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Modeling Credit Risk: A Structural Approach with Long-term and Short-term Debts

Ryoichi Ikeda, Takao Kobayashi and Akihiko Takahashi
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Ryoichi Ikeda: Graduate School of Economics, University of Tokyo
Takao Kobayashi: Faculty of Economics, University of Tokyo
Akihiko Takahashi: Faculty of Economics, University of Tokyo

No CARF-J-011, CARF J-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper proposes a structural model to price credit risk of firms with short-term and long-term debts. This enables one to distinguish between default probabilities in the short run and in the long run, and to identify how the composition of debts affects credit risk. We endogenize the banks' decision to bankrupt or save firms in insolvency, and analyze the influence of the governance structure on credit risk valuation.

Pages: 41 pages
Date: 2005-05
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:jseres:cj011

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