Results 1 - 10 of 1,709

Valuing American options by simulation: A simple least-squares approach

by Francis A. Longstaff, Eduardo S. Schwartz - Review of Financial Studies , 2001
"... This article presents a simple yet powerful new approach for approximating the value of America11 options by simulation. The kcy to this approach is the use of least squares to estimate the conditional expected payoff to the optionholder from continuation. This makes this approach readily applicable ..."
Abstract - Cited by 517 (9 self) - Add to MetaCart
-factor string model of the term structure. One of the most important problems in option pricing theory is the valuation and optimal exercise of derivatives with American-style exercise features. These types of derivatives are found in all major financial markets including the equity, commodity, foreign

Option Pricing: A Simplified Approach

by John C. Cox, Stephen A. Ross, Mark Rubinstein - Journal of Financial Economics , 1979
"... This paper presents a simple discrete-time model for valumg optlons. The fundamental econonuc principles of option pricing by arbitrage methods are particularly clear In this setting. Its development requires only elementary mathematics, yet it contains as a special limiting case the celebrated Blac ..."
Abstract - Cited by 1016 (10 self) - Add to MetaCart
This paper presents a simple discrete-time model for valumg optlons. The fundamental econonuc principles of option pricing by arbitrage methods are particularly clear In this setting. Its development requires only elementary mathematics, yet it contains as a special limiting case the celebrated

Overconfidence and speculative bubbles

by José Scheinkman, Wei Xiong - Journal of Political Economy , 2003
"... Motivated by the behavior of asset prices, trading volume and price volatility during historical episodes of asset price bubbles, we present a continuous time equilibrium model where overconfidence generates disagreements among agents regarding asset fundamentals. With short-sale constraints, an ass ..."
Abstract - Cited by 329 (22 self) - Add to MetaCart
, an asset owner has an option to sell the asset to other overconfident agents when they have more optimistic beliefs. As in Harrison and Kreps (1978), this re-sale option has a recursive structure, that is, a buyer of the asset gets the option to resell it. Agents pay prices that exceed their own valuation

Implied Volatility Functions: Empirical Tests

by B. Dumas, Jeff Fleming, Robert E. Whaley , 1995
"... Black and Scholes (1973) implied volatilities tend to be systematically related to the option's exercise price and time to expiration. Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) attribute this behavior to the fact that the Black/Scholes constant volatility assumption is violat ..."
Abstract - Cited by 303 (4 self) - Add to MetaCart
Black and Scholes (1973) implied volatilities tend to be systematically related to the option's exercise price and time to expiration. Derman and Kani (1994), Dupire (1994), and Rubinstein (1994) attribute this behavior to the fact that the Black/Scholes constant volatility assumption

Employee stock option exercises: An empirical analysis,

by Steven Huddart , Mark Lang , Andrew Alford , Cheryl Breetwor , Patrick Ontko , Nicholas Reitter , Rick Lambert , Diana Willis - Journal of Accounting and Economics , 1996
"... Abstract This paper describes the exercise behavior of over 50,000 employees who hold long-term options on employer stock at eight corporations. Employees typically exercise options years before expiration, commonly sacrificing half of the Black-Scholes value. Exercise is strongly associated with r ..."
Abstract - Cited by 153 (6 self) - Add to MetaCart
Abstract This paper describes the exercise behavior of over 50,000 employees who hold long-term options on employer stock at eight corporations. Employees typically exercise options years before expiration, commonly sacrificing half of the Black-Scholes value. Exercise is strongly associated

Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms

by Steven R. Grenadier - Review of Financial Studies
"... Under the standard real options approach to investment under uncertainty, agents formulate optimal exercise strategies in isolation and ignore competitive interactions. However, in many real-world asset markets, exercise strategies cannot be determined separately, but must be formed as part of a str ..."
Abstract - Cited by 158 (5 self) - Add to MetaCart
Under the standard real options approach to investment under uncertainty, agents formulate optimal exercise strategies in isolation and ignore competitive interactions. However, in many real-world asset markets, exercise strategies cannot be determined separately, but must be formed as part of a

Psychological factors and stock option exercise

by Chip Heath, Steven Huddart, Mark Lang - Quarterly Journal of Economics , 1999
"... We investigate stock option exercise decisions by over 50,000 employees at seven corporations. Controlling for economic factors, psychological factors in�uence exercise. Consistent with psychological models of beliefs, employees exercise in response to stock price trends—exercise is positively relat ..."
Abstract - Cited by 121 (7 self) - Add to MetaCart
We investigate stock option exercise decisions by over 50,000 employees at seven corporations. Controlling for economic factors, psychological factors in�uence exercise. Consistent with psychological models of beliefs, employees exercise in response to stock price trends—exercise is positively

Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options

by Yongheng Deng, John M. Quigley, Robert Van Order - Econometrica , 2000
"... As applied to the behavior of homeowners with mortgages, option theory predicts that mortgage prepayment or default will be exercised if the call or put option is ‘‘in the money’ ’ by some specific amount. Our analysis: tests the extent to which the option approach can explain default and prepayment ..."
Abstract - Cited by 137 (16 self) - Add to MetaCart
As applied to the behavior of homeowners with mortgages, option theory predicts that mortgage prepayment or default will be exercised if the call or put option is ‘‘in the money’ ’ by some specific amount. Our analysis: tests the extent to which the option approach can explain default

Corporate Investment and Asset Price Dynamics: Implications for the Cross-Section of Returns

by Murray Carlson, Adlai Fisher, Ron Giammarino, Eduardo Schwartz, Tan Wang, Yong Wang, Robert Whitelaw - Journal of Finance , 2004
"... We show that corporate investment decisions can explain conditional dynamics in expected asset returns. Our approach is similar in spirit to Berk, Green, and Naik (1999), but we introduce to the investment problem operating leverage, reversible real options, fixed adjustment costs, and finite growth ..."
Abstract - Cited by 207 (8 self) - Add to MetaCart
the model using simulation methods and reproduce portfolio excess returns comparable to the data. Corporate investment decisions are often evaluated in a real options context, 1 and option exercise can change the riskiness of a firm in various ways. For example, if growth opportunities are finite

CEO overconfidence and corporate investment

by Ulrike Malmendier, Geoffrey Tate - Journal of Finance , 2005
"... We explore behavioral explanations for sub-optimal corporate investment decisions. Focusing on the sensitivity of investment to cash flow, we argue that personal characteristics of chief executive officers, in particular overconfidence, can account for this widespread and persistent investment disto ..."
Abstract - Cited by 219 (10 self) - Add to MetaCart
decisions of CEOs in Forbes 500 companies. We classify CEOs as overconfident if they repeatedly fail to exercise options that are highly in the money, or if they habitually acquire stock of their own company. The main result is that investment is significantly more responsive to cash flow if the CEO
Results 1 - 10 of 1,709