Debt market illiquidity and correlated default risk
نویسندگان
چکیده
منابع مشابه
Market Crashes, Correlated Illiquidity, and Portfolio Choice
T recent financial crisis highlights the importance of market crashes and the subsequent market illiquidity for optimal portfolio selection. We propose a tractable and flexible portfolio choice model where market crashes can trigger switching into another regime with a different investment opportunity set. We characterize the optimal trading strategy in terms of coupled integro-differential equ...
متن کاملMarket Crashes , Correlated Illiquidity , and “ Flight to Quality ” ∗
Models with i.i.d. returns and perfect liquidity (e.g., Merton (1971)) suggest that after a stock price crash, investors should buy more stock. However, many investors sell stock to buy safe assets after a market crash (a “flight-to-quality”), even when market liquidity has significantly worsened. In this paper, we propose a tractable and flexible portfolio selection model where market crashes ...
متن کاملCorrelated Default Risk SANJIV
Copyright © 2006 R ecently, an unusually high number of firms in the economy defaulted, with the default rate for Moody’s-rated speculativegrade issuers reaching as high as 10.2% in 2001. In their annual review, Moody’s summarized these credit events as follows, “Record defaults —unmatched in number and dollar volume since the Great Depression—have culminated in the bankruptcies of well-known f...
متن کاملDefault Risk, Asset Pricing and Debt Control
The pricing and control of firms’ debt has become a major issue since Merton’s (1974) seminal paper. Yet, Merton as well as other recent theories presume that the asset value of the firm is independent of the debt of the firm. However, when using debt finance firms may have to pay a premium for an idiosyncratic default risk and may face debt constraints. We demonstrate that firm specific debt c...
متن کاملCorrelated Default Risk
∗We are extremely thankful for many constructive suggestions from Gurdip Bakshi, N. Chidambaran, Darrell Duffie, Rong Fan, Gifford Fong, John Knight, N. R. Prabhala, Jun Pan, Dmitry Pugachevsky, Shuyan Qi, Ken Singleton, Rangarajan Sundaram, Suresh Sundaresan and Haluk Unal. We received useful feedback from participants at various seminars: at the AIMR talks in Tokyo, Singapore and Sydney, the ...
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ژورنال
عنوان ژورنال: Finance Research Letters
سال: 2018
ISSN: 1544-6123
DOI: 10.1016/j.frl.2018.02.002