Black and Cox (1976) claim that the value of junior debt is increasing in asset risk when the firm's value is low. We show, using closed-form solution, that the junior debt's value is hump-shaped. This has interesting implications for the market-discipline role of banks' junior debt (subdebt)

We generalize the prevailing theoretical models that estimate the discount on securities for lack of marketability, by considering the discrete trading frequency of the securities. The generalization shows that accounting for the illiquidity of securities may significantly reduce their...