We employ a large dataset of physical inventory data on 21 different commodities for the period 1993–2011 to empirically analyze the behavior of commodity prices and their volatility as predicted by the theory of storage. We examine two main issues. First, we analyze the relationship between...

Probability weighting is one of the cornerstones of decision-making theories accommodating gambling preferences. This paper examines its relevance to explaining employee stock option exercise behavior. We characterized the optimal exercise policy for a representative employee with Rank-Dependent...

We develop a model to examine the timing of investment decisions in relation to the issuance of convertible debt by firms. Our model shows that when the demand shock has higher volatility, the firm finances the investment cost with high-coupon convertible debt. We find that default occurs...

Price of a financial derivative with unilateral counterparty credit risk equals to the price of an otherwise risk-free derivative minus a credit value adjustment (CVA) component, which can be seen as a call option on investor's NPV with strike 0. Thus modeling volatility of NPV is the foundation...

This study applies the contingent claim approach to evaluate retirement benefits with the options of choosing the maximum defined benefit and defined contribution pension plans. A least-squares Monte Carlo simulation values complex retirement benefits that feature the properties of multiple...

After the huge rise and fall of agricultural commodity spot and futures prices between 2007 and 2008, the potential reasons for and the impact of the strong rise in volatility provoked an intensive debate in the media as well as in the academic literature. However, owing to the increasing...

This paper examines calendar anomalies (day-of-the-week and monthly seasonal effects) in cash and stock index futures returns. We consider daily data from FTSE100 (UK), FTSE/ASE-20 (Greece), S&P500 (US) and Nasdaq100 (US) spot and future indexes over the period 2004–2011. We employ a...

In this paper, we investigate the valuation of two types of foreign equity options under a Markovian regime-switching mean-reversion lognormal model, where some key model parameters in the dynamics of the foreign equity price and the foreign exchange rate are modulated by a continuous-time,...

This paper analyzes the relationship between the spot and futures prices of energy commodities from a new perspective. Taking data from the Dow Jones UBS Commodity Index, we first test for a long-run relationship between spot and futures prices. As a second step, smooth transition models are...

The computation of the bilateral counterparty valuation adjustment for a credit default swap (CDS) contract is in effect the modeling of the default dependence among the investor, the protection seller, and the reference entity. We present a contagion model, where defaults of three parties are...