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We propose a unified structural credit risk model incorporating both insolvency and illiquidity risks, in order to investigate how a firms default probability depends on the liquidity risk associated with its financing structure. We assume the firm finances its risky assets by mainly issuing short- and long-term debt. Short-term debt can have either a discrete or a more realistic staggered tenor structure. At rollover dates of short-term debt, creditors face a dynamic coordination problem. We show that a unique threshold strategy (i.e., a debt run barrier) exists for short-term creditors to decide when to withdraw their funding, and this strategy is closely related to the solution of a non-standard optimal stopping time problem with control constraints. We decompose the total credit risk into an insolvency component and an illiquidity component based on such an endogenous debt run barrier together with an exogenous insolvency barrier.
This paper considers an optimal control of a big financial company with debt liability under bankrupt probability constraints. The company, which faces constant liability payments and has choices to choose various production/business policies from an
JUBILEE is a securely computed mechanism for debt relief and forgiveness in a frictionless manner without involving trusted third parties, leading to more harmonious debt settlements by incentivising the parties to truthfully reveal their private inf
We provide a UTXO model of blockchain transactions that is able to represent both credit and debt on the same blockchain. Ordinarily, the UTXO model is solely used to represent credit and the representation of credit and debit together is achieved us
Technical Debt is a metaphor used to describe the situation in which long-term code quality is traded for short-term goals in software projects. In recent years, the concept of self-admitted technical debt (SATD) was proposed, which focuses on debt t
Expanding on techniques of concentration of measure, we develop a quantitative framework for modeling liquidity risk using convex risk measures. The fundamental objects of study are curves of the form $(rho(lambda X))_{lambda ge 0}$, where $rho$ is a