Market prices for callable Treasury bonds often imply negative values for the implicit call option. The author considers a variety of possible explanations for these negative values including the Treasury's track record in calling bonds optimally, tax-related effects, tax-timing options, 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....