Reduced-form models of default that attribute a large fraction of credit spreads to compensation for credit event risk typically preclude the most plausible economic justification for such risk to be priced--namely, a "contagious" response of the market portfolio during the credit event. When...

We propose a tractable model of a firm's dynamic debt and equity issuance policies in the presence of asymmetric information. Because "investment-grade" firms can access debt markets, managers who observe a bad private signal can both conceal this information and shield shareholders from...

We propose a tractable bond pricing model in which managers have an informational advantage over creditors. We show that, regardless of how poor their private signal is, managers of firms that can access the credit market will avoid default by issuing new debt to service existing debt....

Reduced-form models of default that attribute a large fraction of credit spreads to compensation for credit-event risk typically preclude the most plausible economic justification for such risk to be priced, namely, a contemporaneous drop in the market portfolio. When this "contagion" channel is...

Structural models of default can identify asset value dynamics and the location of the default boundary from either (observable) credit spreads or (latent) default probabilities. The latter approach uses historical default rates as proxies, which provide such low statistical power that...

Many leading asset pricing models are specified so that the term structure of dividend volatility is either flat or upward sloping. Related, these models predict that the term structures of expected returns and volatilities on dividend strips (i.e., claims to dividends paid over a prespecified...