This study examines whether investors incorporate the effect of employee and director bonuses into firm market valuation for a sample of 191 profitable high-tech firms during 2001-2007 in Taiwan. We use the Ohlson (1995) equity valuation model, and compare difference dilution ratio model’s explanation power. We find a negative correlation between the value of CSBs and Tobin’s Q but no significa...

We show that efficient exchange obtains independently of the degree to which a legal system protects the rights of owners. We study a number of different legal rules, including property rules (strong protection), liability rules (any party can take the owner’s asset but must pay a legally-determined compensation), and even rules that protect the owner’s interests very weakly (liability rules wi...

We develop an asset allocation approach that translates valuation signals into a suggested allocation. At its core, we simulate a mean-reverting value-price evolution to infer important distribution parameters as needed in our allocation rule. The latter relies on a broad range of parameters, thereby diversifying the model risk and making the framework stable. The simulation is calibrated to me...

We revisit the classical Merton portfolio selection model from the perspective of integrability analysis. By an application of a nonlocal transformation the nonlinear partial differential equation for the two-asset model is mapped into a linear option valuation equation with a consumption dependent source term an identical result to that obtained by Cox and Huang using measure theory and stocha...

The deterministic numerical valuation of American options under Heston’s stochastic volatility model is considered. The prices are given by a linear complementarity problem with a two-dimensional parabolic partial differential operator. A new truncation of the domain is described for small asset values while for large asset values and variance a standard truncation is used. The finite differenc...

This paper develops a Monte Carlo simulation method for solving option valuation problems. The method simulates the process generating the returns on the underlying asset and invokes the risk neutrality assumption to derive the value of the option. Techniques for improving the efficiency of the method are introduced. Some numerical examples are given to illustrate the procedure and additional a...

We propose a new methodology for the valuation problem of financial contingent claims when the underlying asset prices follow a general class of continuous Itô processes. Our method can be applicable to a wide range of valuation problems including contingent claims associated with stocks, foreign exchange rates, the term structure of interest rates, and even their combinations. We illustrate ou...

Derivative assets analysis usually takes a model of the underlying price process as given and attempts to value derivative securities relative to that model. This paper studies the following “inverse” problem: given a valuation formula for a derivative asset, what can be inferred about the underlying asset price process? Assuming continuous sample paths, we show that a sufficiently regular pric...