Changes in collateralization have been implicated in significant default (or near-default) events during the financial crisis, most notably with AIG. We have developed a framework for quantifying this effect based on moving between Merton-type and Black-Cox-type structural default models. Our...

While credit risk transfer market dramatically increases the complexity of lender's incentive structure and above all reduces the incentives of the bank to monitor debtor, a ‘harsh' bankruptcy environment (as evidenced in the shift from the debtor controlled to creditor controlled...

Creditors, though, are not regarded as the members of a company, yet the role they play in maintaining a company cannot be denied. They are the sole functionaries of the company, in one word. They provide credit to the company for running its business, as without finance a company holds no...

The Dodd-Frank Act tasks regulators with defining a Qualified Residential Mortgage (QRM) as an exemption from risk retention for residential mortgage-backed securities. Congress instructs regulators to consider factors that result in lower levels of historic default in defining a QRM. We analyze...

This note considers the role debt-equity conversions and NPL securitization can play in addressing excessive corporate debt in China, and the corresponding burden on banks of impaired assets. It finds that such techniques can play a role, but getting their design right is critical, as is nesting...