For a fixed time, t, and horizon b, the probability of default (PD) measures that an obligor, has paid his/her credit until time runs into arrears not later t+b. This is one most crucial elements influences risk in credits. Previous works have proposed nonparametric estimators for derived from Beran’s estimator doubly smoothed conditional survival function censored data. They also found asympto...

This paper presents a structural debt valuation model that links default probabilities and recovery rates of corporate securities to asset market liquidity. This linking is advantageous for risk management and regulation of financial institutions in that it provides a method of calibrating the relationship between probability of default (PD) and loss given default (LGD). Two innovations in the ...

I study the implications of fluctuations in corporate credit spreads for TFP and output. Motivated by that corporate credit spreads are countercyclical, I build a simple model in which the difference in default probabilities on corporate debts leads to the spread in interest rates paid by firms. In the model, firms finance their capital by issuing one-period bonds, and differ in the variance of...

We focus on structural models in corporate finance with roll-over debt structures in the vein of Leland (1994) and Leland and Toft (1996). We show that these models incorrectly assume that the optimal default is defined by the first time such that the firm’s assets reaches a sufficiently low positive threshold that must be optimally determined. We characterize the optimal default policy and exp...

We develop a sound and strongly complete axiomatic system for probabilistic logic in which we can model nonmonotonic (or default) reasoning. We discuss the connection between previously developed logics and the two sublogics of the logic presented here.