Disagreement and security design

We study optimal security design when the issuer and market participants agree to disagree about the characteristics of the asset to be securitized. We show that pooling assets can be optimal because it mitigates the effects of disagreement between issuer and investors, whereas tranching a cash-flow stream allows the issuer to exploit disagreement between investors. Interestingly, pooling and tranching can be complements. The optimality of debt with or without call provisions can be derived as a special case. In a model with multiple financing rounds, convertible securities naturally emerge to finance highly skewed ventures

Formulation and optimization of the energy-based blended quasicontinuum method

We formulate an energy-based atomistic-to-continuum coupling method based on blending the quasicontinuum method for the simulation of crystal defects. We utilize theoretical results from Ortner and Van Koten (manuscript) to derive optimal choices of approximation parameters (blending function and finite element grid) for microcrack and di-vacancy test problems and confirm our analytical predictions in numerical tests