This paper studies the impact of financial innovations on real investment decisions. We model an incomplete market economy comprised of firms, investors and an intermediary. The firms face unique investment opportunities that are not spanned by the traded securities in the financial market, and...

We present a new measure of liquidity known as acirc;not;Slatent liquidityacirc;not;? and apply it to a unique corporate bond database to discern the characteristics of bonds that lead to higher liquidity. Unlike conventional measures of liquidity, such as trading volume and bid-ask spreads, our...

In this paper, we investigate the pricing of Japanese yen interest rate swaps during the period 1990-96. We obtain measures of the spreads of the swap rates over comparable Japanese Government Bonds (JGBs) for different maturities and analyze the relationship between the swap spreads and credit...

This paper examines the static and dynamic accuracy of interest rate option pricing models in the U.S. dollar interest rate cap and floor markets. Alternative one-factor and two-factor term structure models of the spot and the forward rate are evaluated on the basis of their out-of-sample...

This paper studies the impact of financial innovations on real investment decisions. Wemodel an incomplete market economy comprised of firms, investors and an intermediary. Thefirms face unique investment opportunities that are not spanned by the securities traded in the financial market, and...

We present a new measure of liquidity known as quot;latent liquidityquot; and apply it to a unique corporate bond database to discern the characteristics of bonds that lead to higher liquidity. Unlike conventional measures of liquidity, such as trading volume and bid-ask spreads, our measure of...

Liquidity is generally viewed as a positive characteristic of a traded asset in positive net supply. Ceteris paribus, the higher liquidity of a given asset should be reflected in a higher price or a lower required return. This issue is of particular interest if the same asset is traded in...

This paper demonstrates that an an institutional feature inherent in a multitude of mutual funds managing billions in assets generates fund NAVs that reflect stale prices. Since, in many cases, investors can trade at these NAVs with little or no transactions costs, there is an obvious trading...

We consider the demand for state contingent claims in the presence of a zero-mean, non-hedgeable background risk. An agent is defined to be generalized risk averse if he/she reacts to an increase in background risk by choosing a demand function for contingent claims with a smaller slope. We show...

We consider portfolios whose returns depend on at least three variables and show the effect of the correlation structure on the probabilities of the extreme outcomes of the portfolio return, using a multivariate binomial approximation. The portfolio risk is then managed by using derivatives. We...