Credit default swaps (CDS) introduce frictions in debt renegotiations because they alter the incentives of creditors insured with CDS to favor bankruptcy instead of restructuring debt out-of-court. Such renegotiation frictions can increase bond spreads by increasing distress resolution costs....

The prices of or spread on credit default swaps (CDS) theoretically represent the pure credit risk of a firm. Callen, Livnat and Segal (2007) note that although the CDS premium is related to credit ratings issued by the rating agencies, rather wide variation in CDS spreads are observed for firms...

We propose a tractable model of a firm's dynamic debt and equity issuance policies in the presence of asymmetric information. Because "investment-grade" firms can access debt markets, managers who observe a bad private signal can both conceal this information and shield shareholders from...

This paper investigates predictions of structural credit risk models for interest rate sensitivities of corporate bond returns. Recent evidence has shown that the existing models fail to capture this sensitivity (a stylized fact referred to as the interest rate sensitivity puzzle). We propose...

We develop an asset-pricing model with endogenous corporate policies that explains how inflation jointly impacts real asset prices and corporate default risk. Our model includes two empirically grounded nominal frictions: fixed nominal coupons and sticky profitability. Taken together, these two...

We propose a reduced form model for default that allows us to derive closed-form solutions to all the key ingredients in credit risk modeling: risk-free bond prices, defaultable bond prices (with and without stochastic recovery) and probabilities of survival. We show that all these quantities...

We start by presenting a reduced-form multiple default type of model and derive abstract results on the influence of a state variable X on credit spreads, when both the intensity and the loss quota distribution are driven by X. The aim is to apply the results to a concrete real life situation,...

We document several facts about corporate debt maturity: (1) debt maturity is pro-cyclical; (2) higher-beta firms tend to have longer debt maturity; (3) shorter maturity amplifies the sensitivity of credit spreads to aggregate shocks. We build a dynamic capital structure model that explains...

We propose a tractable bond pricing model in which managers have an informational advantage over creditors. We show that, regardless of how poor their private signal is, managers of firms that can access the credit market will avoid default by issuing new debt to service existing debt....

In this paper, I provide a structural approach to quantify the forces that govern the joint dynamics of corporate bond credit spreads and equity volatility. I build a dynamic model and estimate a wide array of fundamental shocks using a large firm-level database on credit spreads, equity prices,...