The authors develop a simple binomial model of liquidity and credit risk in which a bondholder has the option to time the sale of his security, given a distribution of potential buyers, bids and liquidity shocks.

This paper studies the characteristics of firm level equity volatility. There is a lack of consensus in the finance literature as to the relative statistical and economic significance of the leverage and feedback effects on equity volatility. We provide a dynamic framework to investigate...

We develop a structural bond pricing approach and implement it on a large panel of US industrial bonds using an efficient maximum likelihood methodology. We evaluate the model's ability to predict yield spread levels and changes out-of-sample. Errors are smaller and distinctly less variable than...