Several studies have recommended reliance on subordinated debt as a tool for monitoring banks by investors and for enhancing depositors’ protection. However, subordinated debenture increases the level of leverage and thus the probability of costly failure. We propose a novel financial...

We propose and implement a method that provides quantitative estimates of the extent to which higher-than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity...

We present a novel theory to explain the puzzling issue regarding why certain firms in financial distress, that must renegotiate their debt prefer a formal bankruptcy procedure, which is more costly, over direct negotiations with their debtholders. Specifically, we show that claimholders’...

This paper investigates the effects of financial institutions issuing contingent capital, a debt security that automatically converts into equity if assets fall below a predetermined threshold. We decompose bank liabilities into sets of barrier options and present closed-form solutions for their...

This paper derives a valuation model of inflation‐indexed convertible bonds that incorporates the firm's stock price, inflation indexing and the firm's credit risk. The pricing of inflation‐indexed convertible bonds traded on the Tel‐Aviv Stock Exchange (TASE) was empirically tested by...

We propose and implement a method that provides quantitative estimates of the extent to which higher- than-expected inflation can lower the real value of outstanding government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt maturity...

We propose and implement a method that provides quantitative estimates of the extent to which higher-than-expected infl ation can lower the real value of outstand- ing government debt. Looking forward, we derive a formula for the debt burden that relies on detailed information about debt...

Net-worth covenants, as introduced by Black and Cox (1976), provide the firm’s bondholders with the right to force reorganization or liquidation if the value of the firm falls below a certain threshold. In the event of default, however, many bankruptcy codes stipulate an automatic stay of...

Issuing convertible bonds has become a popular way of raising capital by corporations in the last few years. An important subgroup is convertibles linked to a price index or exchange rate. In this paper we extend the convertible pricing models of Tsiveriotis and Fernandes (1998) and McConnell...