Abstract We study how a capital income tax and wealth affect an investor's valuation of company's stock in efficient international market. Using one-period model, model infinite horizon where the asset generates future cash flow that is martingale, finite we abandon martingale assumption, find and/or do not lead investors to value investment differently from untaxed investors. Investors who see...

This study examines the joint effect of disclosed measurement information and investor mindset on investors' judgments of estimate precision and firm value. Consistent with psychology theory, results reveal that short horizon investors adopt a relatively concrete mindset and long horizon investors adopt a relatively abstract mindset. As a consequence, disclosing that the fair value of an impair...

Expected future volatility plays a central role in finance theory. Consequently, accurate estimation of this parameter is crucial to meaningful financial decision-making. Researchers generally on the past behavior of asset prices to estimate volatility, relating movements in volatility value with prior volatility and/or variables in the investors' information set. These procedures are by nature...

To capture trader heterogeneity in a market microstructure setting, we model a trader’s option to trade as an optimal stopping problem. This option to trade is much like a firm’s option to invest in the real options literature. The optimal bid-ask prices quoted by any trader are functions of the joint evolution of their own private value and the private value of their intended trading counterpa...

This paper is devoted to the valuation of American multi-asset put options. It is well known that the American multi-asset put option satisfies a linear complementary problem (LCP) on an unbounded domain. We consider a penalty method in which the LCP could be reformulated into a nonlinear parabolic problem on an unbounded domain. For the unbounded computational domain, a perfectly matched layer...

This paper studies the problem of default correlation. We first introduce a random variable called “timeuntil-default” to denote the survival time of each defaultable entity or financial instrument, and define the default correlation between two credit risks as the correlation coefficient between their survival times. Then we argue why a copula function approach should be used to specify the jo...

In this paper, we present the data-driven COS method, ddCOS. It is a Fourier-based financial option valuation method which assumes the availability of asset data samples: a characteristic function of the underlying asset probability density function is not required. As such, the presented technique represents a generalization of the well-known COS method [1]. The convergence of the proposed met...