity and hence the survivorship functions then follows from inequalities that are...

Persistent link: https://www.econbiz.de/10012954783

Healthy... Distress... Default

Kakushadze, Zura - 2019

We discuss a simple, exactly solvable model of stochastic stock dynamics that incorporates regime switching between healthy and distressed regimes. Using this model, which is analytically tractable, we discuss a way of extracting expected returns for stocks from realized CDS spreads,...

Persistent link: https://www.econbiz.de/10012863946

Endogenous Value and Financial Fragility

Gobert, Karine; González, Patrick; Lai, Alexandra; … - Département d'Économique, Université Laval - 2003

We construct a model of valuation to assess the financial fragility of a set of firms in a closed economy. A firm is identified with a possibly infinite random sequence of benefits. Firms with negative benefits in a given period are said to be in distress and need liquidity to refinance their...

Persistent link: https://www.econbiz.de/10005696447

The Evolution of Valuation in Bankruptcy

Simkovic, Michael - 2017

Financial analyses such as valuation, solvency and capital adequacy play a crucial role in bankruptcy. Over the course … of the 20th century, methods of financial analysis in bankruptcy have shifted from earnings multiples to discounted cash … credit spreads. Each shift in bankruptcy court practice followed shifts in financial services industry practice and …

Persistent link: https://www.econbiz.de/10012968788

Business Cycles and the Bankruptcy Code : A Structural Approach

Elkamhi, Redouane - 2011

voluntary filing for bankruptcy. We find that conflict of interests that arises from the voluntary filing option of Chapter 11 …

Persistent link: https://www.econbiz.de/10013133686