The standard measures of distress risk ignore the fact that firm defaults are correlated and that some defaults are more likely to occur in bad times. We use risk premium computed from corporate credit spreads to measure a firm’s exposure to systematic variation in default risk. Unlike...

The standard measures of distress risk ignore the fact that firm defaults are correlated and that some defaults are more likely to occur in bad times. We use risk premium computed from corporate credit spreads to measure a firm’s exposure to systematic variation in default risk. Unlike...

Modeling defaults is critical to risk management as well as pricing debt portfolios and portfolio derivatives. In the recent financial crisis, multi-billion-dollar losses resulted from correlated defaults that were improperly modeled. This paper proposes statistical approximations which are more...

Modeling defaults is critical to risk management as well as pricing debt portfolios and portfolio derivatives. In the recent financial crisis, multi-billion-dollar losses resulted from correlated defaults that were improperly modeled. This paper proposes statistical approximations which are more...

Following the reduced-form models of Duffee (1999) and Jarrow, Lando and Yu (2003), this study investigates the risk diversification issue of corporate bond portfolios. Considering especially long run market behavior, our empirical decomposition of corporate bond yield spreads indicates that the...

Following the method of Pesaran, Shin and Smith (1999), this study extends the results of Sun, Lin and Nieh (2007) to investigate the risk diversification issue of individual corporate bonds in portfolios. This is one of the few studies on the decomposition of individual corporate yield spreads....

Systemic risk is a very important but very complex notion in banking and how to measure it adequately is challenging. We introduce a new framework for measuring systemic risk by using a risk-adjusted balance sheet approach. The measure models credit risk of banks as a put option on bank assets,...

Utilizing a staggered Difference-in-Differences (DID) approach, we investigate the impact of green bond issuance on the probability of default among Chinese firms from 2016 to 2022. We find that issuing a green bond significantly reduces the firm’s default probability, highlighting the joint...

We model a typical Asian-crisis-economy using dynamic general equilibrium tech-niques. Exchange rates obtain from nontrivial fiat-currencies demands. Sudden stops/bank-panics are possible, and key for evaluating the merits of alternative ex-change rate regimes. Strategic complementarities...

Using close to 800,000 (2,000,000) transactions by 66,000 (303,000) households in the United States (in Finland), we show that individual investors with longer holding periods choose to hold less liquid stocks in their portfolios, consistent with Amihud and Mendelson’s (1986) theory of...