In this paper, we examine the ability of the contingent claims approach (CCA) to identify corporate sector and economy-wide vulnerabilities. We apply the Moody's MfRisk model, which uses aggregated CCA principles, to assess vulnerabilities retroactively in two historical country cases. The...

Option prices provide valuable information on market expectations. This paper attempts to extract market expectations, as conveyed by an implied risk-neutral probability distribution, from option prices for the dollar-euro exchange rate. Returns' volatilities are inferred from observed and...

Bank participation in derivative markets has risen sharply in recent years. The total amount of interest rate, currency, commodity, and equity contracts at U.S. commercial and savings banks soared from $6.8 trillion in 1990 to $11.9 trillion in 1993, an increase of 75 percent. A major concern...

Trading volume and open interest in options and futures contracts on stock indices, equities, and interest rate instruments traded on world exchanges have experienced remarkable growth. However, this growth has been accompanied by controversy about the proper role of financial derivatives and...

The martingale approach to pricing contingent claims can be applied in a multiple state variable model. The idea is used to derive the prices of derivative securities (futures on stock and bond futures, options on stocks, bonds and futures) given a continuous time Gaussian multi-factor model of...