I propose a new measure of credit risk, model implied credit spreads (MICS), which can be extracted from any structural credit risk model in which debt values are a function of asset risk and the payout ratio. I implement MICS assuming a barrier option framework nesting the Merton (1974) model...

We introduce a notion of volatility uncertainty in discrete time and define the corresponding analogue of Peng’s G-expectation. In the continuous-time limit, the resulting sublinear expectation converges weakly to the G-expectation. This can be seen as a Donsker-type result for the G-Brownian...

Currency total return swaps (CTRS) are hybrid derivatives instruments that allow to simultaneously hedge against credit and currency risks. We develop a structural credit risk model to evaluate CTRS premia. Empirical test on a sample of 23,005 price observations from 59 underlying issuers yields...

The price disparity between the dual-listed Chinese firms in the A- and H-share markets is one of the most intriguing puzzles in the Mainland and Hong Kong financial markets. In this paper, we revisit this price disparity puzzle using the channel of parameter uncertainty. In the presence of...

We develop a dynamic model in which a firm exercises an option to expand production with cash balance and costly external funds. While related papers explain their results only by numerical examples, we analytically prove the following results. In the presence of only a proportional cost of...

This paper analyzes the interactions between competitive (wholesale) spot, retail, and forward markets and vertical integration in electricity markets. We develop an equilibrium model with producers, retailers, and traders to study and quantify the impact of forward markets and vertical...

Emissions markets have emerged in Europe, the U.S., and around the globe. This paper analyzes the market structure of trading in these instruments. Within the EU ETS, I find, after controlling for a structural break in April 2006, that the major spot and futures exchanges in Europe are...

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...

Many observers have argued that credit default swaps contributed significantly to the credit crisis. Of particular concern to these observers are that credit default swaps trade in the largely unregulated over-the-counter market as bilateral contracts involving counterparty risk and that they...

The thesis develops the option pricing model with interest rate model in stochastic environment by analyzing insurance field in asset liability management context and regulatory puorpose from the management prospective.