We analyze the determinants of replacement investment decisions in a contingent claims model with maintenance and operation cost uncertainty. We find that the optimal time between replacements is increasing in the volatility of cost, the purchase price of a new asset and the corporate tax rate;...

This paper considers the pricing of multi-class commercial mortgage-backed securities. A contingent-claims pricing methodology that overcomes state variable dimensionality problems is developed to examine mortgage pools with many distinct underlying assets and whose loan cash flow values are...

Empirical studies of bond and commercial mortgage performance often quantify a required risk premium by examining the difference between the promised yield and the realized yield as adjusted for default occurrence. These studies omit the effects of various other sources of risk, however,...

This paper considers the pricing of multi-class commercial mortgage-backed securities (CMBS). The predominant security design is a CMO structure in which distinct investment classes (tranches) are prioritized based on the return of principal. Consequently, default risk is shifted to low priority...

Neoclassical investment decision criteria suggest that only the systematic component of total uncertainty affects the rate of investment, as channeled through built asset price. Alternatively, option-based investment models suggest a direct role for total uncertainty in investment decision...

This paper explores the effect of project interrelationships on investment decisions and project values in a real options framework. We examine in detail the mutually exclusive case where a firm may invest in the development stage of two projects and then may select only a single project to...

This paper considers the valuation and default exercise policy of risky coupon debt that is secured by a lease-encumbered noisy real asset. For parameter values used in our analysis, asset value noise is shown to reduce the value of waiting to default. Moreover, the borrower is shown to delay...

We model and examine the financial aspects of the land development process incorporating the industry practice of preselling lots to builders through the use of option contracts as a risk management technique. Using contingent claims valuation, we are able to determine endogenously the land...

Numerous studies document that diversified firms sell at a discount relative to comparable portfolios of stand-alone firms. One explanation is that these firms suboptimally invest by subsidizing poor performing business segments with resources from profitable business segments. On average, firms...

We examine the empirical determinants of debt maturity structure using a maturity structure measure that incorporates detailed information about all of a firm's liabilities. We find that larger, less risky firms, with longer-term asset maturities use longer-term debt. Additionally, debt maturity...