This paper develops a dynamic two-country neoclassical stochastic growth model with incomplete markets. Short-term credit flows can be excessive and reverse suddenly. The equilibrium outcome is constrained inefficient. First, an undercapitalized country borrows too much since each individual firm does not internalize that an increase in production capacity undermines their output price and ther...

I ran Insurance Company intends to raise its financial credit and render enhanced services to the insured and the public. The need to meet financial obligations arising from the claims requires determination of the optimum deposited claims reserve with banks. Therefore, the present research study aimed at finding the loss ratio (incurred losses to premiu...

We quantify the relative importance of various drivers behind subprime borrowers’decision to default. In our econometric model, we allow borrowers to default either because doing so increases their lifetime wealth or because of short-term credit constraints, taking into account that either factor by itself is suffi cient to induce default. Our model also incorporates various proxies for borrowe...

This paper presents a joint analysis of the term structure of credit default swap (CDS) spreads and the implied volatility surface. The rapid development of the CDS market has provided convenient products to extract credit risk, and its interaction with equity volatility has been analyzed in many studies. However, in most of them the 5-year credit default swap spread is used to measure credit r...

We investigate a Markov, regime-switching, marked point process for the short-term interest rate in a market. The intensity of the marked point process is a bounded, predictable process and is modulated by two observable factors. One is an economic factor described by a diffusion process, and another one is described by a Markov chain. The states of the chain are interpreted as different rating...

This paper investigates the risk premia of U.S. corporate and Treasury bonds. Using excess return regressions, two risk factors are derived from yield and macroeconomic data: a priced term risk factor and a priced credit risk factor explain half of the variation in one-year corporate and Treasury excess returns. The information of the term risk factor is not represented by major yield character...

Getting loans from banks are almost impossible after 2008 global financial crisis. As a result, about 80% of companies in United Kingdom and United States offer their products on various short-term, free-interest loans (i.e., trade credit) to customers. Numerous researchers and academicians apply discounted cash flow (DCF) analysis merely to compute the interest earned and charged during the cr...