This paper utilizes the static hedge portfolio (SHP) approach of Derman et al. [Derman, E., Ergener, D., Kani, I., 1995. Static options replication. Journal of Derivatives 2, 78-95] and Carr et al. [Carr, P., Ellis, K., Gupta, V., 1998. Static hedging of exotic options. Journal of Finance 53,...

This paper generalizes the seminal Cox-Ross-Rubinstein (CRR) binomial model by adding a stretch parameter. The generalized CRR (GCRR) model allows us to fine-tune (via the stretch parameter) the lattice structure so as to efficiently price a range of options, such as barrier options. Our...

This paper extends the static hedging portfolio (SHP) approach of Derman et al. (1995) and Carr et al. (1998) to price and hedge American knock-in put options under the Black–Scholes model and the constant elasticity of variance (CEV) model. We use standard European calls (puts) to construct...

Two models are examined in this study, namely, one incorporating exogenous investment and one incorporating endogenous investment and R&D uncertainty. A lump-sum subsidy results in larger net tax revenues than does lowering the profit tax rate in the former model, while this may not be the case...

This paper studies the optimal insurance contract under disappointment theory. We show that, when the individuals anticipate disappointment, there are two types of optimal insurance contract. The first type contains a deductible and a coinsurance above the deductible. We find that zero marginal...

This study extends the works of Mauer and Sarkar (2005) and Andrikopoulos (2009) by incorporating a regime-dependent earnings-based bonus into managerial compensation. Examining the individual effects of ownership shares and earnings-based bonus compensation, we find that the former provides...

We introduce a new channel called random delay effect, through which volatility influences real investment. We show that random delay effect is not negligible in determining the sign of the volatility-investment relationship.

A study of the use and improvement of Hull and White's (1988) control variate technique in pricing options is provided. It contributes to the literature in two ways. First it is shown that it is not optimal to use the entire error of a control variate against its known price (usually a...

The American early exercise feature of the Real Option to invest in a new project is important in capital budgeting and project valuation. Closed form solutions for American, and therefore Real, Options are known for two special cases; an infinite horizon generates the Merton (Bell Journal of...