Prospect theory (PT), which relies on subjects’ behavior as observed in laboratory experiments, contradicts the behavior predicted by the Expected Utility (EU) paradigm. Having wealth of $100,000 or having wealth of $90,000 and winning $10,000 in a lottery is the same by EU paradigm but not...

In this paper we propose a computationally efficient implementation of general one factor short rate models with a trinomial tree. We improve the Hull–White’s procedure to calibrate the tree to bond prices by circumventing the forward rate induction and numerical root search algorithms. Our...

When the underlying price process is a one-dimensional diffusion, as well as in certain restricted stochastic volatility settings, a contingent claim's delta is bounded by the infimum and supremum of its delta at maturity. Further, if the claim's payoff is convex (concave), the claim's price is...

We introduce a model that captures the main properties that characterize employee stock options (ESO). We discuss the likelihood of early voluntary ESO exercise, and the obligation to exercise immediately if the employee leaves the firm, except if this happens before options are vested, in which...

Purpose – The purpose of this research is to develop and test a mathematical method of deriving zero yield curve from market prices of government bonds. Design/methodology/approach – The method is based on a forward curve approximated by a linear (or piecewise constant) spline and should be...

The institutional brokerage industry faces an ever-increasing pressure to lower trading costs, which has already driven down average commissions and shifted volume toward low-cost execution venues. However, traditional full-service brokers that bundle execution with services remain a force and...

We propose a new approach to dynamic representation of different groups of stakeholders on the board of directors. This approach is based on a simple economic model of the firm, with an objective function to maximize its market value. We look at the marginal claim of each stakeholder on the...