Regulatory authorities often lack a "smoking gun" (i.e., hard evidence such as a note or a memorandum) when prosecuting individuals for illegal insider trading. As a result, many insider trading cases depend solely on circumstantial evidence, which is usually obtained by associating trades with...

This paper examines the optimal capital structure of a firm which can choose both the amount and maturity of its debt. Bankruptcy is determined endogenously rather than by the imposition of a positive net worth condition or by a cash flow constraint. The results extend Leland's [1994]...

We show that the infinite regression problem in models with differentially informed traders can be solved using a fixed point method which we use to derive the dynamic equilibrium in a multi-auction model with diversely informed traders. We find that when the informed traders' signals are not...

The trading mechanism for equities on the Tokyo Stock Exchange (TSE) stands in sharp contrast to the primary mechanisms used to trade stocks in the United States. In the U.S., exchange-designated specialists have affirmative obligations to provide continuous liquidity to the market. Specialists...

In this paper, I derive exact formulas for expected hedging error and transactions costs in option replication for the Black-Scholes economy with exogenously fixed trading points. I derive the formulas using two different volatilities which allow the hedger to use a transactions costs adjusted...

Despite its success, the Black-Scholes formula has become increasingly unreliable over time in the very markets where one would expect it to be most accurate. In addition, attempts by financial economists to extract probabilistic information from option prices have been puny in comparison to...

This paper examines corporate debt values and capital structure in a unified analytical framework. It derives closed form results for the value of long-term risky debt and yield spreads, and for optimal capital structure, when firm asset value follows a diffusion process with constant...

This paper compares the investment policies and returns for portfolios of stocks and bonds with and without up to three categories of real estate. Both a domestic and a global setting are examined, with and without the possibility of leverage. The portfolios were generated via the dynamic...

This paper constructs a representative agent supporting the equilibrium allocation in event-tree economies with time-additive preferences and possibly incomplete securities markets. If the equilibrium allocation is Pareto optimal, this construction gives the usual linear welfare function....

In this paper, I derive option pricing formulas for call and put options written on leveraged equity in an economy with corporate taxes and bankruptcy costs. The firm can be forced into bankruptcy by breaching a net-worth covenant, or it may declare bankruptcy when it is optimal for equity...