Fixed income

Abstract: Spot and Futures Markets.- An Introduction to Financial Derivatives.- Discrete-time Security Markets.- Benchmark Models in Continuous Time.- Foreign Market Derivatives.- American Options.- Exotic Options.- Volatility Risk.- Continuous-time Security Markets.- Fixed-income Markets.- Interest Rates and Related Contracts.- Short-Term Rate Models.- Models of Instantaneous Forward Rates.- Market LIBOR Models.- Alternative Market Models.- Cross-currency Derivatives.

Abstract: Bankruptcy and Reorganization: Background. Aggregate Influences on Business Failure Rates. Predicting Corporate Bankruptcy: The Z-Score Model. Zeta? Analysis and Other Attempts to Classify and Predict Business Failures. Fine-Tuning Failure Classification Models: A Commercial Bank Lender's Perspective. Bankruptcy Models: A Catalyst for Constructive Change--Managing a Financial Turnaround. Accounting Implications of Failure Prediction Models. Legal Implications of Bankcruptcy Classification. Investor Implications of Bankruptcy and Bankruptcy Models. Bankruptcy Prediction, Bond Ratings, and Fixed Income Investment Strategies. Developing Failure Prediction Models for Nonindustrial Sectors. Business Failure Models: An International Survey. References. Index.

Abstract: We find that deviations from the covered interest rate parity (CIP) condition imply large, persistent, and systematic arbitrage opportunities in one of the largest asset markets in the world. Contrary to the common view, these deviations for major currencies are not explained away by credit risk or transaction costs. They are particularly strong for forward contracts that appear on banks' balance sheets at the end of the quarter, pointing to a causal effect of banking regulation on asset prices. The CIP deviations also appear significantly correlated with other fixed income spreads and with nominal interest rates.

Abstract: A central question in economics is how to discount future cash flows to obtain today's value of an asset. For instance, total wealth is the price of a claim to all future consumption (Lucas 1978). Similarly, the value of the aggregate stock market equals the sum of discounted future dividend payments (Gordon 1962). The major ity of the equity market literature has focused on the dynamics of the value of the aggregate stock market. However, in addition to studying the value of the sum of discounted dividends, exploring the properties of the individual terms in the sum, also called dividend strips, provides us with a lot of information about the way stock prices are formed. Analogous to zero-coupon bonds, which contain information about discount rates at different horizons for fixed income securities, having infor mation on dividend strips informs us about discount rates of risky cash flows at dif ferent horizons. Studying dividend strips can therefore improve our understanding of investors' risk preferences and the endowment or technology process in macro finance models. This paper is the first to empirically measure the prices of dividend strips to study the term structure of the equity premium. Our approach requires only no-arbitrage relations and does not rely on a specific model. We shed new light on the composition of the equity risk premium. The equity premium puzzle, identified by Mehra and Prescott (1985), Hansen and Singleton (1982), and Hansen and Singleton (1983), states that, for plausible values of the risk aversion coefficient, the difference in the expected rate of return on the stock market and the riskless rate of interest is too large, given the observed small variance in the growth rate in per capita consumption. When decomposing the index into dividend strips, a natural question that arises is whether dividends at different horizons contrib ute equally to the equity risk premium or whether either short- or long-term dividends contribute proportionally more than the other. We find that short-term dividends have