An Option-Based Model of Equilibrium Credit Rationing

Robin Mason

Economics Papers from Economics Group, Nuffield College, University of Oxford

Abstract: This paper applies options theory to the model of equilibrium credit rationing developed by Stiglitz and Weiss (1981) by noticing that, given a standard debt contract and limited liability, the payoffs to the lender and the borrower when a loan is make involve a put option and a call option respectively. Information asymmetry is modelled using stochastic volatility option pricing methods.

Keywords: CREDIT; ECONOMIC EQUILIBRIUM; DEBT; INFORMATION (search for similar items in EconPapers)
JEL-codes: D82 E51 (search for similar items in EconPapers)
Pages: 14 pages
Date: 1996
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Journal Article: An options-based model of equilibrium credit rationing (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:nuf:econwp:128

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