Showing 1 - 10 of 14
Persistent link: https://www.econbiz.de/10003942457
We propose a tractable equilibrium model for pricing defaultable bonds that are subject to contagion risk. Contagion arises because agents with 'fragile beliefs' are uncertain about both the underlying state of the economy and the posterior probabilities associated with these states. As such,...
Persistent link: https://www.econbiz.de/10009656079
"Empirical tests of reduced form models of default attribute a large fraction of observed credit spreads to compensation for jump-to-default risk. However, these models preclude a "contagion-risk'' channel, where the aggregate corporate bond index reacts adversely to a credit event. In this...
Persistent link: https://www.econbiz.de/10003938437
Persistent link: https://www.econbiz.de/10011376098
Persistent link: https://www.econbiz.de/10011610620
Empirical tests of reduced form models of default attribute a large fraction of observed credit spreads to compensation for jump-to-default risk. However, these models preclude a "contagion-risk'' channel, where the aggregate corporate bond index reacts adversely to a credit event. In this...
Persistent link: https://www.econbiz.de/10012462918
Policymakers justify bailing out major financial firms by saying those firms are 'too big to fail.' They argue that such failure would subject the market to 'counterparty contagion' as the failed firms default on their obligations to other firms. But empirical evidence indicates that...
Persistent link: https://www.econbiz.de/10013158196
The Lehman bankruptcy highlights the potential for interconnectedness to cause negative externalities through counterparty contagion, but the externalities may also arise from information contagion. We examine contagion from troubled financial firms and find that counterparty contagion is...
Persistent link: https://www.econbiz.de/10013090358
We propose an equilibrium model for defaultable bonds that are subject to contagion risk. Contagion arises because agents with 'fragile beliefs' are uncertain about the underlying economic state and its probability. Estimation on sovereign European CDS data shows that agents require a...
Persistent link: https://www.econbiz.de/10013007806
We propose an equilibrium model for defaultable bonds that are subject to contagion risk. Contagion arises because agents with "fragile beliefs"' are uncertain about the underlying economic state and its probability. Estimation on sovereign European credit default swaps (CDS) data shows that...
Persistent link: https://www.econbiz.de/10013029478