We derive general properties of two-factor models of the term structure of interestrates and, in particular, the process for futures prices and rates. Then, as a special case, we derive a no-arbitrage model of the term structure in which any two futures rates act as factors. In this model, the...

Recent work has suggested that strategic under performance of debt service obligations by equity holders can resolve the gap between observed yield spreads and those generated Merton (41) style models. We show that it is not quite correct. The value of the option to under perform on debt-service...

Recent work in corporate finance has suggested that strategic debt-service by equityholders works to lower debt values and raise yield spreads substantially. We show that this is not quite correct. With optimal cash management, defaults occasioned by deliberate underperformance (strategic...

In this paper we study the determinants of business groups' ownership structure using unique panel data on Korean chaebols. In particular, we attempt to understand how pyramids form over time. We find that chaebols grow vertically (that is, pyramidally) as the family uses well-established group...

We employ a representative sample of 80,972 Italian firms to forecast the drop in profits and the equity shortfall triggered by the COVID-19 lockdown. A 3-month lockdown generates an aggregate yearly drop in profits of about 10% of GDP, and 17% of sample firms, which employ 8.8% of the sample's...

This Policy Letter presents a proposal for designing a program of government assistance for firms hurt by the Coronavirus crisis in the European Union (EU). In our recent Policy Letter 81, we introduced a new, equity-type instrument, a cash-against-tax surcharge scheme, bundled across firms and...