We investigate the preference and distribution restrictions that underlie explicit risk-neutral option valuation equations. We establish new sufficient conditions in terms of utility functions and joint distributions of assets' payoffs and state variables for these models to hold in equilibrium...

This article studies the cost to the firm of contingent earnings-based bonus compensation that is effectively paid to its managers if the earnings of the firm exceed the threshold performance at the end of the evaluation period. We assume that the firm has normal and abnormal earnings. The...

I study a new class of investment options, event-contingent options. These are options to invest and divest in projects that are dependent on other projects of the same firm or that are conditioned by projects of other firms in its value chain. I construct payoff functions and derive closed-form...

This paper derives preference-free option pricing equations in a discrete time economy where asset returns have continuous distributions. There is a representative agent who has risk preferences with an exponential representation. Aggregate wealth and the underlying asset price have transformed...

We investigate the preference and distribution restrictions that underlie explicit risk-neutral option valuation equations. We establish new sufficient conditions in terms of utility functions and joint distributions of assets' payoffs and state variables for these models to hold in equilibrium...

This paper explores the effect of extreme events or big jumps downwards and upwards on the jump-diffusion option pricing model of Merton (1976). It starts by obtaining a special case of the jump-diffusion model where there is a positive probability of a big jump downwards. Then, it obtains a new...