Dear Colleagues,
I am happy to share with you the following invitation to the Quantative Finance webinar organized by LTI@UniTO and Collegio Carlo Alberto, “Self Inflicted Debt Crises” by Theo Dimopoulos (HEC Lausanne), which will take place on Zoom on May 12, at 12.00. Below you find the Zoom link and an abstract of the presentation.
Best regards,
Luca Regis
<#> LTI@Unito and Fondazione Collegio Carlo Alberto are pleased to invite you to the next webinar
<#> *May 12, 2021 | 12:00-13:15* *“Self Inflicted Debt Crises”* *Theo Dimopoulos (HEC Lausanne)*
<#> *Abstract*: The restrictions on economic activity in the Covid-19 pandemic have led to a looming debt crisis. In a dynamic model of strategic default and debt renegotiation, we show how to resolve debt crises depending on borrowers’ time-inconsistent preferences. Myopic borrowers misprice their option to default by a U-shaped negative pricing error, which causes imperfect consumption smoothing, underinvestment in normal times, and risk shifting in crisis times. The model shows that bailouts need to be tailored to borrowers’ myopia, that lenders and borrowers ultimately self-inflict debt crises through their strategic interaction, that myopic distress can be cheaper to resolve than rational distress, and that myopia can be beneficial for rational agents. Optimal bailouts either punish or reward myopia through smaller or larger transfers, leading to procrastinated default and protracted crises or the reverse, depending on whether transfers exacerbate or alleviate the borrowers’ misperception of default risk. *Zoom Link*: https://us02web.zoom.us/j/86981911369?pwd=enM0c0lRM1BqOUhiNXJ1b1hoRUFkZz09 https://4z5y5.r.a.d.sendibm1.com/mk/cl/f/hbrUdAY_KcHiYFp-zoUEFWWBp9T0Kg0cUlK_iKqjx3w_NMUBv_zJov9SUQ9_GGFoWEzLjLcHVQl66XF_G3J3SvVVJnxHHl7z8n8dk_gsfM5IvIx7hBLoz87CSNEE8-qOeNqjC9NSbCbIXojZsS3ZoAJg7pkBrarLCDry0p75BNL19uKy89jTE6NRJgkr7edu4s3j_C2h4Ro5igx9aWWXBLJ3r5PaMHmwX9q-rPuENJithLJPWF8 Meeting ID: 869 8191 1369 Passcode: 166986
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