248 research outputs found
The Multinomial Option Pricing Model and Its Brownian and Poisson Limits
The Cox, Ross, and Rubinstein binomial model is generalized to the multinomial case. Limits are investigated and shown to yield the Black-Scholes formula in the case of continuous sample paths for a wide variety of complete market structures. In the discontinuous case a Merton-type formula is shown to result, provided jump probabilities are replaced by their corresponding Arrow-Debreu prices.Multinomial, option, pricing, Brownian, Poisson
Bad Corporate Marriages: Waking Up in Bed the Morning After
This paper examines corporate risk taking behavior in the wake of unsuccessful merger activities. We find that relative to other firms, firms that made bad acquisitions take both more systematic risk and more idiosyncratic risk. Moreover, higher risk is associated with greater value destruction and stronger corporate governance. The increased risk can be traced to increased cash flow volatility, increased leverage, decreased asset liquidity, more investment in R&D, and more equity-based executive compensation. These findings are in line with the behavioral approach suggesting that in the domain of losses, decision makers generally become more tolerant of risk
Explaining investor preference for cash dividends.
The well-known tendency of investors to favor cash dividends emerges quite naturally in two new theories of choice behavior [the theory of self-control due t
Why have asset price properties changed so little in 200 years
We first review empirical evidence that asset prices have had episodes of
large fluctuations and been inefficient for at least 200 years. We briefly
review recent theoretical results as well as the neurological basis of trend
following and finally argue that these asset price properties can be attributed
to two fundamental mechanisms that have not changed for many centuries: an
innate preference for trend following and the collective tendency to exploit as
much as possible detectable price arbitrage, which leads to destabilizing
feedback loops.Comment: 16 pages, 4 figure
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