We study default risk in an incomplete markets general equilibrium setting. We show some interesting properties of default and recovery rates in equilibrium, and derive CAPM-type equilibrium bounds on credit spreads. We are able to price aggregate components of credit risk, summarized in our...

I demonstrate in this article that there are benefits to introducing certain financial markets in an economy with strategic agents. I consider a two-sector 'oligopoly' model and show that in the symmetric Nash equilibrium, there are inefficiencies when compared to the Walrasian equilibrium, and...