Let us consider a portfolio made by a risky asset and cash. Any (individual) investor in such a portfolio is faced with two problems. She may ask about the possible returns whenever the asset relative change is expected to vary inside a given interval. Conversely, she might lead to determine the...

One of the earliest signs of the financial crisis in summer 2007 was the plunge in the indicaaes compiled from credit default swaps (CDSs) on a basket of subprime backed bonds. Recently, the worsening situation in the emerging countries has been perceptible in the steep rise of CDS spreads on...

The cancellation provisions in the Troubled Asset Relief Program (TARP) warrant agreements loom large for the investment banks Goldman Sachs and Morgan Stanley. These banks could gain hundreds of millions of dollars by issuing equity to satisfy the cancellation provisions of the TARP warrant...

This paper values the Capital Purchase Program (CPP) and Berkshire Hathaway warrants issued by Goldman Sachs in 2008. The paper's methodology could be of interest to policy makers, non-profits, journalists, and advisors for the government and the over 500 banks with CPP warrants outstanding

Many of the difficulties during the credit crisis have been attributed to derivatives, particularly the use of credit derivatives in structured products built on sub-prime mortgages. Derivatives also played an important role in the leveraging and risk-taking process prior to the crisis. These...

One of the earliest signs of the financial crisis in summer 2007 was the plunge in the indicaaes compiled from credit default swaps (CDSs) on a basket of subprimebacked bonds. Recently, the worsening situation in the emerging countries has been perceptible in the steep rise of CDS spreads on...

In this paper a joint capital asset pricing model and option pricing model is considered and applied to the derivation of an equity's value and its systematic risk. We first analyze the propreties of the two models and present some newly found properties of the option pricing model. We then...

I build a dynamic capital structure model that demonstrates how business-cycle variations in expected growth rates, economic uncertainty, and risk premia influence firms' financing and default policies. Countercyclical fluctuations in risk prices, default probabilities, and default losses arise...

One reason for the phenomenal success of options is the fact that they can be priced. Pricing usually means that there is an active and a liquid market with many buyers and sellers that generate a continuous flow of prices for a specific instrument. However, the pricing of options goes beyond...

Old National Bancorp was the first publicly traded bank to buy back its Capital Purchase Program (CPP) warrants. It paid $1.2 million, which is below the low-end of this paper's estimates of the fair market value of the warrants. This paper estimates the warrants are worth between $1.9 and $6.9...