Dear all, Join us for our upcoming talk in the STAR seminarhttps://www.mn.uio.no/math/english/research/projects/storm/events/seminars/star-online-seminars/ series Tuesday, November 11th, from 13:00 to 14:00 (Oslo time). As always, the talk will take place in a hybrid format: participants in Oslo can attend the talk in Room 723 in Niels Henrik Abels hus, whereas the international audience will be able to follow the talk via Zoomhttps://uio.zoom.us/j/62796699609. The speaker is Paul Ehling (BI Norwegian Business School) with the talk:
Title: Asset pricing implications of default
Abstract: Studying the asset pricing implications of default, we show that default along the equilibrium path reduces the amount of risk-sharing for two reasons. First, the potential of future default events for relatively poor agents increases their cost of borrowing today. Second, the option value of default in the future induces increased borrowing today, even for relatively rich agents. We establish that agents borrow from each other simultaneously in equilibrium and that they borrow more when idiosyncratic risk is high. Further, we show that this increases the probability of default along the equilibrium path which drives up the premium on risky assets. To solve our dynamic model example with multiple agents numerically, we rely on a machine learning framework to overcome the large state space and the non-linearities due to default.
We are looking forward to seeing you! Best regards, Giulia, Leonardo and Pere