In this paper a type of Heath, Jarrow and Morton (1992) (HJM) based affine model is derived theoretically. This type of affine model is obtained by applying Linear Realization Theory to construct Finite Dimensional Realizations (FDRs) of the Gaussian HJM model. The algorithms of constructing...

Using 3 years of interest rate caps price data, we provide a comprehensive documentation of volatility smiles in the caps market. To capture the volatility smiles, we develop a multifactor term structure model with stochastic volatility and jumps that yields a closed-form formula for cap prices....

We develop a reduced-form approach for valuing callable corporate bonds by characterizing the call probability via an intensity process. Asymmetric information and market frictions justify the existence of a call-arrival intensity from the market's perspective. Our approach both extends the...

Using more than two years of daily interest rate cap price data, this paper provides a systematic documentation of a volatility smile in cap prices. We find that Black (1976) implied volatilities exhibit an asymmetric smile (sometimes called a sneer) with a stronger skew for in-the-money caps...

We investigate the impact of security analyst coverage on the incidence of corporate financial fraud in China. After controlling for the endogeneity between analyst following and fraud, we find that financial analyst coverage cannot significantly influence the incidence of fraud. The empirical...

Based on the classic Gaussian dynamic term structure model A_0(3), I rotate the model to a special representation, the so called 'Companion Form Realization', in which the state variables comprises the short rate and its related expectations. This unique feature makes the representation very...

Several recent studies present evidence of investor misreaction in the options market. Although the interpretation of their results is still controversial, the important question of economic significance has not been fully addressed. Here this gap is addressed by formulating regression‐based...

Inventory managers often group inventory items into classes to manage and control them more efficiently. The well-known ABC inventory classification approach categorizes inventory items into A, B and C classes according to their sales and usage volume. In this paper, we present an optimization...