Showing 1 - 10 of 1,127
I examine whether the time-varying cost of capital is considered in firms' capital budgeting decisions. For this test, I measure the conditional cost of equity, using individual equity option prices. I find that corporate investment responds negatively to fluctuations in the option-implied cost...
Persistent link: https://www.econbiz.de/10012853706
Assuming that one-period logarithmic returns of the underlying asset follow a hidden Markov process, we develop a valuation model for European call options. Unlike existing option pricing models, our pricing mechanism relies on the optimal non exponential-affine stochastic discount factor...
Persistent link: https://www.econbiz.de/10012841391
We model the super-replication of payoffs linked to a country's GDP as a stochastic linear program on a discrete time and state-space scenario tree to price GDP-linked bonds. As a by-product of the model we obtain a hedging portfolio. Using linear programming duality we compute also the risk...
Persistent link: https://www.econbiz.de/10012924126
In their work, Brigo and Capponi (2010) introduce a numerical approach for calculating credit valuation adjustments (CVA) for credit default swaps (CDS). In contrast to previous research, they consider the default of the party doing the calculation, and its correlation to the defaults of the...
Persistent link: https://www.econbiz.de/10013111095
We model the super-replication of payoffs linked to a country's GDP as a stochastic linear program on a discrete time and state-space scenario tree to price GDP-linked bonds. As a byproduct of the model, we obtain a hedging portfolio. Using linear programming duality we also compute the risk...
Persistent link: https://www.econbiz.de/10012934030
The use of American style equity options as hedging instrument has gained currency in recent times. This phenomenon devolves from the ever-expanding need by individuals, corporations and governments to hedge away their financial risks and the clarion call for derivative securities that give the...
Persistent link: https://www.econbiz.de/10012993420
This paper studies optimal sovereign investment and resource allocation decisions in the presence of asset price discontinuities due to stochastic volatility and event related jump risks. We find that: (i) both volatility jumps and positive price jumps increase investment in commodities while...
Persistent link: https://www.econbiz.de/10012993771
We use a compound option-based structural credit risk model to infer a term structure of banking crisis risk from market data on bank stocks in daily frequency. Considering debt service payments with different maturities this term structure assigns a separate estimator for short- and long-term...
Persistent link: https://www.econbiz.de/10010270187
We develop a new approach to approximating asset prices in the context of continuous-time models. For any pricing model that lacks a closed-form solution, we provide a closed-form approximate solution, which relies on the expansion of the intractable model around an “auxiliary” one. We...
Persistent link: https://www.econbiz.de/10011039202
We develop a structural bond pricing approach and implement it on a large panel of US industrial bonds using an efficient maximum likelihood methodology. We evaluate the model's ability to predict yield spread levels and changes out-of-sample. Errors are smaller and distinctly less variable than...
Persistent link: https://www.econbiz.de/10001600071