Single-Name Credit Risk, Portfolio Risk, and Credit Rationing

URN to cite this document:: urn:nbn:de:bvb:355-epub-173651
DOI to cite this document:: 10.5283/epub.17365

Arnold, Lutz G. ; Reeder, Johannes ; Trepl, Stefanie

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Date of publication of this fulltext: 19 Oct 2010 12:16

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Abstract

This paper introduces non-diversifiable risk in the Stiglitz-Weiss adverse selection model, so that an increase in the average riskiness of the borrower pool causes higher portfolio risk. This opens up the possibility of equilibrium credit rationing. Comparative statics analysis shows that an increase in risk aversion turns a two-price equilibrium into a rationing equilibrium. A two-price ...