Related papers: Debt Aversion: Theory and Measurement
Consumer Debt has risen to be an important problem of modern societies, generating a lot of research in order to understand the nature of consumer indebtness, which so far its modelling has been carried out by statistical models. In this…
Student loans occupy a significant portion of the federal budget, as well as, the largest financial burden in terms of debt for graduates. This paper explores data-driven approaches towards understanding the repayment of such loans. Using…
Different models of capital exchange among economic agents have been proposed recently trying to explain the emergence of Pareto's wealth power law distribution. One important factor to be considered is the existence of risk aversion. In…
While defaults are rare events, losses can be substantial even for credit portfolios with a large number of contracts. Therefore, not only a good evaluation of the probability of default is crucial, but also the severity of losses needs to…
Credit scores are critical for allocating consumer debt in the United States, yet little evidence is available on their performance. We benchmark a widely used credit score against a machine learning model of consumer default and find…
We consider active learning under incentive compatibility constraints. The main application of our results is to economic experiments, in which a learner seeks to infer the parameters of a subject's preferences: for example their attitudes…
This paper investigates how dispersion in banks' subjective inflation forecasts is a channel of the transmission of monetary policy to credit supply. We extend the Monti-Klein model of monopolistic banking by incorporating risk aversion,…
Previous research has shown a relationship between voter characteristics and voter support for tax bonds. These findings, however, are difficult to interpret because of the high degree of collinearity across the measures. From 13…
This paper attempts to find a relationship between agents' risk aversion and inequality of incomes. Specifically, a model is proposed for the evolution in time of surplus/deficit distribution, and the long-time distributions are…
Debt recycling is an aggressive equity extraction strategy that potentially permits faster repayment of a mortgage. While equity progressively builds up as the mortgage is repaid monthly, mortgage holders may obtain another loan they could…
Risk-averse investors often wish to exclude stocks from their portfolios that bear high credit risk, which is a measure of a firm's likelihood of bankruptcy. This risk is commonly estimated by constructing signals from quarterly accounting…
During the last two years, Europe has been facing a debt crisis, and Greece has been at its center. In response to the crisis, drastic actions have been taken, including the halving of Greek debt. Policy makers acted because interest rates…
In this letter, I consider the issue of pricing risky debt by following Merton's approach. I generalize Merton's results to the case where the interest rate is modeled by the CIR term structure. Exact closed forms are provided for the risky…
I study altruistic choices through the lens of a cognitively noisy decision-maker. I introduce a theoretical framework that demonstrates how increased cognitive noise can directionally affect altruistic decisions and put its implications to…
In behavioral finance, aversion affects investors' judgment of future uncertainty when profit and loss occur. Considering investors' aversion to loss and risk, and the ambiguous uncertainty characterizing asset returns, we construct a…
Public debt is one of the important economic variables that quantitatively describes a nation's economy. Because bankruptcy is a risk faced even by institutions as large as governments (e.g. Iceland), national debt should be strictly…
In this paper, we deal with an axiomatic approach to default risk. We introduce the notion of a default risk measure, which generalizes the classical probability of default (PD), and allows to incorporate model risk in various forms. We…
The Brain Drain phenomenon is particularly heterogeneous and is characterized by peculiar specifications. It influences the economic fundamentals of both the country of origin and the host one in terms of human capital accumulation. Here,…
An alternative to the dependence on traditional student loans may offer a viable relief from the tremendous burden that those loans usually incur. This article establishes that it is desirable for governmental intervention to grant students…
Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on…