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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 assumptions on how liquidity rates enter the CDS premium rate …
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approximations of two proposed macro-measures, the liquidity stress index and the concentration index, both capturing the dynamics of …
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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...
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