The pricing-kernel, when estimated from index options, appears to show risk-loving behaviour for small gains and losses. Although this puzzle could be caused by option buyers using subjective probability-weighting, such weighting generates an unrealistically large (and time-varying)...

A long-standing puzzle in finance, first noted by Ingersoll (1977b), is that many firms delay the re-call of convertible bonds until the bonds' equity values by far exceed their values as straight debt. Butler (2002) argues that the delay is due to a put option which is granted to investors...

We examine what determines CDS prices over 2005-2012. To do this, we calibrate Merton's model in a novel way that allows for deviations from lognormality. The model works well in cross-section and time-series, both within and out-of sample. It confirms that systematic equity volatility is the...

We examine the roles of rational and behavioural factors in explaining long-run premiums/discounts on closed-end funds, using evidence on equity funds from the US and UK. Although the processes by which fund prices converge towards long-run premiums or discounts are similar in the two countries,...