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...

We consider an entrepreneur who has an option to invest in an irreversible but delayable project. If the project is sufficiently profitable, the firm has an option to make a growth investment, which makes the project cash flow increase by a constant factor. The entrepreneur has no money to...