Bartolini, Leonardo; Dixit, Avinash - In: IMF Staff Papers 38 (1991) 4, pp. 828-849
We develop a formula for the market value of debt when the borrower's repayment capacity varies stochastically and shortfalls are rolled over. The value of a marginal dollar of nominal claim is an S-shaped function of the ratio of the repayment capacity to the amount of nominal debt. Shifts of...