A critical problem in finance engineering is to value the option and other derivatives securities correctly. The Monte Carlo method (MC) is an important one in the computation for the valuation of multi-asset European option. But its convergence rate is very slow. So various quasi Monte Carlo methods and the relative parallel computing method are becoming an important approach to the valuing of...

In this paper we study the implications of general-purpose technological growth for asset prices. The model features two types of shocks: “small”, frequent, and disembodied shocks to productivity and “large” technological innovations, which are embodied into new vintages of the capital stock. While the former affect the economy on impact, the latter affect the economy with lags, since firms nee...

This paper develops a model of financial institutions that borrow short term and invest in longterm assets that can be traded in frictionless markets. Because these financial intermediaries perform maturity transformation, they are subject to potential runs. We derive distinct liquidity, collateral, and asset liquidation constraints, which determine whether a run can occur as a result of changi...

This paper investigates the impact of asset liquidity on the valuation of corporate securities and the firm’s financing decisions. I show that asset liquidity increases debt capacity only when bond covenants restrict the disposition of assets. By contrast, I demonstrate that, with unsecured debt, greater liquidity increases credit spreads on corporate debt and reduces optimal leverage. The mode...

ABSTRACT In this paper, under constraint of delta-strategy and by importing another related risky asset to compose a hedging portfolio comprising the underlying asset and riskless asset(the Bond). Firstly, we excellently devise a dynamic hedging program for contingent claims; and then, according to Principle of Dynamic Programming and by taking advantage of backward recursion technique, at each...

In a standard asset price model with rational expectations and short-term shocks, long-term shocks affect the distribution of agents’ risk-aversions. Price uncertainty and learning about the distribution are simultaneously determined in an equilibrium. For some parameters, there may be multiple equilibria. In one of them demand is low, there is little revelation of information and uncertainty i...

Valuation has an externality: it creates information on which adverse selection can occur. We study a market in which investors (or lenders) buy uncertain future cash flows that are ex ante identical but ex post heterogeneous across assets from sellers (or borrowers) with reservation values. There exists a limited amount of a costly technology that can be purchased before the market opens that ...

The presence of illiquid assets, such as human wealth, housing and a proprietorship substantially complicates the problem of portfolio choice. This paper is concerned with the problem of optimal asset allocation and consumption in a continuous time model when one asset cannot be traded. This illiquid asset, which depends on an uninsurable source of risk, provides a liquid dividend. In the case ...

This paper discusses using real options to value power plants with unit commitment constraints over a short-term period. We formulate the problem as a multistage stochastic problem and propose a solution procedure that integrates forward-moving Monte Carlo simulation with backward-moving dynamic programming. We assume that the power plant operator maximizes expected profit by deciding in each h...