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Implied private company pricing line theory (IPCPL theory) is based on the fundamental assumption — taken from modern … asset pricing theory — that no arbitrage opportunities exist between pricing of privately- and publicly-held equity. More … specifically, IPCPL theory is based on the assumption that no arbitrage opportunities exist resulting from differences in equity …
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This paper examines the potential distortion of prices in the CDS market caused by too-big-to-fail. Overall, we find evidence for market discipline in the CDS market. However, CDS prices are distorted due to a size effect which arises when investors expect a public bail-out as a result of...
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