We argue interest rate derivative pricing models are misspecified so that when they are fitted to historical data they do not produce prices consistently with the market. Interest rate models have to be calibrated to prices to ensure consistency. There are few published works on calibration to...

This paper solves for a firm's optimal cash holding policy within a continuous time, contingent claims framework that has been extended to incorporate most of the significant contracting frictions that have been identified in the corporate finance literature. Under the optimal policy the firm...

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...

The CME Nikkei 225 "Quanto" futures contract settles against the Nikkei Index but taken to refer to US dollars. In contrast, the corresponding "Vanilla" instruments trading in Singapore and Osaka, settle in Yen.We show that the returns to the Quanto future are correlated with returns to the US...