There is no room in the classical Black-Scholes framework for the market view of an investor. The investor in derivatives needs to know the volatility of the underlying, that is the 'choppiness' of the market, but the direction is irrelevant. Suppose we have two stocks A and B having the same...

In this paper we address the question as to why fund managers may trade on short-term information in a financial market that offers more profitable trading on long-term information. We consider a setting in which a fund manager’s ability is unknown and an investor uses performance...

Non-U.S. firms frequently pay a substantial premium to have a U.S. bank lead their initial public offering of equity, even when the issuing firm is not seeking a listing on a U.S. exchange. We provide evidence that this decision reflects an expectation that U.S. banks deliver a higher quality...

We model underpricing as being endogenous to the wealth loss minimization problem encountered in a stock market flotation. The benefits of reducing underpricing depend on the entrepreneur's participation in the offering, via the secondary shares he sells, as well as the magnitude of the dilution...

The 1989 Brady Plan, named after the former US Treasury Secretary Nicholas Brady, was the restructuring and reduction of several emerging countries' external debt into bonds with US Treasury bonds as collateral. So far no country has ever defaulted payments, yet the market value of these bonds...

We explain the ideas behind the valuation of options with early exercise features, so called American options. We also aim to clarify some popular misconceptions about when an American option should be exercised. These misconceptions seem to be prevalent among both academics and practitioners.

In contrast to their role in theory options are in practice not only traded for hedging purposes. Many investors also use them for speculation purposes. For these investors the Black-Scholes price serves only as an orientaTion, their decisions to buy, hold or hedge an option are also based on...

In this paper we present a model for the value of a firm based on observable variables and parameters: the annual turnover, the expenses, interest rates. This value is the solution of a parabolic partial differential equation. We show how the value of the company depends on its legal status such...

In this paper we build upon the recently developed uncertain parameter framework for valuing derivatives in a worst-case scenario. We start by deriving a stochastic volatility model based on a simple analysis of time-series data. We use this stochastic model to examine the time evolution of...