This paper develops a tractable real options framework to analyze the eects of asym-metric information on investment and nancing decisions when rms require externalfunds to nance investment. Our analysis shows that corporate insiders can signal theirprivate information to outside investors using...

Theoretical models predict that the value of a real option should be increasing in the volatility ofthe underlying asset. Thus, if real options are economically important, then firm values should bepositively related to volatility. Consistent with this prediction, we find evidence that stock...

We build a general model for pricing defaultable claims. In addition to the usual ab-sence of arbitrage assumption, we assume that one defaultable asset (at least) looses value when thedefault occurs. We prove that under this assumption, in some standard market ltrations, defaulttimes are...

Using an options-based approach, we compute the value of the state guaranteefor the liability side of CS and UBS. The insurance premiums forthese two system-relevant banks are calculated in a dynamic setup from2004 until 2009 in quarterly steps for time horizons of one and five years.The model...

We propose a simple but effective estimation procedure to extract the level and the volatilitydynamics of a latent macroeconomic factor from a panel of observable indicators. Our approachis based on a multivariate conditionally heteroskedastic exact factor model that cantake into account the...

The persistence of financial instability calls into question the adequacy of the current regulatory regime. Acritical review of the three pillars at the core of current financial regulation exposes some structural flaws.[...]

Stein’s lemma is extended to the case where asset returns have skewed and leptokurticdistributions. The risk premium is still the negative of the covariance of theexcess return with the log SDF.[...] Paul Söderlind]