In a default corridor [0,B] that the stock price can never enter, a deep out-of-the-money American put replicates a pure credit contract (Carr and Wu, 2011). Assuming discrete (one-period-ahead predictable) cash flows, we show an endogenous credit-risk model generates, along with the default...

We introduce a new distance-to-default (DD) measure based on observable covariates, allowing us to bypass any model-based inference (e.g., Merton, 1974), that works well. It is based on the following result: The default event defined by endogenous credit-risk models, a sufficiently low asset...

We study a rich dynamic-leverage model that includes (debt-issuance covenants, a debt floor/ceiling, and specially) a fixed cost. When firms face financial but also operational leverage---the fixed cost, the firm's financial policies strongly interact---bringing forward the default time but...