We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm's values … default probability. Our simulation results indicate that the stochastic volatility model tends to predict higher default … probabilities than the corresponding Merton model if a firm's credit quality is not too low. Otherwise the stochastic volatility …

We study the interplay of capital and liquidity regulation in a general equilibrium setting by focusing on future … funding risks. The model consists of a banking sector with long-term illiquid investment opportunities that need to be … financed by short-term debt and by issuing equity. Reliance on refinancing long-term investment in the middle of the life …

We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm’s values … default probability. Our simulation results indicate that the stochastic volatility model tends to predict higher default … probabilities than the corresponding Merton model if a firm’s credit quality is not too low. Otherwise the stochastic volatility …