We propose a structural model with an optimal switching of diffusion regime which integrates a wide range of investment reversibility. The default boundary and switching thresholds are endogenously determined, and we can examine conflict of interest between shareholders and creditors from...

We address a credit risk model with optimal switching in which a firm optimally switches between two different diffusion regimes. A default boundary and the switching thresholds are endogenously determined, and we examine how the triggers and credit spreads are affected by the differences in...

We address a three-period model of fi nancial intermediaries that involves securitization of risky loan assets, leverage, and asymmetric information. We show that the risk retention requirement with a fi xed ratio, stipulated by the Dodd-Frank Act, might induce losses of social welfare in the...