Transaction-cost models in continuous-time markets are considered. Given that investors decide to buy or sell at certain time instants, we study the existence of trading strategies that reach a certain final wealth level in continuous-time markets, under the assumption that transaction costs,...

This study estimates the parameters of credit derivatives, equity derivatives and structural models for bank recapitalisation in Nigeria by employing contingent convertibles (CoCos) and using the Nigeria Treasury Bill rate for 2009 as the risk-free rate, estimated recapitalisation requirements...

The forward-looking nature of option market data allows one to derive economically-based and model-free risk measures. This article proposes an extensive analysis of the performances of option-implied VaR and CVaR, and compare them with classical risk measures for the S&P500 Index. Delivering...

We consider a stochastic volatility model of the mean-reverting type to describe the evolution of a firm’s values instead of the classical approach by Merton with geometric Brownian motions. We develop an analytical expression for the default probability. Our simulation results indicate that...

Over-allotment arrangements are nowadays part of almost any initial public offering. The underwriting banks borrow stocks from the previous shareholders to issue more than the initially announced number of shares. This is combined with the option to cover this short position at the issue price....

The credit valuation adjustment (CVA) of OTC derivatives is an important part of the Basel III credit risk capital requirements and current accounting rules. Its calculation is not an easy task - not only it is necessary to model the future value of the derivative, but also the probability of...

We test one of the main predictions of the financial flexibility paradigm that expectations about future firm-specific shocks affect the firm's leverage. We extract the expectations of small and large future shocks from the market prices of equity options. We find that expectations for future...

Financial statements and an accompanying NPV calculation are embedded into a binomial tree. This generalization of traditional static NPV analysis allows the financial statements to both evolve through time and, at any given time, to vary with states of the world (similar to a Monte Carlo...

The aim of this work is to understand and measure to what extent equity options price credit risk. With the exception of Toft and Prucyk (1997), which is a dated work based on the simplistic assumption of a reference company issuing perpetual debt, all the work in the literature which try to...

This paper has used the Arbitrage Theorem under binomial case to show that in a complete market with no transaction costs and no arbitrage, for any asset, the current spot price is a function of the risk-free interest rate, the future possible prices and their probabilities. These probabilities...