Credit Risk in General Equilibrium

Jürgen Eichberger, Klaus Rheinberger () and Martin Summer

No 4602, CESifo Working Paper Series from CESifo

Abstract: This paper contributes to the literature on default in general equilibrium. Borrowing and lending takes place via a clearing house (bank) which 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.

Keywords: financial markets equilibrium; bankruptcy (search for similar items in EconPapers)
JEL-codes: D53 G10 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: 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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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4602

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