This paper studies the family of quot;extendedquot; affine term structure models (EATSM), whereby the solution for a discount bond prices involves separation of variables and finite difference numerical solutions. As quadratic term structure models, EATSM are unaffected by the admissibility...

This paper presents three factor Extended Gaussian term structure models (EGM) to price default-free and defaultable bonds. To price default-free bonds EGM assume that the instantaneous interest rate is a possibly non-linear but monotonic function of three latent factors that follow correlated...

This paper presents the family of Mixed-Gaussian (MG) term structure models. In MG models the instantaneous interest rate is a linear function of multiple correlated latent stochastic factors, at least one factor follows a Vasicek-type process, and the bond pricing equation can be solved through...

This paper studies how participation exemption (PEX) tax rules for stocks owned by companies, which are frequent in EU countries, introduce tax arbitrage opportunities. The focus is on Italy’s PEX rules. PEX enables companies to make manufactured loans that generate tax exempt interest income...

This paper presents closed form solutions to price secured bank loans and financial leases subject to default risk. Secured debt fair credit spreads always increase in the debtor's default probability, whereas financial leasing fair credit spreads may well decrease in the lessee's default...

This paper presents new closed form solutions for the valuation of European put options and of "down-an-in" barrier options written on leveraged equity. Unlike in past literature (Toft and Prucyk, 1997) and in keeping with empirical evidence, the model allows equity to retain value even after...

This paper propses a contingent claims model to value a firm's debt and equity as functions of observable book values appearing in published financial statements. Equity fair value critically depends on expected earnings, equity book value and earnings volatility, because of the options to...

This paper presents new formulae for the valuation of convertible debt and shows how it can be rational for convertible holders to convert not only when the debtor's equity value increases, ut also when the debtor approaches distress. Even if debt cannot be enegotiated, "conversion in distress"...

This article presents a discrete time pricing model whereby prices are either exponential linear-quadratic functions of stochastic factors or transforms of such exponential linear-quadratic functions. The model is applied to price default-free bonds and stock options under stochastic volatility...