Credit Risk in General Equilibrium

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4602

Classification and Topics

• Classification: Wirtschaft ; General Equilibrium and Disequilibrium: Financial Markets ; General Financial Markets: General (includes Measurement and Data)
• Subject: financial markets equilibrium ; bankruptcy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Eichberger, Jürgen ; Rheinberger, Klaus ; Summer, Martin
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/93409
• Last update: 10.03.2025, 11:44 AM CET