Coval, Jurek, and Stafford (2009, CJS hereafter) claim that senior CDX tranches, which resemble economic catastrophe bonds, are overpriced relative to index options. We show that this result is due to their problematic calibration procedure and restrictive model assumptions. A simple correction...

In this paper, we develop a new optimization model for capital rationing with uncertain project returns. Our model maximizes the probability of meeting a pre-defined target return by selecting a feasible set of projects subject to budget constraints in multiple time periods. We employ a...