This paper analyzes corporate bond valuation and optimal call and default rules when interest rates and firm value are stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate bond sensitivity to interest rates and firm...

This paper models callable defaultable bonds, incorporating both stochastic interest rates and optimal call and default rules. We provide analytical results about valuation and optimal exercise boundaries, which we use to study hedge ratios with respect to Treasury bonds and issuer equity. Since...

This paper studies the valuation and risk management of callable, defaultable bonds when both interest rates and firm value are stochastic and when the issuer follows optimal call and default policies. Since interest rate sensitivity is low when call is imminent and firm value sensitivity is...

This paper analyzes corporate bond valuation and optimal call and default rules when interest rates and firm value are stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate bond sensitivity to interest rates and firm...

This paper analyzes corporate bond valuation and optimal call and default rules when interest rates and firm value are stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate bond sensitivity to interest rates and firm...

Options have become a major component of corporate compensation. Their cost to firms depends on the exercise policies of executives who face hedging constraints. This paper analyzes the optimal policy and option cost for an executive with general concave utility. We show analytically how the...

The literature traditionally assumes that a portfolio manager who expends costly effort to generate information makes an unrestricted portfolio choice and is paid according to a sharing rule. However, the revelation principle provides a more efficient institution. If credible communication of...

We generate samples of fund returns calibrated to match the U.S. mutual fund industry and simulate standard tests of performance persistence. We consider a variety of alternative return generating processes, survival criteria, and test methodologies. When survival depends on performance over...