This article presents a modification of Merton's (1976) ruin option pricing model to estimate the implied probability of default from stock and option market prices. To test the model, we analyze all global financial firms with traded options in the U.S. over the period December 1996 through...

There is empirical evidence and supporting theory showing performance-based compensation can motivate accounting based earnings management. Less well studied is the link between such compensation and direct forms of earnings management. In this paper we provide a model demonstrating that...

This paper introduces a class of two counters of jumps option pricing models. The stock price follows a jump-diffusion process with price jumps up and price jumps down, where each type of jumps can have different means and standard deviations. Price jumps can be negatively autocorrelated as it...

This paper extends the literature on Risk-Neutral Valuation Relationships (RNVR's) to derive valuation formulae for options on zero coupon bonds when interest rates are stochastic. We develop Forward-Neutral Valuation Relationships (FNVR's) for the transformed-bounded random walk class. Our...