Responsible Sovereign Lending and Borrowing

Sovereign Borrowing, Sanctions and Yield Spreads

We model sovereign debt in the absence of a bankruptcy code. Threat of trade sanctions and seizure of exports by the lenders are the drivers of enforcement of sovereign debt contracts.The borrower takes these potential actions into account when choosing optimal voluntary default and debt capacity. We obtain a closedform solution for the sovereign yield spreads that depend on the costs of sancti...

Responsible Consumer Lending

Do Sovereign Credit Ratings Affect the Composition and Maturity of Sovereign Borrowing?

In this paper, I develop a theoretical model to analyze the optimal choice between bank loans and bond finance for a sovereign debtor. The model describes a market that is subject to moral hazard and adverse selection. I model the choice between the two debt instruments allowing for debt renegotiation in the event of financial distress, with the possibility of default. The model incorporates pr...

Repeated Principal-agent Relationships with Lending and Borrowing

One of the characteristics of many interpretations of the principal-agent relationship such as landlord-tenant, shareholder-management, and so on, is that they are repeated. One question that then arises is whether the use of long-term contracts allows an improvement over a series of short-term contracts. As soon as a time element is introduced, the possibility exists for risk to be spread over...

On Multiperiod Portfolio Selection with Different Borrowing and Lending Rates

This paper deals with the problem of multiperiod portfolio selection, where borrowing and lending are allowed with different rates. Indeed, this work is mainly based on a recently published paper with the same subject. In this paper the underlying problem of multiperiod portfolio selection with different borrowing and lending rates is reformulated. After a thorough discussion about both concept...