The paper derives maximum likelihood parameter estimators for symmetrically correlated Weiner processes observed at discrete intervals. Such processes arise when pricing and determining Value-at-Risk for portfolio derivatives. Cases of driftless and mean-reverting state variables are considered....

The relation between asset correlation and default probability is critical for determining bank regulatory capital requirements. It is assumed negative for sovereign, corporate and banking exposures by the Basel Committee on Banking Supervision. This article provides likelihood ratio tests for...

This paper examines how forfeiture, vesting, and early exercise affect the value of employee stock options. The forfeiture and exogenous exercise of the options are modeled as two Poisson processes with constant intensity. Rational exercise by the employee due to the option's American feature is...

The revolving credit line is the dominant form of commercial bank lending. We present an arbitrage-free valuation method incorporating a borrower's stochastic credit quality and drawdown behavior. Credit exposure is measured by the size of fixed balance loan of identical term having the same...

This paper examines the effects of executive compensation and potential for earnings management on the incidence of shareholder class action lawsuits and their outcomes. Although damage measurement factors,managerial option intensity, and earnings management all significantly affect the...

The revolving credit line is the dominant form of commercial bank lending. We present an arbitrage-free valuation method incorporating the borrower's stochastic credit quality process and drawdown behavior. Credit exposure is measured by the size of fixed balance loan of identical term having...

Failure of a clearing house would trigger cascade of damaging disruptions throughout the financial system. Yet little is known about the likelihood of such an event. Using daily data on margins and variation margins for all clearing members of the Chicago Mercantile Exchange, we analyze the...

This paper empirically compares three convertible bond valuation models. We use an innovative approach where all model parameters are estimated by the Marquardt (1963) algorithm using a subsample of convertible bond prices. The model parameters are then used for out-of-sample forecasts of...

The paper derives maximum likelihood parameter estimators for symmetrically correlated Weiner processes observed at discrete intervals. Such processes arise when pricing and determining Value-at-Risk for portfolio derivatives. Cases of driftless and mean-reverting state variables are considered....