Individuals, endowments and trusts face uncertain lifetimes. When the planning horizon of an entity is stochastic and Pareto distributed, hyperbolic discounting and time-varying consumption rates are optimal. We derive expressions for the optimal rate of consumption (draw-down) from wealth for...

We determine optimal consumption paths under a series of returns scenarios for charitable endowments with distinct tastes over investment risk and inter-temporal substitution. Charities typically prefer smooth consumption paths but are investment-risk tolerant. Using a recursive, Kreps-Porteus...

In this paper, the authors use the concept of the population Receiver Operating Characteristic (ROC) curve to build analytic models of ROC curves. Information about the population properties can be used to gain greater accuracy of estimation relative to the non-parametric methods currently in...

This paper assumes that the underlying asset prices are lognormally distributed, and derives necessary and sufficient conditions for the valuation of options using a Black-Scholes type methodology. It is shown that the price of a futures-style, marked-to-market option is given by Black's formula...

We propose the average F statistic for testing linear asset pricing models. The average pricing error, captured in the the statistic, is of more interest than the ex post maximum pricing error of the multivariate F statistic that is associated with extreme long and short positions and...

One of the most important policy issues for financial authorities is to decide at what level average capital charges should be set. The decision may alternatively be expressed as the choice of an appropriate survival probability for representative banks over a horizon such as a year, often...

To measure the risks involved in their trading operations, major banks are increasingly employing Value-at-Risk (VaR) models. In an important regulatory innovation, the Basle Committee has accepted that such models can be used in the determination of the capital that banks must hold to back...

This paper outlines a method for estimating the value of deposit insurance based on option pricing theory. It follows the approach of Merton who viewed deposit insurance as, essentially, a put option on the value of the bank's assets. Three models are analysed, each embodying a different...

When firms experience financial distress, equity-holders may act strategically, forcing concessions from debt-holders and paying less than the originally-contracted interest payments. This paper incorporates strategic debt service in a standard, continuous time asset pricing model, developing...

This paper shows (i) how entry and exit of firms in a competitive industry affect the valuation of securities and optimal capital structure, and (ii) how, given a trade-off between the tax advantages and agency costs, a firm will optimally adjust its leverage level after it is set up. We derive...