Agency conflicts and asymmetric information are two possible explanations that may rationalize the use of a step-up provision in the bond indenture. Within a continuous-time framework with bankruptcy costs and tax benefits, we analyse the optimal step-up bond design with respect to both...

We model an exchange economy where a finite number of standard identical agents interact locally and analyse the time-series properties of the simulated dividend--price ratio <italic>dp</italic> _{<italic>t</italic>}. Our results document that a sufficient degree of social dynamics induces high persistence in <italic>dp</italic> _{<italic>t</italic>} which leads...

The probability of default (PD) is one of the key variables in credit risk management. By using PD estimates as input to pricing and capital requirement calculations, one should be concerned of how good these estimates are. Confidence intervals are thereby a convenient way to assess the range...

Assessing the risk of bank failures is the paramount concern of bank regulation. This paper argues that in order to assess the default risk of a bank, it is important to consider its financing decisions as an endogenous dynamic process. We provide a continuous-time model, where banks choose the...