We model the S&P500 index options dynamics using the CGMY distribution, with independent "up" and "down" return jumps, and diffusive jump intensities. Allowing the up and down parts to be separately parameterised accounts for the dynamic smirk effect, without correlation between returns and...

We construct portfolios of Samp;P500 futures and their associated options, which are Delta (price) and Vega (volatility) neutral. These systematically earn negative abnormal returns, and suggest that out of the money puts are too expensive, relative to out of the money calls. We give evidence...

We develop and estimate a Q-Theory style dynamic model of the firm's liquidity reserve and capital structure. The model features financial constraints, finite maturity debt, and growth limited by convex costs. We apply the model to obtain the following: 1. We suggest a resolution of the puzzle,...

It is natural to assume that interest rates mean-revert, and natural consequence of this is that long forward rates are asymptotically constant. However, from US Treasury STRIPs data, forward rates slope increasingly downwards, and do not attenuate in volatility, as maturity increases beyond...

We study a continuous time model of a levered firm with fixed assets generating a cash flow which fluctuates with business conditions. Since external finance is costly, the firm holds a liquid (cash) reserve to help survive periods of poor business conditions. Holding liquid assets inside the...

This paper first designs an efficient procedure to value Credit Default Swap Index tranches using an intensity-based model. The tranche spreads are effectively explained by a three-factor version of this model, both before and during the financial crisis of 2008. We then construct tradable...

It is natural to assume that interest rates mean-revert, and natural consequence of this is that long forward rates are asymptotically constant. However, from US Treasury STRIPs data, forward rates slope increasingly downwards, and do not attenuate in volatility, as maturity increases beyond...

We explore the optimal econometric specifications for fitting S&P500 options, in the very flexible CGMY class of models. We favour returns being ‘up’ and ‘down’ pure jumps with separate volatility ‘speeds’; and with down jumps having longer tails. This can account for the options...

We solve for a Firm's optimal cash holding policy within a continuous time, contingent claims framework using dividends, short-term borrowing and equity issues as controls. In line with recent empirical research but in contrast with most of the contingent claims literature we assume mean...

We discuss the efficiency of the binomial option pricing model for single and multivariate American style options. We demonstrate how the efficiency of lattice techniques such as the binomial model can be analysed in terms of their computational cost. For the case of a single underlying asset...