This paper compares structural versus reduced form credit risk models from an information based perspective. We show that the difference between these two model types can be characterized in terms of the information assumed known by the modeler. Structural models assume that the modeler has the...

This article presents a new methodology for estimating recovery rates and the (pseudo) default probabilities implicit in both debt and equity prices. In this methodology, recovery rates and default probabilities are correlated and depend on the state of the macroeconomy. This approach makes two...

A Monte Carlo based Bayesian estimator of contingent claim models formally incorporating model error and parameter uncertainty is introduced. Estimate and prediction on the basis of a model extended by a regression of (functions of) variables and parameters or a non parametric expansion of the...

This paper extends the known results on the equivalence between market completeness and the uniqueness of martingale measures for finite asset economies, to the infinite asset case. Our arguments employ results from the theory of linear operators between locally convex topological vector spaces....

This paper models the U.S. Treasury securities auction market and demonstrates that market manipulation can occur in a rational equilibrium. It is a dynamic model with traders participating in a quot;when-issuedquot; market, a Treasury auction, and a resale mark et. Manipulations occur when...

This paper develops in a new framework, an equilibrium model of the U.S. Treasury Securities auction market under both discriminatory and uniform price auction rules. In the model, traders participate in forward trading of Treasury securities in a quot;when-issuedquot; market before the Treasury...

This paper provides an empirical implementation of a reduced form credit risk model that incorporates both liquidity risk and correlated defaults. Liquidity risk is modeled as a convenience yield and default correlation is modeled via an intensity process that depends on market factors. Various...

This paper uses a reduced form credit risk model to estimate default probabilities implicit in equity prices. For a cross-section of firms, a time-series regression of monthly equity returns is estimated. We show that it is feasible to infer the firm's probability of default implicit in equity...

This paper derives an equilibrium asset pricing model with endogenous liquidity risk, trading constraints, and asset price bubbles. Liquidity risk is modeled as a stochastic quantity impact on the price from trading, where the size of the impact depends on trade size. Asset price bubbles are...

Whereas much of previous literature focuses upon the impact on yields from the Federal Reserve's large-scale asset purchases (LSAPs), we study the changes to expected returns. Through a simple general equilibrium model, we motivate how LSAPs may impact equilibrium bond and equity expected...