We review different theoretical and empirical approaches for measuring the impact of liquidity on CDS prices. We start by reduced form models incorporating liquidity as an additional discount rate. We review Chen, Fabozzi and Sverdlove (2008) and Buhler and Trapp (2006, 2008), adopting different...

We develop a finite horizon continuous time market model, where risk averse investors maximize utility from terminal wealth by dynamically investing in a risk-free money market account, a stock written on a default-free dividend process, and a defaultable bond, whose prices are determined via...

We incorporate house price risk and mortgages into a standard incomplete market (SIM) model. We calibrate the model to match U.S. data, and we show that the model also accounts for non-targeted features of the data such as the distribution of down payments, the life-cycle profile of...

A model of mortgage defaults is built into the standard incomplete markets model. Households face income and house-price shocks and purchase houses using long-term mortgages. Interest rates on mortgages are determined in equilibrium according to the risk of default. The model accounts for the...

Central to the ongoing debate on default resource adequacy are the incentives provided by the clearinghouse waterfall structure. We show that clearinghouse equity and member default funds play a complementary role to initial margins: they incentivize safe members to participate rather than...