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Martingale properties of self-enforcing debt
Not-too-tight debt limits are endogenous restrictions on debt that prevent agents from defaulting and opting for a specified continuation utility, while allowing for maximal credit expansion. For an agent facing some fixed prices for the Arrow securities, we prove that discounted not-too-tight debt...
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Published in: | Economic theory 2015-09, Vol.60 (1), p.35-57 |
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Main Authors: | , |
Format: | Article |
Language: | English |
Subjects: | |
Citations: | Items that this one cites Items that cite this one |
Online Access: | Get full text |
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Summary: | Not-too-tight debt limits are endogenous restrictions on debt that prevent agents from defaulting and opting for a specified continuation utility, while allowing for maximal credit expansion. For an agent facing some fixed prices for the Arrow securities, we prove that discounted not-too-tight debt limits must differ by a martingale. |
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ISSN: | 0938-2259 1432-0479 |
DOI: | 10.1007/s00199-014-0832-0 |