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...

This paper presents a general equilibrium analysis on the interactions between pension plan funding, capital structure, technology choice and the equity premium. The paper shows that economies with large funded defined pension schemes may be biased towards safe production. The pricipal results...

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...

When a spot market monopolist participates in the futures market, he has an incentive to adjust spot prices to make his futures market position more pro…table. Rational futures market makers take this into account when they set prices. Spot market power thus creates a moral hazard problem...

One possible explanation for the unsatisfactory implementation of IMF conditionality has been attributed to the lack of credibility of the IMF threat of interrupting financial assistance in case of non compliance with the negotiated conditions. In this paper we suggest that such lack of...

We investigate the impact of owner-occupied housing on financial portfolio and mortgage choice under stochastic inflation and real interest rates. To this end we develop a dynamic framework in which investors can invest in stocks and bonds with different maturities. We use a continuous-time...

Theory suggests that reputations, developed in repeated face-to-face interactions, allow nonanonymous, floor-based trading venues to attenuate adverse selection in the trading process. We identify instances when stocks listed on the New York Stock Exchange (NYSE) experience a non-trivial...

This paper studies optimal intergenerational transfer policy under stochastic labor income and capital returns. It has implications for Social Security, government tax and debt policy, and DB pension funds. A stylized two-period overlapping-generations model is developed where a central planner...

Not only in the classic Arrow-Debreu model, but also in many mainstream macro models, an implicit assumption is that all agents honour their obligations, and thus there is no possibility of default. That leads to well-known problems in providing an essential role for either money or for...

This paper studies the impact of Swiss National Bank interventions, and news about these interventions, on the intraday volatility of the Swiss franc - U.S. dollar exchange rate. It extends the existing literature by characterising the the impact of different aspects of central bank...