This study develops a model for the valuation of Collateralized Mortgage Obligations (CMOs). The model is based on a two-factor model of the term structure of interest rates and embeds an empirically estimated mortgage prepayment function. The model is used to analyze various CMO tranches,...

Using end-of-month bid-ask spreads for 540 NYSE stocks over the period 1982-87, the authors document a seasonal pattern in which both relative and absolute spreads decline from the end of December to the end of the following January. Cross-sectional regressions do not, however, provide evidence...

We argue that since bank loans and publicly traded sub- investment-grade debt, or junk bonds, are close substitutes for one another, the recent failure of Drexel Burnham Lambert created a competitive opportunity for commercial banks. Consistent with this hypothesis, we observe within the...

We find that for a sample of call options on stocks with low returns in the prior year, the implied volatilities increase as the year-end approaches. On the other hand, we do not detect an increase in the volatilities implied from the put options on the same stocks over the same dates. This is...