The concept of residual income has become popular in recent years due, in part, to the Ohlson 1995 article on residual income valuation. Since Ohlson assumed clean surplus accounting in that article, the concept of residual income and clean surplus accounting have become intimately linked in the...

The HARA and CARA theory of pricing, and the theory of partial, yet the most conservative hedging, of a single (liquid) tradable derivative contract under multidimensionality of risks in incomplete markets, including markets with non-hedgable interest rate risks, was developed by the author in a...

This paper develops a structural model that determines default spreads on risky debt. In contrast to previous research, the value of the debt's collateral is endogenously determined by the borrower's investment choice, as well as by a market demand variable that has permanent as well as...

This article provides an insightful overview of the challenges encountered by the insurance industry when applying the requirements of IFRS 17 to reinsurance contracts. Through the metaphor "Fitting a Square Peg in a Round Hole," the author effectively captures the complexities and difficulties...

We consider the derivatives pricing problem in credit risk. By assessing a market price to the hedged risks and a Capital Asset Pricing Model price to the unhedged part, we derive a generalized pricing formula that nests both the classic “Capital Markets” and “Corporate Finance” models....

This paper presents a unified framework for examining the general equilibrium effects of transactions costs and trading constraints on security market trades and prices. The model uses a discrete time/state framework and Kuhn- Tucker theory to characterize the optimal decisions of consumers and...

Classical option pricing theories are usually built on the law of one price, neglecting the impact of market liquidity that may contribute to significant bid-ask spreads. Within the framework of conic finance, we develop a stochastic liquidity model, extending the discrete-time constant...

In this paper the authors measure the risk attitudes of bond investors which can be revealed from settled market prices. They present an equilibrium model which focuses on the stochastic behavior of tastes in addition to the dynamics of investor beliefs.

We study the optimal timing of derivative purchases in incomplete markets. In our model, an investor attempts to maximize the spread between her model price and the offered market price through optimally timing her purchase. Both the investor and the market value the options by risk-neutral...

Basel III introduces new capital charges for CVA. These charges, and the Basel 2.5 default capital charge can be mitigated by CDS. Therefore, to price in the capital relief that CDS contracts provide, we introduce a CDS pricing model with three legs: premium; default protection; and capital...