The effects of transaction costs and different borrowing and lending rates on the option pricing model / BEBR No.874

Includes bibliographical references (p. 26).This paper solves a stochastic differential equation to demonstrate that the market imperfections of transaction costs and different borrowing and lending rates partially offset each other to yield a range of equilibrium prices for an option. The Black-Scholes model price is shown to be in the lower portion of, or entirely below, the equilibrium range. These observations are used to explain several of the mythical anomalies found in the option pricing literature. The paper also points out that under some conditions there may be NO equilibrium option price. Instead there may be a bounded disequilibrium within which a single option will offer a risk free return above the Treasury bill rate, while SIMULTANEOUSLY permitting borrowing below the borrowing rate

More on the use of beta in regulatory proceedings / BEBR No 691

Includes bibliographical references (p. 12-13)

Autocorrelation, investment horizon and efficient frontier composition / BEBR No. 528

Includes bibliographical references (p. 30-31)."This paper demonstrates that modest amounts of security autocorrelation can cause the composition of an efficient frontier constructed on the basis of one holding period length assumption to differ substantially from the composition of an efficient frontier constructed on the basis of another holding period length assumption. This will be true even if the efficient frontiers are constructed using the same data base over the same total time span. This finding is derived mathematically and demonstrated empirically. The paper discusses the serious consequences of this finding.

Capital market equilibrium with divergent holding period length assumptions / BEBR No. 598

Title page includes summary.Includes bibliographical references (leaf 11)