Credit risk in general equilibrium

Jürgen Eichberger (), Klaus Rheinberger () and Martin Summer

Economic Theory, 2014, vol. 57, issue 2, 407-435

Abstract: This paper contributes to the literature on default in general equilibrium. Borrowing and lending takes place via a clearing house (bank) that monitors agents and enforces contracts. Our model develops a concept of bankruptcy equilibrium that is a direct generalization of the standard general equilibrium model with financial markets. Borrowers may default in equilibrium and returns on loans are determined endogenously. Restricted to a special form of mean variance preferences, we derive a version of the capital asset pricing model with bankruptcy. In this case, we can characterize equilibrium prices and allocations and discuss implications for credit risk modeling. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Credit risk; Endogenous risk; Bankruptcy; D53; G33; G01; D52 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Credit Risk in General Equilibrium (2014)
Working Paper: Credit risk in general equilibrium (2012)
Working Paper: Credit Risk in General Equilibrium (2011)
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DOI: 10.1007/s00199-014-0822-2

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