The purpose of this paper is to examine the time series properties of volatilities, and to consider various financial and real variables that may be correlated with innovations in expected volatility. The measure used in this study is the Black-Scholes volatility implied in weekly call option...

We develop a simple approach to valuing risky corporate debt that incorporates both default and interest rate risk. We use this approach to derive simple closed-form valuation expressions for fixed and floating rate debt. The model provides a number of interesting new insights about pricing and...

This article extends the option approach to valuing real assets by modeling the firm as a two-stage process with bounded output rates, in which the output of the first stage may be held as work-in-process. In this setting, the real asset becomes a compound option, which, if exercised, gives the...

This article investigates the interaction of prepayment and default decisions in the valuation of mortgage pass-through securities. Even though a mortgage pass-through security is typically guaranteed by a financial intermediary, default decisions affect the timing of its cash flows and,...

This article compares a capital market in which prices are set by a single expected utility maximizing investor with a market in which the expected utility maximizing investor owns only a part of the wealth, the balance being held by an investor who follows a portfolio insurance strategy....