We evaluate the performance of common stock trade classification algorithms including the quote, tick, Lee and Ready (1991), and Ellis, Michaely, and O’Hara (2000) rule to infer the trade direction of option trades. Using a large sample of matched intraday transactions and Open/Close data, we...

This paper examines the effect of debt and liquidity on corporate investment in a continuous-time framework. We show that stockholder-bondholder agency conflicts cause investment thresholds to be U-shaped in leverage and decreasing in liquidity. In the absence of tax effects, we derive the...

We develop a new methodology to extract market expectations of recovery rates that uses information from credit default swap spreads on debt instruments of different seniorities, incorporates information on the firm-specific liability structure and allows for deviations from the absolute...

Credit default swaps (CDSs) are among the most successful financial innovations of recent years, which is reflected in the rapidly expanding market. CDS trading occurs in the over-the-counter market, which relies heavily on broker intermediation to arrange trades. We provide empirical evidence...

CO2 emission certificates are traded with increasing liquidity within the EU emissions trading scheme. Besides spot certificates, forwards and futures are also currently available OTC and on exchanges across Europe. The focus of this study is on the relationship between spot and futures markets...

CO2 emission allowances are traded nowadays OTC and on exchanges across Europe. It thus becomes increasingly important for traders of these emission certificates to have a valid CO2 spot price model to value potential derivatives. In addition, CO2 emitting companies require an adequate CO2 spot...

The literature on default-claim pricing falls into three categories. Building on the classical Merton model, the structural approach models the dynamics of the asset value and assumes that default is triggered when the equity value reaches an exogenous asset level. In a second class of...

In this paper, we propose a theoretical continuous-time model to analyze the impact of liquidity on bond prices. This model prices illiquid bonds relative to liquid bonds and provides a testable theory of illiquidity induced price discounts. The model is tested using 1992-1994 data from bonds...

This article presents the first comprehensive comparative study of alternative models for valuing interest rate options. One and two factor inversion models of the Hull/White type and one and two factor Heath/J arrow/Morton models are considered. The valuation models are assessed by different...

This article examines the suitability of the Longstaff-Schwartz two-factor model for practical use. Discussion of issues related to the implementation of the model addresses the problem of fitting the model to the initial term structure of interest rates. To assess empirical performance, the...