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An Option-Based Model of Equilibrium Credit Rationing

Author

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  • Mason, R

Abstract

This paper applies options theory to the model of equilibrium credit rationing developed by Stiglitz and Weiss (1981) by noticing that, given a standard debt contract and limited liability, the payoffs to the lender and the borrower when a loan is make involve a put option and a call option respectively. Information asymmetry is modelled using stochastic volatility option pricing methods.

Suggested Citation

  • Mason, R, 1996. "An Option-Based Model of Equilibrium Credit Rationing," Economics Papers 128, Economics Group, Nuffield College, University of Oxford.
    • Handle: RePEc:nuf:econwp:128
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    Cited by:

    1. Arteta, Carlos & Hale, Galina, 2008. "Sovereign debt crises and credit to the private sector," Journal of International Economics, Elsevier, vol. 74(1), pages 53-69, January.
    2. Hale, Galina & Arteta, Carlos, 2009. "Currency crises and foreign credit in emerging markets: Credit crunch or demand effect?," European Economic Review, Elsevier, vol. 53(7), pages 758-774, October.
    3. Soumaré, Issouf & Lai, Van Son, 2016. "An analysis of government loan guarantees and direct investment through public-private partnerships," Economic Modelling, Elsevier, vol. 59(C), pages 508-519.

    More about this item

    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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