We investigate a common value bilateral bargaining model with two sided private information and no aggregate uncertainty. A seller owns an asset whose common valuation is a deterministic function of the two traders’private signals. We …rst establish a no-trade theorem for this environment, and proceed to study the e¤ect of the asset valuation structure and the trading mechanism on extent to whi...

GAAP mandates a variety of departures from historical cost asset valuation. Here we o¤er a simple model that leads to such variety, depending on regulatory objectives and the magnitude of various economic forces. The central feature of the model is entrepreneurial investment in an asset followed by private information that cannot be communicated. A lemons problem arises in the asset resale mark...

In theory, valuation effects (changes in net external assets of a country arising from movements in exchange rates or asset returns) are an important channel of international risk sharing as they facilitate external adjustment. However, the effects can also be economically destabilizing in the presence of frictions in the international financial system. Despite the growing significance of valua...

An equivalent martingale measure selection strategy for discrete time, continuous state, asset price evolution models is proposed. The minimal martingale law is shown to generally fail to produce a probability law in this context. The proposed strategy, termed the Girsanov principle, performs a multiplicative decomposition of asset price movements into a predictable and martingale component wit...

We present a Lie algebraic technique for the valuation of multi-asset financial derivatives with time-dependent parameters. Exploiting the dynamical symmetry of the pricing partial differential equations of the financial derivatives, the new method enables us to derive analytical closed-form pricing formulae very straightforwardly. We believe that this new approach will provide an efficient and...

This paper considers the valuation of exotic path-dependent options in Lévy models, in particular options on the supremum and the infimum of the asset price process. Using the Wiener–Hopf factorization, we derive expressions for the analytically extended characteristic function of the supremum and the infimum of a Lévy process. Combined with general results on Fourier methods for option pricing...