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Martynova, Natalya; Perotti, Enrico - Tinbergen Instituut - 2012

We study the effect of going-concern contingent capital on bank risk choice. The possibility of debt for equity conversion forces deleveraging in highly levered states, when risk incentives are worse. The additional equity reduces endogenous risk shifting by diluting returns in high states. An...

Persistent link: https://www.econbiz.de/10011256836

Recent Developments in Financial Economics and Econometrics: An Overview

Chang, Chia-Lin; Allen, David; McAleer, Michael - Tinbergen Instituut - 2013

See the article in The North American Journal of Economics and Finance (2013). Volume 26(C), pages 217-226. Research papers in empirical finance and financial econometrics are among the most widely cited, downloaded and viewed articles in the discipline of Finance. The special issue presents...

Persistent link: https://www.econbiz.de/10011256871

Estimating Implied Recovery Rates from the Term Structure of CDS Spreads

Jaskowski, Marcin; McAleer, Michael - Tinbergen Instituut - 2013

Credit risk models should reflect the observation that the relevant value of collateral is generally not the average value of the asset over all possible states of nature. In most cases, the relevant value of collateral for the lender is its secondary market value in bad states of nature, where...

Persistent link: https://www.econbiz.de/10011256955

Do Firms sell forward for Strategic Reasons? An Application to the Wholesale Market for Natural Gas

Eijkel, Remco van; Moraga, Jose Luis - Tinbergen Instituut - 2010

empirical strategy to test whether oligopolistic frms use forward contracts for strategic motives, for risk-hedging, or for both …. An increase in the number of players weakens the incentives to sell forward for risk-hedging reasons.However, if …

Persistent link: https://www.econbiz.de/10011257045

Black Scholes for Portfolios of Options in Discrete Time: the Price is Right, the Hedge is wrong

Peeters, Bas; Dert, Cees L.; Lucas, André - Tinbergen Instituut - 2003

Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black …) hedging the total risk of each option separately, the correct hedge portfolio in discrete time eliminates linear (delta) as … indefinitely. This ties the literature on option pricing and hedging closer together with the APT literature in its focus on …

Persistent link: https://www.econbiz.de/10011257082

Why the Rotation Count Algorithm works

Lord, Roger; Kahl, Christian - Tinbergen Instituut - 2006

The characteristic functions of many affine jump-diffusion models, such as Heston’s stochastic volatility model and all of its extensions, involve multivalued functions such as the complex logarithm. If we restrict the logarithm to its principal branch, as is done in most software packages,...

Persistent link: https://www.econbiz.de/10011257149

A Fractionally Integrated Wishart Stochastic Volatility Model

Asai, Manabu; McAleer, Michael - Tinbergen Instituut - 2013

There has recently been growing interest in modeling and estimating alternative continuous time multivariate stochastic volatility models. We propose a continuous timefractionally integrated Wishart stochastic volatility (FIWSV) process. We derive the conditional Laplace transform of the FIWSV...

Persistent link: https://www.econbiz.de/10011257492

Volatility Smirk as an Externality of Agency Conflict and Growing Debt

Jaskowski, Marcin; McAleer, Michael - Tinbergen Instituut - 2013

Since Black (1976), the source of the stock price volatility smirk has remained a controversy. The volatility smirk is a side effect of agency conflict. An important distinction is that the smirk occurs in the optimum, even after agency conflict has been resolved. The slope of the smirk is found...

Persistent link: https://www.econbiz.de/10011268659

Pricing and Hedging Guaranteed Annuity Options via Static Option Replication

Pelsser, Antoon - Tinbergen Instituut - 2002

In this paper we derive a market value for Guaranteed Annuity Optionusing martingale modeling techniques. Furthermore, we show how to construct a static replicating portfolio of vanillainterest rate swaptions that replicates the Guaranteed Annuity Option. Finally, we illustrate with historical...

Persistent link: https://www.econbiz.de/10011255515

Is Power Production Flexibility a Substitute for Storability? Evidence from Electricity Futures Prices

Kilic, Mehtap; Huisman, Ronald - Tinbergen Instituut - 2010

Electricity is not storable. As a consequence, electricity demand and supply need to be in balance at any moment in time as a shortage in production volume cannot be compensated with supply from inventories. However, if the installed power supply capacity is very flexible, variation in demand...

Persistent link: https://www.econbiz.de/10011255605