This paper develops a continuous time asset pricing model of debt and equity in a framework where equityholders decide when to default but creditors decide when to liquidate. This framework is relevant for environments where creditors exert a significant influence on the timing of liquidation,...

This paper develops a continuous time asset pricing model of debt and equity in a framework where equityholders decide when to default but creditors decide when to liquidate. This framework is relevant for environments where creditors exert a significant influence on the timing of liquidation,...

We examine how the banking sector may ignite the formation of assetprice bubbles when there is access to abundant liquidity. Inside banks,given lack of observability of effort, loan officers (or risk takers)are compensated based on the volume of loans but are penalized if bankssuffer a high...