This paper develops a real options framework to analyze the behavior of stock returns in mergers and acquisitions. In this framework, the timing and terms of takeovers are endogenous and result from value-maximizing decisions. The implications of the model for abnormal announcement returns are...

This paper develops a default-risky bond pricing model, which assumes that the default intensity is driven by a Markov chain and which accounts for default and liquidity risk. A representation of the bond price dynamics, which separates three different types of risk, was obtained. Introducing...

In this paper, we extend the earlier results of Jeanblanc and Valchev (2003) in the single name case to the case of multiple defaults of the issuers in a concentrated industry or homo- geneous bond market. We provide solutions for the pairwise default correlations and credit spreads in an...

This paper presents a new method to detect informed trading activities in the options markets.An option trade is identified as informed when it is characterized by an unusual largeincrement in open interest and volume, induces large gains, and is not hedged in the stock market.For the period...

Ziel dieses Beitrages ist es, die Zusammenhänge zwischen den Binomialmodellen der Operationsbewertung (Replikation bzw. Methode der risikoneutralen Wahrscheinlichkeiten) und dem Black/Scholes Modell aufzuzeigen und zu analysieren...

We study the exponential utility indifference valuation of a contingent claim B in an incomplete market driven by two Brownian motions. The claim depends on a nontradable asset stochastically correlated with the traded asset available for hedging. We use martingale arguments to provide upper and...

Market mechanisms are increasingly being used as a tool for allocating somewhat scarce but unpriced rights and resources, such as air and water. Tradable permits have emerged as the most cost effective measure leading to the emergence of both nationwide (SO2 ) and supranational (CO2 ) emission...

We develop a continuous-time real options pricing model to study managers’incentives to cheat in the presence of equity-based compensation policies.We show that managers’ incentives to cheat are strongly influenced by theefficiency of the justice. Our model’s main result is that managers...

This paper studies the term structure implications of a simple structural economy in which the representative agent displays ambiguity aversion, modeled by Multiple Priors Recursive Utility. Bond excess returns reflect a premium for ambiguity, which is observationally distinct from the risk...

This paper sheds light on the influence of exchange rate volatility on foreign direct investment (FDI), both at the theoretical and the empirical level. The novelty of the empirical analysis, which is based on a panel of 27 OECD countries over the period 1982-2002, is to provide evidence of a...