In this paper a Bayesian approach is utilized to analyze the role of the underlying asset and interest rate model in the market consistent valuation of life insurance policies. The focus is on a novel application of advanced theoretical and computational methods. A guaranteed participating contract embedding an American-style option is considered. This option is valued using the regression meth...

This paper studies warrant valuation using a reduced-form model. Analogous to the credit risk literature, structural models require complete information about the asset value process and the firm’s liabilities. In contrast, reduced-form models require only information about the firm’s stock price process. We introduce a reduced-form model where the warrant holder is a price taker, and we relate...

This paper studies the relationship between the systematic risk of financial instruments and the volatility of their equilibrium prices in a two-period stochastic asset valuation model. Whereas there is no link between the relative risk of assets and their price volatility in standard representative-agent models with additively-separable preferences, in this model with nonseparable preferences ...

We document large, longer term, joint regime shifts in asset valuations and the real federal funds rate- r * $r^{\ast }$ spread. To interpret these findings, we estimate a novel macrofinance model of monetary transmission find that documented regimes coincide with parameters policy rule, long-term consequences for interest rate. Estimates imply two-thirds decline rate since early 1980s is attri...

We provide a framework in which we link the valuation and asset allocation policies of defined benefits plans with the lifetime marginal productivity schedule of the worker and the pension plan formula. In turn, we examine the retirement policies that are implied by the primitives of the model and the value of pension obligations. Our model provides an explicit valuation formula for a stylized ...

The traditional current account can be an inaccurate measure of the change in the net foreign asset (NFA) position. Using gross asset and liability positions at the country level, a number of 'valuation effects' have been identified which contribute to changes in NFA but do not enter the reported current account. This paper uses new developments in the analysis of portfolio allocation in genera...

Customized electric power contracts catering to specific business and risk management needs have gained increasing popularity among large energy firms in the restructured electricity industry. A tolling agreement (or, tolling contact) is one such example in which a contract buyer reserves the right to take the output of an underlying electricity generation asset by paying a predetermined premiu...

In this paper we examine the structure of American option valuation problems and derive the analytic valuation formulas under general underlying security price processes by an alternative but intuitive method. For alternative diffusion processes, we derive closed-form analytic valuation formulas and analyze the implications of asset price dynamics on the early exercise premiums of American opti...