Valuation and optimal strategies of convertible bonds

This article presents a contingent claim valuation of a callable convertible bond with the issuer's credit risk. The optimal call, voluntary conversion, and bankruptcy strategies are jointly determined by shareholders and bondholders to maximize the equity value and the bond value, respectively. This model not only incorporates tax benefits, bankruptcy costs, refunding costs, and a call notice period, but also takes account of the issuer's debt size and structure. The numerical results show that the predicted optimal call policies are generally consistent with recent empirical findings; therefore, calling convertible bonds too late or too early can be rational. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:895–922, 2006     

Option pricing in the moderate deviations regime

We consider call option prices close to expiry in diffusion models, in an asymptotic regime (“moderately out of the money”) that interpolates between the well‐studied cases of at‐the‐money and out‐of‐the‐money regimes. First and higher order small‐time moderate deviation estimates of call prices and implied volatilities are obtained. The expansions involve only simple expressions of the model parameters, and we show how to calculate them for generic local and stochastic volatility models. Some numerical computations for the Heston model illustrate the accuracy of our results.     

Anatomy of option features in convertible bonds

Several earlier theoretical studies on the optimal issuer's calling policy of a convertible bond suggest that the issuer should call the bond as soon as the conversion value exceeds the call price. However, empirical studies on actual cases of calling by convertible bond issuers reveal that firms “delayed” calling their convertible bonds until the conversion value well exceeded the call price. In this paper, we construct valuation algorithms that price risky convertible bonds with embedded option features. In particular, we examine the impact of the soft call and hard call constraints, notice period requirement and other factors on the optimal issuer's calling policy. Our results show that the critical stock price at which the issuer should optimally call the convertible bond depends quite sensibly on these constraints and requirements. The so‐called “delayed call phenomena” may be largely attributed to the underestimation of the critical call price due to inaccurate modeling of the contractual provisions. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:513–532, 2004     

SHAREHOLDER RISK MEASURES

The aim of this paper is to put forward a new family of risk measures that could guide investment decisions of private companies. But at the difference of the classical approach of Artzner, Delbaen, Eber, and Heath and the subsequent extensions of this model, our risk measures are built to reflect the risk perception of shareholders rather than regulators. Instead of an axiomatic approach, we derive risk measures from the optimal policies of a shareholder value‐maximizing company. We study these optimal policies and the related risk measures that we call shareholder risk measures. We emphasize the fact that due to the specific corporate environment, in particular the limited shareholders' liability and the possibility to pay out dividends from cash reserves, these risk measures are not convex. Also, they depend on the specific economic situation of the firm, in particular its current cash level, and thus they are not translation invariant. This paper bridges the gap between two important branches of mathematical finance: risk measures and optimal dividends.     

PERPETUAL CANCELLABLE AMERICAN CALL OPTION

This paper examines the valuation of a generalized American‐style option known as a game‐style call option in an infinite time horizon setting. The specifications of this contract allow the writer to terminate the call option at any point in time for a fixed penalty amount paid directly to the holder. Valuation of a perpetual game‐style put option was addressed by Kyprianou (2004) in a Black‐Scholes setting on a nondividend paying asset. Here, we undertake a similar analysis for the perpetual call option in the presence of dividends and find qualitatively different explicit representations for the value function depending on the relationship between the interest rate and dividend yield. Specifically, we find that the value function is not convex when r > d . Numerical results show the impact this phenomenon has upon the vega of the option.     

The role of covenants in bond issue. The case of Russian companies

This study examines the use and determinants of covenants in public debt issued by Russian companies. Based on issue characteristics and firm characteristics, we investigate the likelihood that the inclusion of covenant clauses in financial contracts is positively related to the riskiness of bond issues. Using a hand-collected database of Russian firms that place bonds in both the domestic and Eurobond markets, we provide evidence that Russian bondholders use covenant protection to compensate for different creditor protections when the firm has Eurobonds in its debt portfolio. We also find a general negative relation between covenant protection and the bond's yield.     

The performance of VIX option pricing models: Empirical evidence beyond simulation

We examine the pricing performance of VIX option models. Such models possess a wide‐range of underlying characteristics regarding the behavior of both the S&P500 index and the underlying VIX. Our tests employ three representative models for VIX options: Whaley ( 1993 ), Grunbichler and Longstaff ( 1996 ), Carr and Lee ( 2007 ), Lin and Chang ( 2009 ), who test four stochastic volatility models, as well as to previous simulation results of VIX option models. We find that no model has small pricing errors over the entire range of strike prices and times to expiration. In particular, out‐of‐the‐money VIX options are difficult to price, with Grunbichler and Longstaff's mean‐reverting model producing the smallest dollar errors in this category. Whaley's Black‐like option model produces the best results for in‐the‐money VIX options. However, the Whaley model does under/overprice out‐of‐the‐money call/put VIX options, which is opposite the behavior of stock index option pricing models. VIX options exhibit a volatility skew opposite the skew of index options. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark31:251–281, 2011     

基于不完全非合作博弈的上市公司违规行为分析

频频发生的上市公司违规实际上是不同利益主体之间博弈的结果。违规上市公司涉及的利益主体主要是控股股东、中小股东与监管者,他们之间的博弈是不完全、非合作博弈。本文建立了违规上市公司及其控股股东与中小股东、监管者之间的博弈模型,发现了影响上市公司及其控股股东违规概率高低的主要因素是制度安排、违规成本与监管力度等,在此基础上提出了建立利益相关者共同治理的治理结构、立法保护利益相关者利益、实施对监管者监管等有效治理上市公司违规行为的政策建议。     

On Decreasing Marginal Impatience,Stability and Monetary Policy in a Sidrauskian Economy

This paper analyzes the long‐run dynamics with which decreasing marginal impatience (DMI) is consistent with a saddle‐path equilibrium in a Sidrauskian economy. With exogenous growth, this occurs with a strong substitutability between capital and money. Otherwise, diminishing returns to capital have to be stronger than in a nonmonetary setting if capital and money are complements. With endogenous growth, saddle‐path stability ensues when the rate of time preference—the rate at which “impatience” is increasing—exceeds the rate at which the real economy is growing along a balanced growth path. Two monetary implications also emerge. One, DMI can be consistent with both a negative and positive long‐run inflation‐growth nexus. Two, under capital‐money substitutability, the Friedman optimal rule might even fail to hold.     

Corporate governance, takeovers and the role of the non-executive director

The takeover mechanism may have some effect on disciplining managers - but it also allows them to spend shareholders money on self promotion. The authors of this paper argue that if we had a better system of corporate governance with a revitalised role for independent directors fewer takeovers would occur, and calls for reform of the acquisition market would diminish.     

More shareholders,higher liquidity? Evidence from an emerging stock market

Using data assembled from all non-financial firms traded on the Malaysian stock exchange, we provide evidence of a nonlinear relationship between the number of shareholders and liquidity. While more shareholders are associated with higher liquidity, the negative effect of wider spreads kicks in when shareholder base exceeds a threshold level due to higher volatility induced by noise trading. However, the threshold level is considerably higher than the number of shareholders of most Malaysian public listed firms, suggesting much room for shareholder expansion in the local market. Our findings call for corporate managers to actively manage and expand their shareholder bases.     

The Economics of State Subsidies in Early Stage Financing

We analyze the effect of state subsidies on early stage investments. In a two‐period investment model with incomplete stage financing contracts, we describe optimal and second‐best investment levels. Optimality depends on external effects: given that private early stage financing generates positive external effects, the subsidies might be designed to use scarce state money most efficiently to mobilize private investment capital. However, a subsidy might also contribute to greater efficiency of the contractual relationship itself without regard to external effects. Refinancing subsidies can be optimal under both perspectives and are always optimal under last of the two approaches. The comparison of the main types of subsidies, i.e. refinancing subsidies, guarantees and direct investments, speaks against the use of guarantees. Finally, we show that our results do also hold if some investors (e.g. venture capitalists) have a superior screening capability.     

The money creation process: A theoretical and empirical analysis for the United States

The aim of this paper is to assess—on both theoretical and empirical grounds—the two main views regarding the money creation process, namely the endogenous and exogenous money approaches. After analysing the main issues and the related empirical literature, we will apply a vector autoregression model and a vector error‐correction model methodology to the United States for the period 1959–2017 to assess the causal relationship between a number of critical variables that are supposed to determine the money supply, that is, the monetary base, bank deposits, bank loans and the nominal level of economic activity. The empirical analysis supports several propositions related to the endogenous money approach. In particular, it shows that for the United States in the years 1959–2017 (a) bank loans determine bank deposits and (b) bank deposits in turn determine the monetary base. Our conclusion is that money supply is mainly determined endogenously by the lending activity of commercial banks and the nominal level of economic activity.     

Governance of Knowledge‐Intensive Firms in the Modern Market Economy

We model contracting for joint production between workers and shareholders when investment in knowledge is non‐verifiable and the resulting specific human capital embedded in the workers is non‐tradable. The model explains how the effective cost of human capital services will vary depending on whether the investment in knowledge is financed by the workers or by the shareholders. We apply the results of the modeling to identify which firms are expected to gain and which to lose from posted trends in higher employability and lower empowerment of workers in modern market economies. Finally, we present conditions on the self‐interest of current shareholders to empower workers as a way to stimulate their investment in firm‐specific human capital.     

终极控制人机会主义行为监管的博弈分析

运用完全信息静态博弈和演化博弈理论,通过对终极控制人与监管者成本收益函数的合理设计,从三个层次研究双方的博弈关系。完全信息静态博弈分析结果表明:对终极控制人机会主义行为监管,不能片面地重罚终极控制人的机会主义行为和给予终极控制人过多的控制权收益,而是必须综合考虑监督者的监管频率和监管者的监管水平。演化博弈研究结果表明:博弈双方进行演化博弈时在三种情况下存在演化稳定策略,终极控制人行动的净成本、市场环境、终极控制人控制权与现金流权的分离程度、股权比例,都显著影响到终极控制人的策略选择。     

Option happiness and liquidity: Is the dynamics of the volatility smirk affected by relative option liquidity?

This study investigates the dynamic relationship between option happiness (the steepness of the volatility smirk) and relative index option liquidity. We find that, on a daily basis, option happiness is significantly dependent on the relative liquidity between option series with different moneyness. In particular, deterioration (improvement) in liquidity of an out‐of‐the‐money put option relative to a concurrent at‐the‐money call option would lead to higher (lower) option happiness. This relationship is robust to relative option liquidity measures based on bid–ask spreads, option price impacts, and option order book imbalances. The results also show a significant maturity effect in option happiness, consistent with the notion that options are “dying smiling.” © 2011 Wiley Periodicals, Inc. Jrl Fut Mark     

Does share pledging affect firms' use of derivatives? Evidence from China

We investigate whether share pledging by controlling shareholders affects firms' use of derivatives. Our findings suggest that share-pledging firms are more likely to use derivatives than non-share-pledging firms. In cross-section analyses, we observe that the relationship is more pronounced when the margin call risk is higher, for example, if controlling shareholders own fewer shares, firms are located in regions with higher levels of marketization, or firms have a higher stock price crash risk. Our findings indicate that shares pledged by controlling shareholders steer firms toward the use of derivatives to hedge firm activities and alleviate the margin call risk.     

Stakeholder Duties: On the Moral Responsibility of Corporate Investors

Stakeholder theory usually focuses on the moral responsibility of corporations towards their stakeholders. This article takes the reverse perspective to shed light on the moral responsibility of stakeholders??specifically, investors or ??financiers??. It explicates a distinction between two types of financiers, creditors and shareholders. Many intuitively judge that shareholders have greater or more extensive moral responsibility for the actions of the corporations they invest in than do bondholders and other creditors. Examining the merits of possible arguments for or against treating owners and creditors differently elucidates which arguments can support the moral duties of investors generally, and different duties for different groups of investors specifically. The paper considers three possible lines of arguments, rooting investors?? responsibility, respectively, in how they enable corporate conduct, how they benefit from it, and to what extent they are complicit in it. The paper argues that a notion of complicity is the only tenable ground for holding investors liable; sketches an account of complicity based on the recent philosophical literature on collective intention and collective action; and concludes that shareholders but not creditors can generally be seen as complicit on this account.     

Does a money‐is‐all attitude cause alienation? A cross‐cultural comparison of Korea,the US and Sweden

Money is increasingly being attributed more value in society, although a money‐is‐all attitude decreases social relationships and increases alienation in modern, industrialized societies. This research investigated the influence of this money‐is‐all attitude on alienation based on a cross‐cultural comparison of Korea, the US and Sweden. The money‐is‐all attitude was defined as a perspective in which money is regarded as an indicator of achievement or success. Self‐administered online surveys were conducted with consumers ranging between the ages of 20 to 49 in Korea, the US and Sweden. The money‐is‐all attitude and alienation seemed to be more pervasive in Korea than in the US or Sweden. The money‐is‐all attitude was the factor with the strongest influence on alienation when controlling for socio‐demographic factors. Furthermore, participation in sports activities was an important factor in decreasing alienation levels. The findings of this research imply that materialistic ways of thinking increase alienation and that money cannot contribute to human happiness and well‐being. In addition, active participation in social activities can decrease alienation. The research results suggest that a materialistic, money‐is‐all attitude negatively influences alienation across cultures; in addition, in the US, an affluent consumption‐based country, the money‐is‐all attitude had more explanatory power for alienation than in Sweden and Korea. A change in values to overcome the money‐is‐all attitude is required and the concepts of sufficiency and mindfulness are suggested as alternative life perspectives for the pursuit of well‐being.     

REAL OPTIONS WITH COMPETITION AND REGIME SWITCHING

In this paper, we examine irreversible investment decisions in duopoly games with a variable economic climate. Integrating timing flexibility, competition, and changes in the economic environment in the form of a cash flow process with regime switching, the problem is formulated as a stopping‐time game under Stackelberg leader‐follower competition, in which both players determine their respective optimal market entry time. By extending the variational inequality approach, we solve for the free boundaries and obtain optimal investment strategies for each player. Despite the lack of regularity in the leader's obstacle and the cash flow regime uncertainty, the regime‐dependent optimal policies for both the leader and the follower are obtained. In addition, we perform comprehensive numerical experiments to demonstrate the properties of solutions and to gain insights into the implications of regime switching.