The COVID-19 pandemic has highlighted the impacts that rare disasters can have on credit markets. We discuss and quantify the asset-pricing implications of disaster risk on the risk-free rate, credit spreads, and their term structures. The findings underscore the heterogeneous effects of...

I provide a measure of time-varying tail risk in credit markets based on a dynamic power-law model. Credit tail risk is estimated from extreme price fluctuations of credit default swaps (CDS) on government debt. Tail returns are described by a power-law for core and peripheral countries within...

How do real interest rates affect financial fragility? We study this issue in a model in which bank borrowing is subject to rollover risk. A bank’s optimal borrowing trades off the benefit from investing additional funds into profitable assets with the cost of greater risk of a run by bank...