We study probabilities which determine the payo of barrier options:the probability that an asset hits a barrier before maturity, theprobability that the asset is below the barrier at maturity, and theratio of both probabilities. The correct estimation of these probabilitieshas crucial eects on...

We explore the pricing of variance risk by decomposing stocks' total variance into systematicand idiosyncratic return variances. While systematic variance risk exhibits a negative priceof risk, common shocks to the variances of idiosyncratic returns carry a large positive riskpremium. This...

We investigate the suitability of securitization as an alternative to reinsurance forthe purpose of transferring natural catastrophe risk. We characterize the conditionsunder which one or the other form of risk transfer dominates using a setting in whichreinsurers and traders in financial...

Using a unique dataset containing separate information on the base andbonus pay of over a million workers, we provide novel evidence on the determinantsand earnings effects of performance pay. Several observables—in particularage, education, tenure, and job complexity—have a large impact on...

In spite of the fact that they can draw on a larger, more liquid and more diversifiedpool of capital than the equity of reinsurance companies, financial markets have failed to displace reinsurance as the primary risk-sharing vehicle for natural catastrophe risk. We show that this failure can be...

Over the period 2002 to 2003, Switzerland and the European Union (EU) were engaged in negotiations regarding banking secrecy. The EU's stated goal was for Switzerland to abolish banking secrecy. Switzerland refused and offered to impose a withholding tax on interest income instead. The two...

When information is costly, a seller may wish to prevent prospective buyers from acquiring information, for the cost of information acquisition is ultimately borne by the seller. A seller can achieve the desired prevention of information acquisition through posted-price selling, by offering...

International evidence on the accrual anomaly is sparse and conflicting. Testing for accrual mispricing in 28 equity markets, we provide statistical evidence for anomalous returns in some countries. However, we question whether this result might have occurred by chance alone and that it might...

We introduce new quantile estimators with adaptive importance sampling. The adaptive estimators are based on weighted samples that are neither independent nor identically distributed. Using the law of iterated logarithm for martingales, we prove the convergence of the adaptive quantile...

We examine the quantification of operational risk for banks. We adopt a financial-economics approach and interpret operational risk management as a means of optimizing the profitability of an institution along its value chain. We start by defining operational risk and then propose a...