nep-fmk New Economics Papers
on Financial Markets
Issue of 2007‒12‒15
five papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Option Pricing and Momentum By Rodriguez, J.C.
  2. "Lessons from the Subprime Meltdown " By Joseph Deutsch; Jacques Silber
  3. Options, Futures, and Other Derivatives in Russia: An Overview By Rotfuß, Waldemar
  4. Cooperatives and Area Yield Insurance:A Theoretical Analysis By Pincheira, Pablo; Zeuli, Kimberly
  5. CHARACTERIZING THE BRAZILIAN TERM STRUCTURE OF INTEREST RATES By Osmani Teixeira de Carvalho Guillén; Benjamin M. Tabak?

  1. By: Rodriguez, J.C. (Tilburg University, Center for Economic Research)
    Abstract: If managers are reluctant to fully adjust dividends to changes in earnings, stock returns and changes in the dividend yield will tend to be negatively correlated. When this is the case, stock returns will exhibit positive autocorrelation, or mo- mentum. This paper studies the pricing of options in such a situation, within a new model in which the dividend yield is an a? ne function of past stock returns. The model accommodates momentum in stock returns under complete markets, and, moreover, it renders preference-free formulas for European options. A momentum- inducing dividend yield implies that calls will be overpriced (underpriced) relative to puts after stock price increases (declines), a prediction in line with the findings of recent empirical research in finance, and that the Black-Scholes formula with constant dividend yield underprices out-of-the money options.
    Keywords: Options;Momentum;Stochastic convenience yield
    JEL: G13
    Date: 2007
  2. By: Joseph Deutsch; Jacques Silber
    Abstract: This paper uses Hyman P. Minsky's approach to analyze the current international financial crisis, which was initiated by problems in the U.S. real estate market. In a 1987 manuscript, Minsky had already recognized the importance of the trend toward securitization of home mortgages. This paper identifies the causes and consequences of the financial innovations that created the real estate boom and bust. It examines the role played by each of the key players—including brokers, appraisers, borrowers, securitizers, insurers, and regulators—in creating the crisis. Finally, it proposes short-run solutions to the current crisis, as well as longer-run policy to prevent "it" (a debt deflation) from happening again.
    Date: 2007–12
  3. By: Rotfuß, Waldemar
    Abstract: This work provides a descriptive overview of Russian markets for financial derivatives. Available figures for the exchange-traded and over-the-counter-traded derivatives in Russia show that the Russian derivatives markets experienced enormous growth rates since the financial crisis in 1998. Starting from a very low level, turnover of exchange-traded derivatives in Russia rose from 2000 to 2006 on average 168 percent per year and reached a total turnover of EUR 102 billion in 2006. Among futures, equity futures, followed by currency futures, are the most traded exchange-traded derivatives in Russia. Turnover of exchange-traded derivatives on interest rates, bonds or even commodities represent only a very small fraction of the total turnover. Available figures for the Russian OTC foreign exchange derivatives market suggest for the period between April 2004 and 2007 an annual turnover growth rate of 47 percent. Foreign exchange swaps in RUR against USD and in USD against EUR and other currencies were the most popular OTC foreign exchange derivatives in April 2004 and 2007.
    Keywords: Russia, Financial Derivatives Market, Russian Financial Derivatives Markets
    JEL: G1 G15
    Date: 2007
  4. By: Pincheira, Pablo; Zeuli, Kimberly
    Abstract: The purpose of this paper is to theoretically investigate the potential benefits that arise from a cooperative selling a government subsidized area-yield contract (i.e., the Group Risk Plan). The indeminities in area-yield contracts are triggered by a geographically determined yield (e.g., a county-wide yield average) instead of the more conventional individual actual production history. Therefore, an area-yield contract would be appropriate for managing the cooperative's systemic throughput risk. The cooperative would also capture some of the substantial government subsidies that are normally given to a private insurance company. Our primary finding is that farmers should be indifferent when considering the decision to purchase area-yield insurance from a private company or encompass that business in their cooperative. We derive this result for the specific case of costless insurance and assume a Pareto Optimal contract. Under these assumptions, the government subsidies that the cooperative would hope to capture are simply a net deduction in their premiums. In other words, the benefit they capture from the subsidies is the same when they purchase the insurance from an outside firm or internally.
    Keywords: Cooperatives; Area Yield Insurance; Optimal indemnity.
    JEL: D6 L3 Q13 D8
    Date: 2007–12
  5. By: Osmani Teixeira de Carvalho Guillén; Benjamin M. Tabak?
    Date: 2007

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