Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black-Scholes-Merton framework large portfolios of options can be hedged without risk in discrete time. The nature of the hedge portfolio in the limit of large portfolio size is substantially different...

The forward premium puzzle (FPP) is the negative correlation between the forward premium and the realized exchange rate return at maturities of a month and beyond. Some recent evidence shows that at maturities of multiple years and at the highest intra day frequency the correlation is positive...

Building on a model of the interaction of risk-averse frms that compete in forward and spot markets, we develop an 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...

We highlight the ex ante risk-shifting incentives faced by a bank's shareholders/managers when CoCos (contingent convertible capital) are part of the capital structure. The risk shifting incentive arises from the wealth transfers that the shareholders will receive upon the CoCo's conversion...

Contingent Convertible bonds (CoCos) are debt instruments that convert into equity or are written down in times of distress. Existing pricing models assume conversion triggers based on market prices and on the assumption that markets can always observe all relevant firm information. But all...