We develop a dynamic principal-agent model for financing a multistage project. The optimal contract displays the following unique features: (i) There is a pecking order between milestone bonuses and deferred compensation: when an intermediate stage succeeds, principal prefers to use deferred...

We solve a model of firm dynamics with two states: cash and capital. The model high- lights how costly financing and default affect a firm’s cash management, investment, payout, and issuance policies. We find support in the data for new predictions: (1) issuance-to-capital ratios are...

We study how the combination of market structure and the asymmetries in learn- ing technologies affects trade in a product market. In this market, a new product of unknown quality is introduced to challenge an existing product of known quality. We show that market efficiency is achieved both...

Intangible capital can be used to create new goods and services (product intangibles) or to improve the efficiency of the firm (process intangibles). We reveal and study a new empirical fact: Executive and skilled labor pay is increasing in firm process intensity (the fraction of intangibles...

We study interactions between cryptocurrency trading venues, traders, and taxation in which the venues differ in technology (fast vs. slow). The property distinguishing this market from other markets like equities is the fact that each venue clears trades separately from one another. We show...

This volume includes the five lecture courses given at the CIME-EMS School on "Stochastic Methods in Finance" held in Bressanone/Brixen, Italy 2003. It deals with innovative methods, mainly from stochastic analysis, that play a fundamental role in the mathematical modelling of finance and...