Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26265
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dc.contributor.authorStein, Jerome L.en_US
dc.date.accessioned2008-02-28en_US
dc.date.accessioned2009-07-28T08:29:45Z-
dc.date.available2009-07-28T08:29:45Z-
dc.date.issued2008en_US
dc.identifier.urihttp://hdl.handle.net/10419/26265-
dc.description.abstractBanks should evaluate whether a borrower is likely to default. I apply several techniques in the extensive mathematical literature of stochastic optimal control/dynamic programming to derive an optimal debt in an environment where there are risks on both the asset and liabilities sides. The vulnerability of the borrowing firm to shocks from either the return to capital, the interest rate or capital gain, increases in proportion to the difference between the Actual and Optimal debt ratio, called the excess debt. As the debt ratio exceeds the optimum, default becomes ever more likely. This paper is “A Tale of Two Crises” because the analysis is applied to the agricultural debt crisis of the 1980s and to the sub-prime mortgage crisis of 2007. A measure of excess debt is derived, and we show that it is an early warning signal of a crisis.en_US
dc.language.isoengen_US
dc.publisher|aCenter for Economic Studies and Ifo Institute (CESifo) |cMunichen_US
dc.relation.ispartofseries|aCESifo working paper|x2220en_US
dc.subject.jelC61en_US
dc.subject.jelD81en_US
dc.subject.jelD91en_US
dc.subject.jelD92en_US
dc.subject.ddc330en_US
dc.subject.keywordoptimizationen_US
dc.subject.keywordbankingen_US
dc.subject.keywordstochastic optimal controlen_US
dc.subject.keywordagriculture debt crisisen_US
dc.subject.keywordsubprime mortgage crisisen_US
dc.subject.stwKreditrisikoen_US
dc.subject.stwMessungen_US
dc.subject.stwDynamische Optimierungen_US
dc.subject.stwStochastischer Prozessen_US
dc.subject.stwKontrolltheorieen_US
dc.subject.stwVergleichen_US
dc.subject.stwFinanzmarktkriseen_US
dc.subject.stwUSAen_US
dc.titleA tale of two debt crises: a stochastic optimal control analysisen_US
dc.type|aWorking Paperen_US
dc.identifier.ppn55908806Xen_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-

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