We consider the finite-time optimal portfolio liquidation problem for a von Neumann-Morgenstern investor with constant absolute risk aversion (CARA). As underlying market impact model, we use the continuous-time liquidity model of Almgren and Chriss (2000). We show that the expected utility of...

We test whether bank loans change public bond yields. A 10% increase in bank debt raises bond yields by 15bps, reflecting a trade-off between the benefits of bank cross-monitoring and higher bond risk. This effect is smaller for firms with no CDS and junk debt, where bank monitoring is most...

Constructing a comprehensive data set of financially distressed firms that restructured their debts from 2000-2014, we find that firms with financial institutions' debt-equity simultaneous holdings are more likely to restructure out of court than to file for bankruptcy. The effect is stronger...

Using Roberts (2015) loan-level data from 2000 to 2011, we find that the inception of CDS trading on reference firms' debt is associated with a decreased number and lower probability of amendments, restatements, and rollovers to existing lenders of bank loans. Reference firms are also less...

Lending relationships matter for firm financing. In a model of debt dynamics, we study how lending relationships are formed and how they impact leverage and debt maturity choices. In the model, lending relationships evolve through repeated interactions between firms and debt investors. Stronger...

Credit card portfolios represent a significant component of the balance sheets of the largest US banks. The charge‐off rate in this asset class increased drastically during the Great Recession. The recent economic downturn offers a unique opportunity to analyze the performance of credit risk...

Defaults of financial institutions can cause large, disorderly liquidations of repo collateral. This paper analyzes the dynamics of such liquidations. The model shows that (i) the equilibrium price of the collateral asset can overshoot; (ii) the creditor structure in repo lending involves a...

We describe a new framework for collateralized exposure modelling under an ISDA Master Agreement with a Credit Support Annex. The proposed model captures legal and operational aspects of default in considerably greater detail than models currently used by most practitioners, while remaining...

The Great Recession offers a unique opportunity to analyze the performance of credit risk models under conditions of economic stress. We focus on the performance of models of credit risk applied to risk-segmented credit card portfolios. Specifically, we focus on models of default and loss and...