Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93409
Authors: 
Eichberger, Jürgen
Rheinberger, Klaus
Summer, Martin
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4602
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.
Subjects: 
financial markets equilibrium
bankruptcy
JEL: 
D53
G10
Document Type: 
Working Paper

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