Results 1  10
of
44
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure
, 1976
"... This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of ..."
Abstract

Cited by 3043 (12 self)
 Add to MetaCart
This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.
Options on the minimum or maximum of two risky assets
 Journal of Financial Economics
, 1982
"... This paper provides analytical formulas for European put and call options on the mmimum or the maximum of two risky assets. The properties of these formulas are discussed in detail. Options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of i ..."
Abstract

Cited by 90 (0 self)
 Add to MetaCart
This paper provides analytical formulas for European put and call options on the mmimum or the maximum of two risky assets. The properties of these formulas are discussed in detail. Options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists. Applications discussed in this paper include the valuation of foreign currency debt, optionbonds, compensation plans, risksharing contracts, secured debt and growth opportunities involving mutually exclusive investments. 1.
The Pricing of Call and Put Options on Foreign Exchange
 Journal of International Money and Finance
, 1983
"... This paper derives pricing equations for European puts and calls on formgn exchange. The call and put pricing formulas are unhke the BlackScholes equations for stock options in that there are two relevant interest rates, interest rates are stochastic, and boundary constraints differ. In ad&tion ..."
Abstract

Cited by 52 (0 self)
 Add to MetaCart
This paper derives pricing equations for European puts and calls on formgn exchange. The call and put pricing formulas are unhke the BlackScholes equations for stock options in that there are two relevant interest rates, interest rates are stochastic, and boundary constraints differ. In ad&tion, it is shown that both American call and put options have values larger than their European counterparts. This paper develops pricing relationships for European and American call and put options on foreign currency. Foreign exchange (FX) options have features that distinguish them from options on common stock. Consequently, commonly used models for pricing stock options, such as the popular Black Scholes model, are inadequate for FX options. Some previous studies have also looked at foreign currency option pricing. Feiger and Jacquillat (1979) attempt to obtain foreign currency option prices by first pricing a currency option bond. They are not able, however, to obtain simple, closedform solutions by this procedure. Stulz (1982) looks also at currency option
Discretely Adjusted Option Hedges
 Journal of Financial Economics
, 1980
"... This paper analyses the distribution of returns on a hedged portfolio, consisting of a European call option and its associated stock, when the portfolio is rebalanced at discrete time intervals. Under the assumpttons of the BlackScholes model this distributron is particularly skew. In tests of the ..."
Abstract

Cited by 45 (1 self)
 Add to MetaCart
This paper analyses the distribution of returns on a hedged portfolio, consisting of a European call option and its associated stock, when the portfolio is rebalanced at discrete time intervals. Under the assumpttons of the BlackScholes model this distributron is particularly skew. In tests of the average return on a hedged portfolio this skewness leads to biased tstatrstics. The paper explores the nature and extent of this bias and suggests procedures for overcoming it. Other aspects of discrete hedging are also discussed. 1.
Martingale approach to pricing perpetual American options on two stocks
 Mathematical Finance
, 1996
"... ABSTRACT The method of Esscher transforms is a tool for valuing options on a stock, if the logarithm of the stock price is governed by a stochastic process with stationary and independent increments. The price of a derivative security is calculated as the expectation, with respect to the riskneutr ..."
Abstract

Cited by 35 (3 self)
 Add to MetaCart
(Show Context)
ABSTRACT The method of Esscher transforms is a tool for valuing options on a stock, if the logarithm of the stock price is governed by a stochastic process with stationary and independent increments. The price of a derivative security is calculated as the expectation, with respect to the riskneutral Esscher measure, of the discounted payoffs. Applying the optional sampling theorem we derive a simple, yet general formula for the price of a perpetual American put option on a stock whose downward movements are skipfree. Similarly, we obtain a formula for the price of a perpetual American call option on a stock whose upward movements are skipfree. Under the classical assumption, that the stock price is a geometric Brownian motion, the general perpetual American contingent claim is analysed, and formulas for the perpetual downandout call option and Russian option are obtained. The martingale approach avoids the use of differential equations and provides additional insight. We also explain the relationship between Samuelson's high contact condition and the first order condition for optimality.
Theory of finance from the perspective of continuous time
 Journal of Financial and Quantitative Analysis
, 1975
"... It is not uncommon on occasions such as this to talk about the shortcomings in the theory of Finance, and to emphasize how little progress has been made in answering the basic questions in Finance, despite enormous research efforts. Indeed, it is not uncommon on such occasions to attack our basic &q ..."
Abstract

Cited by 16 (1 self)
 Add to MetaCart
(Show Context)
It is not uncommon on occasions such as this to talk about the shortcomings in the theory of Finance, and to emphasize how little progress has been made in answering the basic questions in Finance, despite enormous research efforts. Indeed, it is not uncommon on such occasions to attack our basic "mythodology, " particularly the "Ivory Tower " nature of our assumptions, as the major reasons for our lack of progress. Like a Sunday morning sermon, such talks serve many useful functions. For one, they serve to deflate our professional egos. For another, they serve to remind us that the importance of a contribution as judged by our professional peers (the gold we really work for) is often not closely aligned with its operational importance in the outside world. Also, such talks serve to comfort those just entering the field, by letting them know that there is much left to do because so little has been done. While such talks are not uncommon, this is not what my talk is about. Rather, my discussion centers on the positive progress made in the development of a theory of Finance using the continuoustime mode of analysis. Hearing this in.1975, amidst an economic recession with a baffling new disease called "stagflation " and with our financial markets only beginning to recover from the worst
On the Mathematics and Economics Assumptions of ContinuousTime Models
 in W.F. Sharpe and C.M. Cootner (eds.), Financial Economics: Essays in Honor of Paul Cootner. Englewood Cliffs
, 1982
"... by ..."
(Show Context)
The RiskNeutral Measure and Option Pricing under LogStable Uncertainty
, 2003
"... The fact that expected payo¤s on assets and call options are in…nite under most logstable distributions led both Paul Samuelson (as quoted by Smith 1976) and Robert Merton (1976) to conjecture that assets and derivatives could not be reasonably priced under these distributions, despite their attrac ..."
Abstract

Cited by 8 (1 self)
 Add to MetaCart
(Show Context)
The fact that expected payo¤s on assets and call options are in…nite under most logstable distributions led both Paul Samuelson (as quoted by Smith 1976) and Robert Merton (1976) to conjecture that assets and derivatives could not be reasonably priced under these distributions, despite their attractive feature as limiting distributions under the Generalized Central Limit Theorem. Carr and Wu (2003) are able to price options under logstable uncertainty, but only by making the extreme assumption of maximally negative skewness. This paper demonstrates that when the observed distribution of prices is logstable, the Risk Neutral Measure (RNM) under which asset and derivative prices may be computed as expectations is not itself logstable in the problematic cases. Instead, the RNM is determined by the convolution of two densities, one negatively skewed stable, and the other an exponentially tilted positively skewed stable. The resulting RNM gives …nite expected payo¤s for all parameter values, so that the concerns of Samuelson and Merton were in fact unfounded, while the Carr and Wu restriction is unnecessary. Since the logstable RNM developed here is expressed in terms of its characteristic function, it enables options on logstable assets to be computed easily by means of the Fast Fourier Transform (FFT) methodology of Carr and Madan (1999), provided a simple extension of the FFT, introduced here, is employed.
On market timing and investment performance part I: An equilibrium theory of value for market forecasts
 Journal of Business
, 1981
"... The evaluation of the performance of investment managers is a muchstudied problem in finance. The extensive study of this problem could be justified solely on the basis of the manifest function of these evaluations which is to aid in the efficient allocation of investment funds ..."
Abstract

Cited by 7 (0 self)
 Add to MetaCart
(Show Context)
The evaluation of the performance of investment managers is a muchstudied problem in finance. The extensive study of this problem could be justified solely on the basis of the manifest function of these evaluations which is to aid in the efficient allocation of investment funds
A Decade of Australian Banking Risk: Evidence From Share Prices", Reserve Bank of Australia Research Discussion Paper No
, 1993
"... The views expressed herein are those of the authors and do not necessarily reflect those of the Reserve Bank of Australia or the Federal Reserve Bank of San The stability of the banking sector has long been a matter of concern for public policy. The likelihood of bank failure depends on two factors: ..."
Abstract

Cited by 6 (1 self)
 Add to MetaCart
The views expressed herein are those of the authors and do not necessarily reflect those of the Reserve Bank of Australia or the Federal Reserve Bank of San The stability of the banking sector has long been a matter of concern for public policy. The likelihood of bank failure depends on two factors: (i) the variability of bank income (which primarily reflects the variability of the rate of return on bank assets), and (ii) the capacity of a bank to absorb losses in the short run (which depends on bank capital). Accounting measures of the volatility of the rate of return on bank assets and bank capital ratios may not reflect the appropriate economic concepts. In this paper, we use share price data to calculate the economic values of Australian bank asset volatilities, capital ratios and the potential public sector liability which might arise as a result of claims by depositors of a failed bank. The public sector liability is found to be extremely small. We find that the estimated capital ratio for the Australian banking sector has risen over the past decade, while there has been no noticeable increase in the riskiness of banks. A preliminary