Volume 3, Number 4, Fourth Quarter 2005 Freakonomics Steven D. Levitt and Stephen J. Dubner Reviewed by Tim Adler The Future for Investors: Why the Tried and True Triumph over the Bold and the New Jeremy J. Siegel Reviewed by Bruce Grantier View PDF… Read more
Special Issues
CASE STUDIES: Quiz for Fed Candidates
Jack L. Treynor Volume 3, Number 4, Fourth Quarter 2005 View PDF… Read more
Great Moments in Financial Economics: IV. The Fundamental Theorem (Part I)
Mark Rubinstein Volume 3, Number 4, Fourth Quarter 2005 This is the fourth in a series of articles in this Journal examining the historical origins of key ideas in the history of financial economics. The fundamental theorem asserts: there are no arbitrage opportunities if and only if state-prices exist. Like Newton’s laws of motion, though… Read more
Decomposing and Managing Multivariate Risks: The Case of Variable Annuities
Thomas S. Y. Ho and Blessing Mudavanhu Volume 3, Number 4, Fourth Quarter 2005 The market of variable annuities has grown tremendously in recent years and has become a significant part of our capital markets. These equity and interest rate structured products offer a broad range of guarantees, whose risks are typically borne by the… Read more
Reduced Form vs. Structural Models of Credit Risk: A Case Study of Three Models
Navneet Arora, Jeffrey R. Bohn and Fanlin Zhu Volume 3, Number 4, Fourth Quarter In this paper, we empirically compare two structural models (basic Merton and Vasicek- Kealhofer (VK)) and one reduced-form model (Hull-White (HW)) of credit risk. We propose here that two useful purposes for credit models are default discrimination and relative value analysis… Read more
Default Correlation in Reduced-Form Models
Fan Yu Volume 3, Number 4, Fourth Quarter 2005 Reduced-form models have proven to be a useful tool for analyzing the dynamics of credit spreads. However, some have recently questioned their ability to match the level of empirical default correlation. The key concern appears to be the assumption that defaults are independent conditional on the… Read more
Revisiting the Slope of the Credit Curve
David Lando and Allan Mortensen Volume 3, Number 4, Fourth Quarter 2005 The term structure of interest rates contains information about the market’s expectations of the direction of future interest rates. Similarly, the term structure of credit spreads contains information about the market’s perception of future credit spreads. The term structure of credit spreads is… Read more
SURVEY OF THE LITERATURE: Recovery Risk
Sanjiv R. Das Volume 3, Number 1, First Quarter 2005 I survey a selection of recent working papers on recovery rates, providing a framework for extant research. Simpler versions of models are also presented with a view to aid accessibility and pedagogical presentation. Despite the obvious empirical difficulties encountered with recovery rate data, modeling advances… Read more
CASE STUDIES: Betting on Management
Jack L. Treynor Volume 3, Number 1, First Quarter 2005 View PDF… Read more
Investors Like Firms That Expense Employee Stock Options and They Dislike Firms
Fayez A. Elayan, Kuntara Pukthuanthong and Richard Roll Volume 3, Number 1, First Quarter 2005 During 2002 and 2003, 140 publicly traded US firms announced their intention to recognize an accounting expense when stock options are granted to employees. Many similar firms elected not to expense options. We study the stock market’s reaction. There is… Read more