We develop an equilibrium model of debt maturity choice of rms, in the presence of xed issuance costs in primary debt markets, and an over-the-counter secondary debt market with search frictions. Liquidity in this market is related to the ratio of buyers to sellers, which is determined in...

Default probabilities and recovery rate densities are not constant over the credit cycle; yet many models assume that they are. This paper proposes and estimates a model in which these two variables depend on an unobserved credit cycle, modelled by a twostate Markov chain. The proposed model is...

Because of limited liability, insolvent banks have an incentive to roll over bad loans, in order to hide losses and gamble for resurrection, even though this is socially inefficient. We suggest a scheme that regulators could use to solve this problem. The scheme would induce banks to reveal...

This paper derives closed-form solutions for values of debt and equity in a continuous-time structural model in which the demands of creditors to be repaid cause a firm to be put into bankruptcy. This allows discussion of the effect of creditor coordination in recovering money on the values of...

This paper develops a tractable general equilibrium model in which money markets provide structural funding to some banks. When bank default risk becomes significant, retail deposit insurance creates an asymmetry between banks that operate in savings-rich regions, which can remain financed at...

Recovery rates are negatively related to default probabilities (Altman et al.,2005). This paper proposes and estimates a model in which this dependence is the result of an unobserved credit cycle: When times are bad, the default probability is high and recovery rates are low; when times are...

One of the strengths of structural models (or firm-value based models) of credit (e.g. Merton, 1974) as opposed to reduced-form models (e.g. Jarrow and Turnbull, 1995) is that they directly link the price of equity to default probabilities, and hence to the price of corporate bonds (and credit...

This paper derives closed-form solutions for values of debt and equity in a continuoustime structural model in which the demands of creditors to be repaid cause a firm to be put into bankruptcy. This allows discussing the effect of creditor coordination in recovering money on the values of debt,...

This paper develops a tractable general equilibrium model in which money markets provide structural funding to some banks. When bank default risk becomes significant, retail deposit insurance creates an asymmetry between banks that operate in savingsrich regions, which can remain financed at...

This paper develops a continuous time asset pricing model of debt and equity in a framework where equityholders decide when to default but creditors decide when to liquidate. This framework is relevant for environments where creditors exert a significant influence on the timing of liquidation,...