This paper investigates how investors who face both equity risk and credit risk would optimally allocate their financial wealth in a dynamic continuous-time setup.

In this paper, we investigate how investors who face both equity risk and credit risk would optimally allocate their financial wealth in a dynamic continuous-time setup. We model credit risk through the defaultable zero-coupon bond and solve the dynamics of its price after pricing it. Using...

In this paper, we investigate how investors who face both equity risk and credit risk would optimally allocate their financial wealth in a dynamic continuous-time setup. We model credit risk through the defaultable zero-coupon bond and solve the dynamics of its price after pricing it. Using...

During the last decade, a surprisingly high percentage of U.S. companies has fulfilled or beatenanalysts´ earnings per share forecasts. One of the most frequently cited reasons for this growingtendency is a change in the nature of U.S. executive compensation structure. As stock options...

We propose a new method for pricing options based on GARCH models with filtered historical innovations. In an incomplete market framework we allow for different distributions of the historical and the pricing return dynamics enhancing the model flexibility to fit market option prices. An...

This paper examines the effects of uncertainty and the choice of financial structure in a vertically differentiated duopoly. In the market model consumers are located along a continuum of taste parameters and prefer unanimously higher to lower qualities when quality prices are set at average...

We investigate the theoretical and empirical difference between thestandard convexity adjustment and Forward Libor Model in a particular case oftwo-period Constant Maturity Swaps. Using daily data from 1991 to 1997, wesimulate the difference (spread) between the two-period CMS swap rates...

Credit Default Swaps (CDS) are in the process of becoming, liquid and extremelyinformative instruments of default risk. Yet, default swap market has severalnovel aspects that have not received much attention. In this paper we studyan aspect of CDS´s that relates to the prediction of financial...

This paper integrates the problem of designing corporate bank-ruptcy rules into a theory of optimal debt structure. We show that, in an incomplete-contracts framework with imperfect renegotiation, having multiple creditors increases a firms debt capacity while increasing its incentives to...