The choice of financing source is particularly difficult for a small firm due to the high uncertainty about future liquidity requirements. We show that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such firms but also to determine the...

We investigate the market prices of assets in fixed supply whose purchase is typically financed through non-recourse loans. The largest and most common asset in this category is real estate. We demonstrate two features of such markets: • lenders' underpricing of the put option contained in...

We investigate the market prices of assets in fixed supply whose purchase is typically financed through non-recourse loans. The largest and most common asset in this category is real estate. We demonstrate that within these markets, lenders’ underpricing of the put option contained in...

In this paper we offer direct evidence that financial intermediation does impact underlying asset markets. We develop a specific observable symptom of a banking system that underprices the put option imbedded in non-recourse asset-backed lending. Using a dataset for 19 countries and over 500...

While home ownership provides a great deal of personal and social benefits, it poses a substantial constraint on individuals' asset allocation.

The variation in managerial compensation across countries and industries for firms of similar size is staggering. We analyze this phenomenon in a continuous time model of the firm, where the economic environment evolves stochastically over time and where changes to the firm operations are...