The collateralised debt obligation (CDO) market has grown rapidly, both globally and in Australia, over recent years. CDOs are securities that are issued against a pool of assets that can include bonds, loans or asset-backed securities (ABS) including other CDOs.2 Increasingly, this exposure is being created synthetically by the use of derivatives written on these assets, rather than physically...

In 1976 Black and Cox proposed a structural model where an obligor defaults when the value of its assets hits a certain barrier. In 2001 Zhou showed how the model can be extended to two obligors whose assets are correlated. In this paper we show how the model can be extended to a large number of different obligors. The correlations between the assets of the obligors are determined by one or mor...

ONETIZING the debt” conjures up fearsome images of excessive money stock growth resulting from Federal Reserve purchases of Treasury debt. Many analysts fear that debt monetization may produce undesirable economic consequences, such as more rapid inflation and, thus, higher nominal interest rates. There appears to be some confusion, however, over what debt monetization means, whether or to what...

In this paper, we present an intensity-based common factor model that is used to analyze the valuation of common systematic risks in multi-name credit and equity markets. In particular, we use a hybrid intensity model to price single-name credit instruments such as credit default swaps (CDSs), multi-name credit derivatives such as collateralized debt obligations (CDOs), and equity index options...

We consider a model in which a principal must both repay a loan and motivate an agent to work hard. Output is non-contractible, so the principal faces a commitment problem with both her creditor and her agent. In a profit-maximizing equilibrium, the agent’s productivity is initially low and increases over time. Productivity continues increasing even after the debt has been repaid, eventually co...

In the past few years, there have been several new developments in the way real estate investment trusts (REITs) access capital. There has been an increasing trend toward the use of unsecured debt, and REITs may also alter their dividend policy in order to generate capital internally to the extent they can. There has been little empirical research into the market's reaction to unsecured debt an...

this study empirically examines whether managers manipulate reported income through the timing of sales of long-lived assets and investments. several empirical implications of the income-smoothing and debt-equity hypothesis in the context of asset sales were tested. the findings are consistent with the timing of asset sales by managers so that the recognized accounting income from these sales s...