: Merton (Bondholderss Optimal Strategic Behavior and Credit Spreads: Merton Model and Its Extension)

Merton model has provided a classic theoretical framework for explaining credit spreads. This paper extends Merton model by introducing morphology factor of asset value volatility in the model, and conducts empirical studies on the effect of asset volatility morphology on credit spreads in China’s bond market. The results show that asset volatility morphology is economically important and can explain credit spreads well. Furthermore, this paper analyzes the asymmetric influences of monetary policy on credit spreads and asset volatility morphology. This paper points out that the responses of credit spreads and asset volatility morphology to monetary policy are consistent in the tight liquidity environments. To this end, monetary policy and liquidity, which are two factors that have been ignored by classic Merton model but proved to have significant influences on credit spreads, play roles in influencing credit spreads by changing volatility morphology of asset value. Since asset volatility morphology can reflect the change of investors’ expectation on the default probability of asset, the argument mentioned in the credit spread puzzle that the fundamentals related to bond default probability cannot explain credit spreads needs to be reexamined.

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Another Look at the Relation between Credit Spreads and Interest Rates

CFA Digest ◽

10.2469/dig.v38.n1.9 ◽

2008 ◽

Vol 38 (1) ◽

pp. 20-22

Author(s):

Deborah Kidd

Keyword(s):

Interest Rates ◽

Credit Spreads

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The Internet is a Semicommons

10.31228/osf.io/znhdx ◽

2018 ◽

Cited By ~ 1

Author(s):

James Grimmelmann

Keyword(s):

Open Field ◽

Online Communities ◽

Strategic Behavior ◽

Private Property ◽

The Internet ◽

Field System ◽

Technical Features ◽

Dynamic Interplay ◽

Enormous Success

78 Fordham Law Review 2799 (2010)The Internet is a semicommons. Private property in servers and network links coexists with a shared communications platform. This distinctive combination both explains the Internet's enormous success and illustrates some of its recurring problems.Building on Henry Smith's theory of the semicommons in the medieval open-field system, this essay explains how the dynamic interplay between private and common uses on the Internet enables it to facilitate worldwide sharing and collaboration without collapsing under the strain of misuse. It shows that key technical features of the Internet, such as its layering of protocols and the Web's division into distinct "sites," respond to the characteristic threats of strategic behavior in a semicommons. An extended case study of the Usenet distributed messaging system shows that not all semicommons on the Internet succeed; the continued success of the Internet depends on our ability to create strong online communities that can manage and defend the infrastructure on which they rely. Private and common both have essential roles to play in that task, a lesson recognized in David Post's and Jonathan Zittrain's recent books on the Internet.

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