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 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 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 …

-space approach of Arrow-Debreu. A host of new interesting economic issues emerge. First, risk averse agents can attempt to insure … an open question. Second, one may ask more specifically what is the role of social groups for risk sharing and risk … allocation when agents face idiosyncratic or aggregate risk. Third, does a suitable combination of social group formation and …