We offer an alternative framework for the analysis of mutual funds and use it to examine the rationale behind existing regulations that require mutual fund advisor fees to be of the fulcrum' variety. We find little justification for the regulations. Indeed, we find that asymmetric incentive...

This paper develops a model for the pricing of credit derivatives using observables. The model (i) is arbitrage-free, (ii) accommodates path-dependence, and (iii) handles a range of securities, even with American features. The computer implementation uses a recursive scheme that is convenient...

It is widely acknowledged that many financial markets exhibit a considerably greater degree of kurtosis (and sometimes also skewness) than is consistent with the Geometric Brownian Motion model of Black and Scholes (1973). Among the many alternative models that have been proposed in this...

The Investment Advisors Act of 1940 (as amended in 1970) prohibits mutual funds in the US from offering their advisers asymmetric incentive fee' contracts in which the advisers are rewarded for superior performance via-a-vis a chosen index but are not correspondingly penalized for...

We employ a unique hand-collected dataset and a novel methodology to examine systemic risk before and after the largest U.S. banking crisis of the 20th century. Our systemic risk measure captures both the credit risk of an individual bank as well as a bank's position in the network. We construct...

We develop analytic pricing models for options on averages by means of a state-space expansion method. These models augment the class of Asian options to markets where the underlying traded variable follows a mean-reverting process. The approach builds from the digital Asian option on the...

We develop, and apply to data on U.S. corporations from 1979-2004, tests of the standard doubly-stochastic assumption under which firms'default times are correlated only as implied by the correlation of factors determining their default intensities. This assumption is violated in the presence of...

We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are notquot; sufficient to predict future short-term rates movements, as would be the case if the centralquot; tendency was...

Term structure models employing Poisson-Gaussian processes may be used to accommodate the observed skewness and kurtosis of interest rates. This paper extends the discrete-time, pure-Gaussian version of the Heath-Jarrow-Morton model to the pricing" of American-type bond options when the...