We propose implied spreads (IS) and normalized implied spreads (NIS) as simple measures to characterize option prices. IS is the credit spread of an option's implied bond, the portfolio long a risk-free bond and short a put option. NIS normalizes IS by the risk-neutral default probability and...

A currency board is a monetary institution that issues notes and coins which are fully convertible into a reserve currency at a fixed rate on demand. Reserves are equal to 100 per cent, or slightly more, of a board's notes and coins. There have been over seventy currency boards and all have...

During the past year, the press has had a field day pummeling “derivatives.” The Wall Street Journal has even joined in the fun. The grist for the journalists' mills has been provided by the big losses on derivatives reported by Metallgessellschaft, Proctor & Gamble, Air Products, Gibson...

The collapse of Enron Corporation has been portrayed as the result of accounting fraud and greed. Not everything that Enron did, however, was wrong or fraudulent. Fraud contributed to the timing of Enron's failure but was not the root cause of that failure. In analyzing Enron, it is critically...

Proponents of financial transaction taxes (“FTTs”) claim that such taxes will raise revenue and discourage “destabilizing speculation.” Opponents of FTTs claim that they are unlikely to achieve their stated goals and that FTTs will harm the performance of financial markets by reducing...

We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo-firm assets. Empirically, like corporate...

Derivatives that are negotiated over-the-counter (OTC), but cleared and settled through central counterparties have grown in popularity since their first appearance in the 1990s. Such “OTC-cleared” derivatives have both benefits and costs that can vary significantly across market...

We present a novel empirical benchmark for analyzing credit risk using “pseudo firms” that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo-firm assets. Empirically, like corporate...