This paper studies a novel type of misallocation of credit between investments of varying liquidity. One type of investment is more liquid, i.e., its return is more pledgeable, and the other is more productive. Low liquidities of both investment types imply that the allocation of credit is...

Through this paper the author emphasizes the need for a coherent and multidisciplinary methodology in the assessment of credit risk in corporate lending. It is argued that credit risk should be assessed in the only context that is possible which is through cash flow projections generated by...

Following the extra ordinary decision to bail in the unsecured depositors and restructure the two main banks and the near complete destruction of the country’s economic business model as an International Financial Centre, the author considers the changes necessary to rebuild the economy of...

We develop a model in which investment risk drives the demand for CDS insurance. The model shows the efficiency of CDS contracting over the state of the economy. It shows that CDS overinsurance (insurance in excess of renegotiation surpluses) is procyclical, allowing for greater financing when...

Financial innovations are a common explanation of the rise in consumer credit and bankruptcies. To evaluate this story, we develop a simple model that incorporates two key frictions: asymmetric information about borrowers' risk of default and a fixed cost to create each contract offered by...

Financial innovations are a common explanation of the rise in consumer credit and bankruptcies. To evaluate this story, we develop a simple model that incorporates two key frictions: asymmetric information about borrowers' risk of default and a fixed cost to create each contract offered by...

In 2018 there were almost three hundred thousand petitions filed under Chapter 13 of the Bankruptcy Code. But of this number fifty-five percent of these cases were dismissed. When the Chapter 13 trustee is holding funds yet to be disbursed at dismissal, a split in authority exists. Should the...

Unsecured Installment lenders offer high-interest credit to low-income, credit constrained consumers. Lenders typically extend $600 in cash to be paid back in equal monthly installments over 6-9 months at an annualized interest rate of around 125 percent. As state and federal regulations tighten...

How do defaults and bankruptcies affect optimal health insurance policy? I answer this question,using a life-cycle model of health investment with an option to default on emergency room(ER) bills and financial debts. I calibrate the model to the U.S. economy and compare the optimalhealth...