Using a new dataset of bid and offer quotes for credit default swaps, we investigate the relationship between theoretical determinants of default risk and actual market premia using linear regression. These theoretical determinants are firm leverage, volatility and the riskless interest rate. We...

Structural credit risk models have faced difficulties in matching observed market credit spreads while simultaneously matching default rates, recoveries, leverage and risk premia - a shortcoming that has become known as the credit spread puzzle. We ask whether stochastic asset volatility, as an...

Structural credit risk models have faced difficulties in matching observed market credit spreads while simultaneously matching default rates, recoveries, leverage and risk premia - a shortcoming that has become known as the credit spread puzzle. We ask whether stochastic asset volatility, as an...

Structural credit risk models have faced difficulties in matching observed market credit spreads while simultaneously matching default rates, recoveries, leverage and risk premia - a shortcoming that has become known as the credit spread puzzle. We ask whether stochastic asset volatility, as an...

Most extant structural credit risk models underestimate credit spreads while matching default rates, recoveries, leverage, and equity risk premia - a shortcoming known as the credit spread puzzle. We calibrate and estimate a model able to explain medium to long-term credit spreads by...

Stock price jump risk is known to be important for explaining the option-implied volatility skew generated by the Black-Scholes model. Financial leverage (distress) has an important impact on the shape of the implied volatility skew, however, we find that the impact of leverage on the implied...

This paper studies the characteristics of firm level equity volatility. There is a lack of consensus in the finance literature as to the relative statistical and economic significance of the leverage and feedback effects on equity volatility. We provide a dynamic framework to investigate...

We study the development of a duopoly industry -evolution of firm capacities and competitive behavior- in a continuous-time real-options model of capacity investment. Our methodology allows the evaluation of investment options and exercise rules in a strategic setup. In the initial industry...

We attempt to answer the following questions: What are the revaluation effects and the impact on performance, volatility, and return correlation from stock market liberalization in emerging markets? These questions have been studied extensively at the market-level but not at the firm level. Our...