In this paper, we develop a multi-factor real options model for a two-stage investment problem where a coal-fired power plant is later retrofitted with carbon capture and storage (CCS). A capture-ready power plant with lower retrofit costs is compared with a conventional one and higher CCS...

This paper studies all‐pay auctions in which there is a buy‐price option for bidders to guarantee purchases at a seller‐specified price. We analyze symmetric increasing bidding equilibria in the first‐ and second‐price all‐pay auctions with the buy‐price option. While the optimal...

When a platform is an optional intermediary, should it require price coherence, i.e., that sellers charge the same price to the platform’s users as they charge their direct customers? If the platform does this, how will it affect consumers’ and overall welfare? In a model leveraging insight...

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...

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...

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...

This paper analyzes how bond option prices are affected by different types of monetary policy. Analytical results from a general equilibrium model with sticky wages show that employment or output targeting typically give lower bond option prices than inflation targeting. -- inflation targeting ;...

In a two-period setup we develop a generalization of good-deal bounds that allows to include in the problem the implications of asset pricing models. Our basis is the distance behind Hansen and Jagannathan's measure of model misspecification since a volatility constraint on the stochastic...