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on Financial Markets |
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Issue of 2007‒05‒19
four papers chosen by |
| By: | Paola Zerilli |
| Abstract: | This paper considers a financial market where the asset prices and the corresponding volatility are driven by a multidimensional mixture of Wiener shocks and Poisson jumps. While implied volatility is characterized by spikes, the existing models rely on the restrictive assumption of positive jumps in volatility. To overcome this inadequacy, the present paper introduces normally distributed jumps in the logvariance process. The model proposed is able to mimic empirically observed spikes in volatility and, consequently, improves upon the existing literature as it replicates the main features of both the stock return series and the corresponding option prices. After estimating the stock returns via the Efficient Method of Moments, the expression for the valuation of a plain vanilla European call option is derived, using the no-arbitrage argument. S&P500 option prices are used to assess quantitatively the empirical performance of the innovative features of the proposed model. The estimates indicate that spikes in volatility introduce a significant improvement in option pricing and provide evidence for stochastic jump risk premia. |
| JEL: | G12 G13 C22 C14 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:07/08&r=fmk |
| By: | Roque B. Fernández; Sergio Pernice; Jorge M. Streb |
| Abstract: | Conventional theory leads to expect bonds to be a financing vehicle for large firms because of economies of scale and contracting costs. We find both in our econometric evidence for firms quoted on Latin American stock exchanges, and in our survey results for Argentina, that size of assets is a robust determinant of the use of bond finance. This result, together with the fact that there are few firms that are large in terms of market value, can help understand why Argentina, as well as Latin America, has small bond markets in terms of the ratio of the stock of bonds to GDP. Since firm value represents the present value of the cash flows against which the firm borrows, the outstanding stock of corporate bonds is as small as the size of Argentine firms. |
| Keywords: | debt structure, leverage, short term debt, corporate bonds, firm size, firm value |
| JEL: | G3 E6 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:348&r=fmk |
| By: | Alejandro Bedoya; Roque Fernández; Celeste González; Sergio Pernice; Jorge M. Streb |
| Abstract: | We describe the evolution of three types of corporate securities in Argentina, namely, corporate bonds, asset-backed securities and deferred checks. Corporate bonds (obligaciones negociables) were legally authorized in 1988, and after a tax reform in 1991 they became an important financing vehicle. Asset backed securities (fideicomisos), legally created in 1995, have been issued since 1996. They typically bundle together small credits of a similar category. Deferred checks (cheques de pago diferido) exist since 1993, alongside standard checks. They can be negotiated on the exchange since 2003, and are akin to commercial paper. Corporate bonds have been overwhelmingly issued by large firms and banks, with an average issue size of 53 million dollars. Asset backed securities have an average value of 9 million dollars. Deferred checks are typically used by smaller firms, and those traded on the exchange of the Buenos Aires board of trade have an average value of 9 thousand dollars. |
| Keywords: | private securities, corporate bonds, asset-backed securities, deferred checks |
| JEL: | G3 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:347&r=fmk |
| By: | Alejandro Bedoya; Celeste González; Sergio Pernice; Jorge M.Streb; Alejo Czerwonko; Leandro Díaz Santillán |
| Abstract: | This document describes the construction of a database of corporate bonds issued by firms in Argentina between 1989 and 2005. The database draws on two main sources, the Bolsa de Comercio de Buenos Aires and the Comisión Nacional de Valores, while some additional information comes from the Mercado Abierto Electrónico. In all, we collected information on 1356 corporate bonds, though there are some bonds that have fields with missing information. Our data basically covers the characteristics of the bonds at time of issue. That is, we do not have a detailed description of how the characteristics of those corporate bonds that defaulted in 2001/2002 and were subsequently renegotiated changed. Based on the data from the primary markets, we constructed a series with the total outstanding stock of corporate bonds over this period. The information in the database allows to calculate these stocks at the firm level. |
| Keywords: | primary markets, corporate bonds, institutional framework |
| JEL: | G3 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:344&r=fmk |