This study analyzes the valuation of housing index derivatives traded on the Chicago Mercantile Exchange (CME). Specifically, to circumvent the nontradability of housing indices, we propose and implement an equilibrium valuation framework. Assuming a mean‐reverting aggregate dividend process...

In the current literature, the focus of credit‐risk analysis has been either on the valuation of risky corporate bond and credit spread or on the valuation of vulnerable options, but never both in the same context. There are two main concerns with existing studies. First, corporate bonds and...

This paper has two objectives: (1) to propose and implement a valuation framework for temperature derivatives (a specific class of weather derivatives); and (2) to study the significance of the market price of weather risk. The objectives are accomplished by generalizing the Lucas model of 1978...

I examine the effects of return predictability on option prices for the market portfolio in the presence of stochastic volatility and/or stochastic interest rates. The analysis is implemented in an equilibrium framework where a consistent option pricing model is derived with the return...

The log-normal Garman and Kohlhagen (1983) currency option model usually creates pricing biases when matched with the market prices. The observed price bias pattern is generally consistent with the mixed jump-diffusion distribution for exchange rates. Various studies have provided evidence of...

Bank loans are more available and cheaper for new and small businesses in the US in areas with highly concentrated banks than in areas with highly competitive banks. We explain this fact by analyzing banks' decisions to screen risky projects and their subsequent competition in loan provisions....

This paper uses an extension of the equilibrium model of Lucas (1978) to study the valuation of options on the market portfolio with return predictability, endogenous stochastic volatility and interest rates. Equilibrium conditions imply that the mean-reverting of the rate of dividend growth...

We explain why underpricing in IPOs can be large in magnitude and clustered, using a signalling model where firms have private information about their qualities (high or low). A novel feature is that a firm, if perceived by the market as high quality, benefits from the industry's publicity which...

Bank loans are more available and cheaper for new and small businesses in the U.S. in concentrated banking areas than in competitive banking areas. To explain this anomaly, we analyze banks' decisions to screen projects and their subsequent competition in loan provisions. It is shown that, by...