This paper develops an agency model to analyze the optimality of executive stock option compensation in the presence of information manipulation. The analyses show that although information manipulation is positively related to the size of option compensation, the relative size of...

If a bank is facing insolvency, it will be tempted to reject good loans and accept bad loans so as to shift risk onto its creditors. We analyze the effectiveness of buying up toxic mortgages in troubled banks, buying preferred stock, and buying common stock. If bailing out banks deemed “too...

This paper derives optimal hedge ratios with infrequent extreme news events modeled as common jumps in foreign currency spot and futures rates. A dynamic hedging strategy based on a bivariate GARCH model augmented with a common jump component is proposed to manage currency risk. We find...

Two issues are addressed in this paper. First, we explore the issue of price index invariance in the linearized Almost Ideal Demand system. We establish that the Stone index, which lacks invariance, and the recently proposed invariant Laspeyres, Paasche and Tornqvist indices all generate biased...