This study constructs a valuation model from which an option-adjusted spread approach is employed to value individual mortgage servicing contracts for both adjustable rate and fixed rate mortgages. The valuation model is comprised of an exogenous OTS prepayment model, a stochastic interest rate process, and other servicing fees and costs, all of which jointly determine the servicing contract’s ...

We estimate the causal effect of temporary tax incentives on equipment investment using a difference-in-differences design and policy shifts in accelerated depreciation. Analyzing data for over 120,000 US firms from 1993 to 2010, we present three findings. First, bonus depreciation raised investment by 17.3 percent on average between 2001 and 2004 and 29.5 percent between 2008 and 2010. Second,...

This paper studies the propensity of firms to commit to disclose information that is subsequently biased, in the presence of other firms also issuing potentially biased information. An important aspect of such an analysis is the fact that firms can choose whether to disclose or withhold information. We show that allowing the number of disclosed reports to be endogenous introduces a countervaili...

The distribution of the present value of a series of cash flows under stochastic interest rates has been investigated by many researchers. One of the main problems in this context is the fact that the calculation of exact analytical results for this type of distributions turns out to be rather complicated, and is known only for special cases. An interesting solution to this difficulty consists ...

This paper proposes a dynamic risk-based model capable of jointly explaining the term structure of interest rates, returns on the aggregate market and the risk and return characteristics of value and growth stocks. Both the term structure of interest rates and returns on value and growth stocks convey information about how the representative investor values cash flows of different maturities. W...

In this paper we study a fundamental issue in the theory of modeling of financial markets. We consider a model where any investment opportunity is described by its cash flows. We allow for a finite number of transactions in a finite time horizon. Each transaction is held at a random moment. This places our model closer to the real world situation than discrete-time or continuous-time models. Mo...

We consider a finite horizon optimal stopping problem related to trade-off strategies between expected profit and cost cash-flows of an investment under uncertainty. The optimal problem is first formulated in terms of a system of Snell envelopes for the profit and cost yields which act as obstacles to each other. We then construct both a minimal and a maximal solutions using an approximation sc...

We consider longand medium-term production planning and hedging in a hydropower system under price and inflow uncertainty. The price uncertainty is modeled with a multidimensional forward curve model that considers time dependant spot volatility, the volatility curve’s maturity effect, and the forward curve’s correlation structure. We give a simple and intuitive parameterization for the optimal...

The evaluation of future cash flows and solvency capital recently gained importance in general insurance. To assist in this process, our paper proposes a novel loss reserving model, designed for individual claims in discrete time. We model the occurrence of claims, as well as their reporting delay, the time to the first payment, and the cash flows in the development process. Our approach uses d...

A major impact on both financial theory and the practice of financial decision making has been the economic instability, especially in prices, evidenced in the U.S. economy since the mid 1960’s. Inflation in the past few years has not been a major macro economic problem, but its spectere, as demonstrated by the Fed’s recent increases in interest rates, is never for the agendas of financial deci...