In the absence of forward-looking models for recovery rates, market participants tend to use exogenously assumed constant recovery rates in pricing models. We develop a flexible jumpto-default model that uses observables: the stock price and stock volatility in conjunction with credit spreads to identify implied, endogenous, dynamic functions of the recovery rate and default probability. The mo...

This paper exploits a natural experiment to document adverse selection among prime consumer credit borrowers in the US. In our setting, some borrowers are offered only a short term loan while an observationally equivalent set of borrowers is offered the same short term loan as well as an additional long maturity option. We isolate adverse selection from the causal effect of maturity on repaymen...

This paper introduces and explores variations on a natural extension of the intensity based doubly stochastic framework for credit default. The essential addition proposed here is to introduce a Markov chain for the “credit rating” of each firm, which are independent conditioned on a stochastic time change, or equivalently a stochastic intensity. The stochastic time change is then combined with...

SETTING Armenia, a country with a high prevalence of drug-resistant tuberculosis (DR-TB). OBJECTIVE To identify factors related to default from DR-TB treatment in Yerevan. DESIGN Using a retrospective cohort design, we compared defaulters with patients who were cured, completed or failed treatment. Patients who initiated DR-TB treatment from 2005 to 2011 were included in the study. A qualit...

Default probability distributions are often defined in terms of their conditional default probability distribution, or their hazard rate. By their definition, they imply a unique probability density function. The applications of default probability distributions are varied, including the risk premium model used to price default bonds, reliability measurement models, insurance, etc. Fractional p...

Using a screening model with asymmetric information, I evaluate the positive and normative effects of subsidized default insurance policy in U.S. mortgage market. The implies that subsidy raises interest rates for eligible mortgages, which is contrary to conventional wisdom but consistent empirical evidence Zhao (2019 Zhao, Y. (2019). Evidence government on rate default: Revisited. Journal Hous...

‎The aim of this paper is to generalize the comprehensive structural model for defaultable fixed income bonds (considered in R‎. ‎Agliardi‎, ‎A comprehensive structural model for defaultable fixed-income bondsو Quant‎. ‎Finance 11 (2011)‎, ‎no‎. ‎5‎, ‎749--762.) into a comprehensive unified model of structural and reduced form models‎. ‎In our model the bond holders receive the deterministic co...

In this paper we provide a micro model of loans which the lender is a monopolistic bank and the borrower is a competitive consumer with consumption habits who may default on part of his debt. In this setting, we prove that the loan demand curve is kinked and therefore it is possible to find interest rate rigidity in equilibrium as well as asymmetric response of loans to interest rate variations...

In this paper we build on the network-based financial accelerator model of Delli Gatti et al. (2010), modelling the firms’ financial structure following the ‘‘dynamic trade-off theory’’, instead of the ‘‘packing order theory’’. Moreover, we allow for multiperiodal debt structure and consider multiple bank-firm links based on a myopic preferred-partner choice. In case of default, we also conside...