In this paper, we derive an equilibrium in which some investors buy call/put options on the market portfolio while others sell them. Since investors are assumed to have similar risk-averse preferences, the demand for these contracts is not explained by differences in the shape of utility...

We derive general properties of two-factor models of the term structure of interest rates and, in particular, the process for futures prices and rates. Then, as a special case, we derive a no-arbitrage model of the term structure in which any two futures rates act as factors. The term structure...

In this paper, we propose an alternative approach for pricing and hedging Americanbarrier options. Specifically, we obtain an analytic representation for the value and hedge parameters of barrier options, using the decomposition technique of separating the European option value from the early...

Recent work has suggested that strategic underperformance of debt-service obligations by equity holders can resolve the gap between observed yield spreads and those generated by Merton (1974)-style models. We show that this is not quite correct. The value of the option to underperform on...

We derive general properties of two-factor models of the term structure of interestrates and, in particular, the process for futures prices and rates. Then, as a special case, we derive a no-arbitrage model of the term structure in which any two futures rates act as factors. In this model, the...

Recent work has suggested that strategic under performance of debt service obligations by equity holders can resolve the gap between observed yield spreads and those generated Merton (41) style models. We show that it is not quite correct. The value of the option to under perform on debt-service...

Recent work in corporate finance has suggested that strategic debt-service by equityholders works to lower debt values and raise yield spreads substantially. We show that this is not quite correct. With optimal cash management, defaults occasioned by deliberate underperformance (strategic...

In this paper we study the determinants of business groups' ownership structure using unique panel data on Korean chaebols. In particular, we attempt to understand how pyramids form over time. We find that chaebols grow vertically (that is, pyramidally) as the family uses well-established group...