In this paper we present a new model for pricing and hedging a portfolio of derivatives that takes into account the effect of an extreme movement in the underlying. We make no assumptions about the timing of this 'crash' or the probability distribution of its size, except that we put an upper...

In this paper a family of clean-surplus models are developed from standard accounting and financial identities. The models rely on the use of non-traditional performance measures of clean surplus in relation to value-added, and growth in value-added, in order to establish market value to...

Jump diffusion models have two weaknesses: they don't allow you to hedge and the parameters are very hard to measure. Nobody likes a model that tells you that hedging is impossible (even though that may correspond to common sense) and in the classical jump-diffusion model of Merton the best that...

Lower underpricing amongst venture-backed IPOs has been attributed to a certification role for venture capitalists. We argue that differences in underpricing per se are uninformative and possibly misleading when not controlling for differences in entrepreneurs’ incentives to control...

Why are there such pronounced differences in patterns of ownership and control of corporations across countries? This paper proposes that these, together with many of the stylized facts of corporate finance, can be explained by private benefits. Private benefits create waste and inefficiency but...

Economic theory points to five parties disciplining management of poorly performing firms: holders of large share blocks, acquirers of new blocks, bidders in takeovers, non-executive directors, and investors during periods of financial distress. This paper reports the first comparative...

This paper examines the relation between financial, corporate and legal systems, and economic performance in different countries. It reviews international comparisons that undertake detailed analyses of individual, developed countries and studies that use large, cross-country data banks,...

The modelling of credit risk, credit derivatives and non-hedgeable securities in general is currently in a poor state. Ideas from equity options theory have been adopted for credit risk, but have not been adapted for the peculiarities of this more complex world. This brief paper is a review and...

The passport option is a call option on the balance of a trading account. The option holder retains the gain from trading, while the writer is liable for the loss. We establish pricing equations for various passport options including the multi-asset passport and those with discrete trading...

Parisian options are barrier options for which the knock-in/knock-out feature is only activated after the price process has spent a certain prescribed, consecutive time beyond the barrier. This specification is motivated by the need to make the option more robust against short-term movements of...