Weather derivatives are contingent claims with payo based on a pre-speci ed weather index. Firms exposed to weather risk can transfer it to nancial markets via weather derivatives. We develop a utility-based model for pricing baskets of weather derivatives in over-the-counter markets under...

This paper develops a model in which information losses may be an important part of the cost of an OTC derivatives dealer's failure. A dealer failure forces solvent counterparties of a failed dealer to seek replacement hedges with other dealers. However, by forcing good firms into the...

This paper develops a discrete-time two-factor model of interest rates with analytical solutions for bonds and many interest rate derivatives when the volatility of the short rate follows a GARCH process that can be correlated with the level of the short rate itself. Besides bond and bond...

Proposals to introduce derivatives whose payouts are explicitly linked to the volatility of an underlying asset have been around for some time. In response to these proposals, a few papers have tried to develop valuation formulae for volatility derivatives—derivatives that essentially help...

In this paper we investigate the extent to which insurance companies utilize financial derivatives contracts in the management of risks. The data set we employ allows us to observe the universe of individual insurer transactions for a class of contracts, namely, those normally through of as...

Previous studies on interest rate derivatives have been limited by the relatively short history of most traded derivative securities. The prices for callable U.S. Treasury securities, available for the period 1926–95, provide the sole source of evidence concerning the implied volatility of...

In this paper we formulate and test a number of hypotheses regarding insurer participation and volume decisions in derivatives markets. Several specific hypotheses are supported by our analysis. We find evidence consistent with the idea that insurers are motivated to use financial derivatives to...

This paper explores strategic trade in short-lived derivative securities by agents that possess long-term information about an underlying asset. In contrast to trading equity, where an informed agent will ultimately benefit from his trades, trading short-lived securities is profitable only if...

Borrowers' housing equity is an important component of their wealth and a critical determinant of their vulnerability to shocks. In this paper, we create a unique data set that allows us to provide a comprehensive look at the ratio of housing debt to housing values - what we refer to as...