1,721,115 research outputs found
Boundary-value problems for PDEs arising in the valuation of structured financial products
Get PDFWe explicitly solve some mixed initial/boundary value problems for gen-
eralized Black-Scholes PDEs with financially relevant boundary conditions.
As an illustration, new pricing formulas are obtained for convertible and
reverse convertible bonds under credit risk
Reverse convertible debt under credit risk
No full textIn this paper, a new pricing formula for reverse convertible debt that properly accounts for the embedded credit risk is found. An analysis of the conversion and default threshold is performed. This approach also suggests some possible explanations of the reverse convertible overpricing that is documented in the empirical literature
Optimal hedging through limit orders
No full textThis article applies the methods of stochastic dynamic programming to a risk management problem, where an agent hedges her derivative position by submitting limit orders. Therefore, this model is the first, in the literature on optimal trading with limit orders, to handle a problem of hedging options or other derivatives
Modeling uncertainty in limit order execution
No full textA model for limit order execution is developed where several sources of uncertainty are taken into account. We focus on the optimal trading strategy of an investor who has to buy a block of shares throughout the submission of limit orders. This trading problem is explicitly solved and we analyze how the state of the limit order book and the investor’s subjective beliefs affect the optimal strategy
Financing environmentally-sustainable projects with green bonds
No full textA structural model for green bonds is developed to explain the formation and dynamics of green bond prices and to address the issue of the so-called ‘greenium’, that is, the difference between the yields on a conventional bond and a green bond with the same characteristics. We provide answers to the following questions: What are the determinants of the green bond value? Do green bonds enhance the credit quality of the issuer? Are green bonds a relatively cheap tool to fund sustainable investments? We also study the effect of investors’ environmental concern on portfolio allocation. Our results have direct policy implications and suggest that an improvement in credit quality could ultimately lead to a lower cost of capital for green bond issuers and that governmental tax-based incentives and an increase in investors’ green awareness play a significant role in scaling up the green bonds market
Optimal trading strategies with limit orders
No full textA model is proposed to study the risk management problem of designing optimal trading strategies in a limit order book. The execution of limit orders is uncertain, which leads to a stochastic control problem. In contrast to previous literature, we allow the agents to choose both the quotes and the sizes of their submitted orders. Attention is paid to how the trading strategy is affected by an order book’s characteristics, market volatility and the trader’s risk attitude. We prescribe an optimal splitting of the order size for the trades with limit orders, while the existing literature offers a solution to this problem with market orders, and, at the same time, we provide guidelines to optimally place
27 orders further behind the best price or to (re)position them more aggressively. Thus this
28 paper is an attempt towards a more realistic modeling of optimal liquidation throughout
29 limit orders
Executive Compensation and incentives with hybrid options: a note
No full textThe value and the incentives of a hybrid option compensation plan are examined from the executive’s and the firm’s point of view and a comparison between a standard option plan and a hybrid one is evaluated
Corporate financing decisions under ambiguity : pecking order and liquidity policy implications
Get PDFThis paper addresses the following unresolved questions fromthe perspective of ambiguity theory: Why do some
firms issue equity instead of debt?Why did most firms retain their cash holdings instead of distributing themas
dividends in recent times? How do firms change their financing policies during a period of severe financial constraints and ambiguity, orwhen facing the threat of an unpredictable financial crisis? We analyze how the values
of the firm's equity and debt are affected by ambiguity. Wealso showthat cash holdings are retained longer if the
investors' ambiguity aversion bias is sufficiently large,while cash holdings become less attractivewhen the combined
impact of ambiguity and ambiguity aversion is relatively low
Operators of p-evolution with nonregular coefficients in the time variable
No full textAbstractWe study the Cauchy problem for a class of p-evolution operators P(t,x,Dt,Dx) in [0,T]×Rn,p>1, with less than C1 coefficients with respect to the time variable.According to Lipschitz, log-lipschitz or Hölder regularity we find well-posedness in Sobolev spaces or in Gevrey classes
The economic value of biodiversity preservation
Get PDFWe study the decision to preserve diverse species when the value of biodiversity is uncertain,
or even affected by ambiguity. Optimal decisions are derived both from the perspective
of the producer/investor and the policy regulator (ecosystem planner). We find that
while calculated risk creates a scope for biodiversity preservation, the presence of ambiguity
aversion reduces it, thus accelerating the extinction of species with lower value. Our
results suggest that effective conservation strategies would involve a reduction of ambiguity
aversion by creating a stable and transparent policy environment. Furthermore, they
may involve a two tier strategy, with one tier addressing output targets and the other conservation
targets
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