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Equilibrium with limited-recourse collateralized loans

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  • Rubén Poblete-Cazenave

    ()

  • Juan Torres-Martínez

    ()

Abstract

We address a general equilibrium model with limited-recourse collateralized loans and securitization of debts. Each borrower is required to pledge physical collateral, and bankruptcy is filed against him if claims are not fully honored. Moreover, agents have a positive amount of wealth exempt from garnishment and, for at least a fraction of them, commodities used as collateral are desirable. In this context, equilibrium exists for any continuous garnishment rule and multiple types of reimbursement mechanisms. Copyright Springer-Verlag 2013

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File URL: http://hdl.handle.net/10.1007/s00199-011-0685-8
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 53 (2013)
Issue (Month): 1 (May)
Pages: 181-211

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Handle: RePEc:spr:joecth:v:53:y:2013:i:1:p:181-211

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Related research

Keywords: Collateralized assets; Bankruptcy; Limited-recourse loans; D52; D54;

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References

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  1. Magill,Michael & Quinzii,Martine, 1992. "Infinite horizon,Incomplete markets," Discussion Paper Serie A 384, University of Bonn, Germany.
  2. Monique Florenzano & Pascal Gourdel, 1996. "Incomplete Markets In Infinite Horizon: Debt Constraints Versus Node Prices," Mathematical Finance, Wiley Blackwell, vol. 6(2), pages 167-196.
  3. Abdelkrim Seghir & Juan Torres-Martínez, 2008. "Wealth transfers and the role of collateral when lifetimes are uncertain," Economic Theory, Springer, vol. 36(3), pages 471-502, September.
  4. Felipe Martins-da-Rocha & Yiannis Vailakis, 2008. "Collateral, default penalties and almost finite-time solvency," Levine's Working Paper Archive 122247000000002049, David K. Levine.
  5. Sabarwal Tarun, 2003. "Competitive Equilibria With Incomplete Markets and Endogenous Bankruptcy," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-42, January.
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  7. Araujo, Aloisio. & Fajardo, J. & Páscoa. M. R., 2004. "Endogenous Collateral," Finance Lab Working Papers flwp_68, Finance Lab, Insper Instituto de Ensino e Pesquisa.
  8. Myrian Petrassi & Juan Pablo Torres-Martinez, 2007. "Collateralized Assets And Asymmetric Information," Textos para discussão 539, Department of Economics PUC-Rio (Brazil).
  9. Balder, Erik J., 1999. "On the existence of Cournot-Nash equilibria in continuum games," Journal of Mathematical Economics, Elsevier, vol. 32(2), pages 207-223, October.
  10. Aloisio Ara�jo & Jaime Orrillo & Mario R. Páscoa, 2000. "Equilibrium with Default and Endogenous Collateral," Mathematical Finance, Wiley Blackwell, vol. 10(1), pages 1-21.
  11. William R. Zame, 1992. "Efficiency and the Role of Default When Security Markets are Incomplete," UCLA Economics Working Papers 673, UCLA Department of Economics.
  12. Weerachart Kilenthong, 2011. "Collateral premia and risk sharing under limited commitment," Economic Theory, Springer, vol. 46(3), pages 475-501, April.
  13. Steinert, Mariano & Torres-Martinez, Juan Pablo, 2007. "General equilibrium in CLO markets," Journal of Mathematical Economics, Elsevier, vol. 43(6), pages 709-734, August.
  14. Timothy J Kehoe & David K Levine, 1993. "Debt Constrained Asset Markets," Levine's Working Paper Archive 1276, David K. Levine.
  15. Hernandez D., Alejandro & Santos, Manuel S., 1996. "Competitive Equilibria for Infinite-Horizon Economies with Incomplete Markets," Journal of Economic Theory, Elsevier, vol. 71(1), pages 102-130, October.
  16. Martins-da-Rocha, Victor Filipe & Vailakis, Y., 2011. "Endogenous debt constraints in collateralized economies with default penalties," Economics Working Papers (Ensaios Economicos da EPGE) 719, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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Citations

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Cited by:
  1. Iraola, Miguel & Torres-Martínez, Juan Pablo, 2013. "Liquidity Contractions, Incomplete Financial Participation and the Prevalence of Negative Equity Non-recourse Loans," MPRA Paper 46838, University Library of Munich, Germany.
  2. Michael Magill & Martine Quinzii, 2014. "Prices and Investment with Collateral and Default," Working Papers 143, University of California, Davis, Department of Economics.

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