Valuing foreign exchange rate derivatives with a bounded exchange process

Foreign exchange rates have been subjected to periods of tighter or looser controls as various political and economic forces have waxed and waned. When currencies were backed by gold there were fixed exchange rates. In 1973 floating exchange rates were adopted though many countries did try to keep their currency values within certain ranges. More recently the European Economic Community formalized this practice. Free-floating exchange rates might be well characterized by the lognormal distribution which is standard in option pricing. However, this is probably a poor approximation for exchange rates which are kept within some range by the actions of one or both governments or central banks. This paper develops a model which can be used to value options and other derivative contracts when the underlying exchange rate is bounded in a fixed range (a, b). Methods for pricing both European and American style options are developed.The author would like to thank Ken French and Geert Rouwenhorst for their comments and suggestions.     

Capital Structure Theory and the Fisher Effect

This paper incorporates capital structure theory to model the response of nominal interest rates to expected inflation in a world with taxes. Within an otherwise common framework, the model includes Modigliani-Miller (MM) and Miller capital structure theory, as well as a variation of the Miller model with bankruptcy costs, developed by DeAngelo and Masulis. Within this framework, we derive an equation to predict the response of nominal interest rates under each capital structure hypothesis. With MM theory, our model predicts di_D/d_π value consistent with empirically observed ranges. With Miller theory, the predictions are inaccurate. With DeAngelo-Masulis, the predictions vary widely; the midpoint of the predicted range is less accurate than with Miller theory.     

How Discrimination Against Female Workers Is Hidden in U.S. Industry Statistics: Sex Differences in Wages in the Cotton Textile and Boot and Shoe Industries Between the World Wars

Abstract . The conclusion that the male-female earnings gap largely reflects sex differences in occupational structure is widely accepted, This conventional wisdom is challenged by examining intraoccupational male-female wage differences in two leading manufacturing industries, cotton textiles and boots and shoes, for the 1920s and 1930s. The results show little evidence of sex differences in wage rates in particular occupations in the cotton textile industry. The piece wage system protected the wages of female workers and kept intraoccupational wage differences between the sexes within narrow limits. In contrast, the evidence points to sharp sex differentials in occupational wage rates in the boot and shoe industry. In this industry, piece wages in the different occupations varied directly with the price of the shoes. By assigning work on low quality shoes to females employers were able to practice wage discrimination against them.     

Charitable Giving of Alumni

A bstract . This research examines the "age-donation" profile of gift-giving alumniai a large public university , based on a pooled micro-data random sample of 4,242 alumni (1926/27-1989/90 graduates) who gave cash gifts during the 1975/76-1989/90 fiscal years. The covariance regression model results indicate lack of statistically significant difference between gift-giving women and men. However, the School of Business graduates , alumni who proceeded to obtain graduate degrees from this university, and alumni members of non-Greek social organizations gave significantly more. Moreover, alumni contributions varied systematically over the business cycle and a 1962 Federal Court Order to desegregate the university racially reduced donations but not significantly. Given the 63-year cycle studied, the growth rates of alumni donations of money are projected to decline after roughly age 52, which falls short of the typical retirement age.     

TEXTBOOK INCONSISTENCIES IN GRAPHING VALUATION EQUATIONS: A FURTHER NOTE

In this note, the authors demonstrate that if a firm's leverage ratio is measured by debt-to-total value (debt-to-equity) in the pure capital structure rearrangement framework implicit in research reported by Modigliani and Miller (e.g., debt-to-equity exchanges), the market value of levered equity will be a concave (convex) function, and the market value of debt will be a convex (concave) function. These nonlinearities exist even without bankruptcy costs.     

A measurement of the welfare loss in the terminal equiphint makket

This arlicie allempts to estimate the wellare loss in the terminal equipment market due to the existence of monopoly power and entry barriers. The welfare loss consists of two parts, one due to price above marginal cost, and the second due to product voids. By using certain upper and lower bound measurements, we obtain an estimate of the minimum welfare loss of $35 million and a maximum welfare loss of $639 million for a one year time period.