This paper examines the impact of a random number of stock prices changes on the valuation formula for options. The model introduces the structure of the general marked point process (MPP). The kind of models allows to take in account more general distributions of time interarrival: they need no...

Companies in many countries have designated shares restricted to locals and otherwise identical unrestricted shares available to foreigners. With the ever-increasing demand for international portfolio investments, these foreign ownership restrictions typically lead to large price premiums for...

This paper studies the returns from investing in index options. Previous research documents significant average option returns, large CAPM alphas, and high Sharpe ratios, and concludes that put options are mispriced. We propose an alternative approach to evaluate the significance of option...

The purpose of the UDROP proposal is to prevent debt rollover crises for foreign-currency-denominated debt instruments. For such liabilities, there is no international analogue to the domestic lender of last resort or to domestic deposit insurance. UDROP stands for Universal Debt Rollover Option...

A new option pricing formula is presented that unifies several results of the existing literature on pricing exotic options under Lèvy processes. To demonstrate the flexibility of the formula a few examples are given which provide new valuation formulas within the Lévy framework

This paper empirically investigates the impact of macroeconomic uncertainty on the spreads of individual firms' credit default swaps (CDS). While existing literature ac- knowledges the importance of the levels of macroeconomic factors in determining CDS spreads, we find that the second moments...

This paper applies to the static hedge of barrier options a technique, mean-square hedging, designed to minimize the size of the hedging error when perfect replication is not possible. It introduces an extension of this technique which preserves the computational efficiency of mean-square...

This paper presents a two--factor model of the term structure of interest rates. We assume that default free discount bond prices are determined by the time to maturity and two factors, the long--term interest rate and the spread (difference between the long--term rate and the short--term...

We prove indeterminacy of competitive equilibrium in sequential economies, where limited commitment requires the endogenous determination of solvency constraints preventing debt repudiation (Alvarez and Jermann [3]). In particular, we show that, for any arbitrary value of social welfare in...

We investigate the role of crude oil spot and futures prices in the process of price discovery by using a cost-of-carry model with an endogenous convenience yield and daily data over the period from January 1990 to December 2008. We provide evidence that futures markets play a more important...