We consider the demand for state contingent claims in the presence of a zeromean, non-hedgeable background risk. An agent is defined to be generalized risk averse if he/she reacts to an increase in background risk by choosing a demand function for contingent claims with a smaller slope. We show...

We derive general properties of two-factor models of the term structure of interest rates and, in particular, the process for futures prices and rates. Then, as a special case, we derive a no-arbitrage model of the term structure in which any two futures rates act as factors. The term structure...

This article is based on responses to the 1982 general invitation from the Review Board for Government Contracts. The authors' main contention is that the pricing of government contracts has hitherto been deficient in at least two fundamental respects — the use of the historic cost accounting...

Given the range of tools and techniques available for appraising capital projects, financial managers are confronted with the problem of selecting appropriate techniques that adequately reflect their goals. This article explores the rationale underlying alternative measures of project...

There are two ways in which the risk of a capital project can be described. This article outlines these two approaches: Sensitivity Analysis and Probability Analysis, and emphasises the connection between the two methods. The output of a computer model of the sensitivity of the project to...