High bank leverage is commonly considered a major threat to financial stability. We build a structural credit model to calculate the optimal leverage for a bank that provides asset backed loans, such as corporate loans and mortgages. The bank's assets are loans, which means that the bank's...

By means of a very simple example, this note illustrates the appeal of using Bayesian rather than classical methods to produce inference on hidden states in models of Markovian regime switching. -- Bayesian analysis ; switching regression ; regime changes ; nonlinear filtering