1
Economics 811
Applied Contingent Claims Analysis
Textbooks
Bhattacharya, Sudipto, and George M. Constantinides, Theory of Valuation: frontiers of modern
financial theory, vol. 1, Totowa, N.J.: Rowman and Littlefield Publishers, 1989.
* Dixit, Avinash K., and Robert S. Pindyck, Investment Under Uncertainty, Princeton, N.J.:
Princeton University Press, 1994
* Duffie, Darrell, Dynamic Asset Pricing, 3rd edition, Princeton: Princeton University Press, 2001.
Friedman, Benjamin and Frank H. Hahn (eds.), Handbook of Monetary Economics, 2 vols., Amsterdam: North-Holland, 1990.
* Hull, John C., Options, Futures and Other Derivatives, Englewood Cliffs: New Jersey, 2003.
Wilmott, Paul, Jeff Dewynne and Sam Howison, Option Pricing: Mathematical Models and Computation, Oxford: Oxford Financial Press, 1995.
Tools
1.
Stochastic Calculus
Anderson, Robert M., “A Nonstandard Representation for Brownian Motion and Ito Integration,”
Israel Journal of Mathematics, 25 (1976), 15-46.
Arnold, L., Stochastic Differential Equations: Theory and Applications, New York: John Wiley
and Sons, 1974.
Cox, C. D., and Miller, H. D., The Theory of Stochastic Processes, London: Chapman and Hall,
1972.
Dixit, Avinash, “A Simplified Exposition of the Theory of Optimal Regulation of Brownian Motion,” Princeton University, August 1989.
* Dixit, Avinash K., The Art of Smooth Pasting, Reading (England): Harwood Academic Publishers,
1993.
Duffie, Darrell, Security Markets: Stochastic Models, New York: Academic Press, 1988.
Dumas, Bernard, “Super Contact and Related Optimality Conditions,” Wharton School, July
1989.
Evans, Lawrence C., and Avner Friedman, “Optimal Stochastic Switching and the Dirichlet Problem for the Bellman Equation,” Trans. American Math. Society, 253 (September 1979), 36589.
Fleming, Wendell H., and Rishel, Raymond W., Deterministic and Stochastic Optimal Control,
New York: Springer-Verlag, 1975.
Friedman, Avner, Stochastic Differential Equations and Applications, Vol. I, New York: Academic
Press, 1975.
Ito, K., “On Stochastic Differential Equations,” Memoirs, American Mathematical Society, 4
(1951).
Karlin, Samuel, and Howard M. Taylor, A First Course in Stochastic Processes, 2nd ed., New
York: Academic Press, 1975.
* Malliaris, A. G., and W. A. Brock, Stochastic Methods in Economics and Finance, New York:
Elsevier Science Publishers, 1982.
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Merton, Robert A., “On the Mathematical and Economic Assumptions of Continouous Time
Models,” in W. Sharpe and C. Cootner (eds.), Financial Economics: Essays in Honor of
Paul Cootner, Englwood Cliffs: Prentice-Hall 1982.
Moerbeke, Pierre van, “Optimal Stopping and Free Boundary Problems,” Rocky Mountain J.of
Mathematics, 4 (Summer 1974), 539-77.
Moerbeke, Pierre van, “On Optimal Stopping and Free Boundary Problems,” Archive for Rational
Mechanics and Analysis, 1976.
Schuss, Zeev, Theory and Applications of Stochastic Differential Equations, New York: John Wiley
& Sons, 1980.
2.
Numerical Methods
* Boyle, Phelim P., “Options: A Monte Carlo Approach,” Journal of Financial Economics, 4 (May
1977), 323-339.
Boyle, Phelim P., “A Lattice Framework for Option Pricing with Two State Variables,” mimeo,
University of Waterloo, November 1986 (published in JFQA).
* Boyle, Phelim, Mark Broadie and Paul Glasserman, “Monte Carlo Methods for Security Pricing,”
mimeo, University of Waterloo, June 1995.
Brennan, M.J., and Schwartz, E.S., “Finite Difference Methods and Jump Processes Arising in the
Pricing of Contingent Claims: A Synthesis,” Journal of Financial and Quantitative Analysis,
Sept. 1978, 461-474.
Courtadon, Georges, “A More Accurate Finite Difference Approximation for the Valuation of
Options,” J. Financial and Quantitative Analysis, 17 (Dec. 1982), 697-703.
Crank, John, Free and Moving Boundary Problems, Oxford: Clarendon Press, 1984.
Curtiss, J. H., “Sampling Methods Applied to Differential and Difference Equations,” Proc. of
Seminar on Scientific Computations, IBM Corporation, November 1949.
Gourlay, A. R., “Hopscotch: A Fast Second-Order Partial Differential Equation Solver,” J. Inst.
Math. Appl., 6 (1970), 375-.
Gourlay, A. R., and G. R. McGuire, “General Hopscotch Algorithm for the Numerical Solution
of Partial Differential Equations,” J. Inst. Math. Appl., 7 (1971), 216-.
Hammersley, J. M., and D. C. Handscomb, Monte Carlo Methods, London: Methuen, 1964.
* Jones, Robert A. and Rodney L. Jacobs, “History Dependent Financial Claims: Monte Carlo
Valuation,” mimeo, Simon Fraser University, September 1986.
* Kalos, Malvin H., and Paula A. Whitlock, Monte Carlo Methods, Vol. I, New York: John Wiley
and Sons, 1986.
Klahr, Carl N., “A Monte Carlo Method for the Soln. of Elliptic Partial Differential Eqns.,” in A.
Ralston and H. Wilf (eds.), Mathematical Methods of Digital Computers, 1 (1960), 157-64.
Kushner, Harold J., and Paul G. Dupuis, Numerical Methods for Stochastic Control Problems in
Continuous Time, New York: Springer-Verlag, 1992.
Lapidus, Leon, and George F. Pinder, Numerical Solution of Partial Differential Equations in
Science and Engineering, New York: John Wiley and Sons, 1982.
Marquardt, Donald W., “An Algorithm for the Least-Squares Estimation of Non-linear Parameters,” J. Society of Industrial and Applied Mathematics, 11 (June 1963), 431-41.
McKee, S., and A. R. Mitchell, “Alternating Direction Methods for Parabolic Equations in Two
Space Dimensions with a Mixed Derivative,” Computer Journal, 13, February 1970, 81-86.
Pardoux, E., and D. Talay, “Discretization and Simulation of Stochastic Differential Equations,”
Acta Applicandae Mathematicae, 3 (1985), 23- 47.
Paskov, Spassimir H., and Joseph Traub, “Faster Valuation of Financial Derivatives,” Journal of
Portfolio Management, Fall 1995.
Econ. 811
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* William H. Press, B. P. Flannery, S. A. Teukolsky and W. T. Vetterling, Numerical Recipes: The
Art of Scientific Computing, 2nd edition, New York: Cambridge University Press, 1992.
* Rumelin, W., “Numerical Treatment of Stochastic Differential Equations,” SIAM Journal of Numerical Analysis, 19 (1982), 604-613.
Vemuri, V., and Karplus, Walter J., Digital Computer Treatment of Partial Differential Equations,
Englewood Cliffs: Prentic-Hall, 1981.
Wilmott, Paul, Jeff Dewynne and Sam Howison, Option Pricing: Mathematical Models and Computation, Oxford: Oxford Financial Press, 1995.
3.
Programming
Dudewicz, Edward J., and Thomas G. Rolley, The Handbook of Random Number Generators and
Testing, Columbus, Ohio: American Sciences Press, 1981.
Marse, Ken, and Stephen D. Roberts, “Implementing a portable FORTRAN Uniform (0,1) generator,” Simulation, October 1983, 135-139
* Monro, Donald M., FORTRAN 77, Baltimore: Edward Arnold, 1982.
4.
Statistics
Bard, Yonathan, Nonlinear Parameter Estimation, New York: Academic Press, 1974.
Bergstrom, A. R. (ed), Statistical Inference in Continuous Time Economic Models, Amsterdam:
North-Holland, 1976.
Bergstrom, A. M., “Continuous Time Stoachastic Models and Issues of Aggregation Over Time,”
in Handbook of Econometrics, Vol. II, Z. Griliches and M. Intriligator (eds), Amsterdam:
Nth-Hol’84
Brillinger, David R., and Preisler, H. K., “Max. Likelihood Estimation in a Latent Variable
Problem,” in S. Karlin et al, Stud. in Economet., Time Ser. and Multiv. Stats, N.Y.: Acad.
Pr.,1983
Crowder, Martin J., “Maximum Likelihood Estimation for Dependent Observations,” Journal of
the Royal Statistical Society, Series B, 38 (1976), 45-53.
* Dempster, A.P., N.M. Laird and D.B. Rubin, “Maximum Likelihood from Incomplete Data via
the EM Algorithm,” Journal of the Royal Statistical Society, Series B, 39 (1977), 1-22.
* Duffie, Darrell, and Kenneth J. Singleton, “Simulated Moments Estimation of Markov Models of
Asset Prices,” Econometrica, 61 (1993), 929-952.
Ferson, Wayne E., and Stephen R. Foerster, “Finite Sample Properties of Methods of Moments
in Latent Variable Tests of Asset Pricing Models,” mimeo, University of Chicago, October
1990.
* Goldfeld, Stephen M., and Quandt, Richard E., Nonlinear Methods in Econometrics, Amsterdam:
North-Holland, 1972.
* Hansen, Lars Peter, and Jose Alexandre Scheinkman, “Back to the Future: Generating Moment
Implications for Continuous-Time Markov Processes,” Econometrica, 63 (July 1995), 767804.
He, Hua, “Moment Approximation and Estimation of Diffusion Models of Asset Prices,” Finance
Working Paper no. 193, University of California, Berkeley, March 1990.
Honerkamp, Josef, Stochastic Dynamical Systems: Concepts, Numerical Methods, Data Analysis,
New York: VCH Publishers, 1994 [ISBN: 1-56081-563- 9].
Jones, Robert A., “Estimating Correlated Diffusions,” SFU Working Paper, November 1999.
Lo, Andrew, “Statistical Tests of Contingent Claims Asset-Pricing Models: A New Methodology,”
Journal of Financial Economics, 17 (1986).
* Lo, Andrew W., “Maximum Likelihood Estimation of Generalized Ito Processes with Discretely
Sampled Data,” Journal of Econometric Theory, 4 (1988), 231-247.
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* Lo, Andrew W., and Jiang Wang, “Implementing Option Pricing Models When Asset Returns
Are Predictable,” Journal of Finance, 50 (March 1995), 87-130.
Phillips, P.C.B., “The Structural Estimation of a Stochastic Differential Equation System,” Econometrica, 6 (November 1972), 1021-1041
Phillips, P. C. B., “The Estimation of Some Continuous Time Models,” Econometrica, 42 (1974),
803-23.
* Wymer, C.R., “Econometric Estimation of Stochastic Differential Equation Systems,” Econometrica, Vol. 40, No. 3 (May 1972), 565-578.
Applications
1.
Asset Pricing in Equilibrium
* Arrow, Kenneth J., “The Role of Securities in the Optimal Allocation of Risk Bearing,” Review
of Economic Studies, 31 (April 1964), 91-96.
Breeden, Douglas T., “An Intertemporal Asset Pricing Model with Stochastic Consumption and
Investment Opportunities,” Journal of Financial Economics, 7 (September 1979), 265-96.
Chamberlain, Gary, “Asset Pricing in Multiperiod Securities Markets,” Econometrica, 56 (November 1988), 1283-1300.
* Cox, John C., Jonathan E. Ingersoll, Jr., and Stephen A. Ross, “An Intertemporal General Equilibrium Model of Asset Prices,” Econometrica, 53 (March 1985), 363-84.
Duffie, Darrell, and C. Huang, “Implementing Arrow-Debreu Equilibria by Continuous Trading
of a Few Long-Lived Securities,” Econometrica, 53 (November 1985), 1337-56.
* “The Mathematics of Markets: A Survey of the Frontiers of Finance,” The Economist, 9 October
1993, 1-22.
Harrison, J. M., and D. Kreps, “Margtingales and Arbitrage in Multi-period Securities Markets,”
Journal of Economic Theory, 20 (1979), 381-408.
Merton, Robert, “Optimum Consumption and Portfolio Rules in a Continuous- Time Model,”
Journal of Economic Theory, 3 (1971), 373-413.
Merton, Robert C., “On the Current State of the Stock Market Rationality Hypothesis,” in Rudiger Dornbusch, S. Fischer, J. Bossons (eds), Macroeconomics and Finance, Cambridge:MIT
Press, 1987
Ross, Stephen A., “The Arbitrage Theory of Capital Asset Pricing,” Journal of Economic Theory,
December 1976, 341-360.
Rubinstein, Mark, “The Strong Case of the Generalized Logarithmic Utility Model as the Premier
Model of Financial Markets,” Journal of Finance, 31 (May 1976), 551-571.
Samuelson, Paul A., “Proof That Properly Anticipated Prices Fluctuate Randomly,” Industrial
Management Review, 6 (Spring 1965), 41-50.
2.
Option Pricing
Bick, Avi, “Quadratic Variation Based Dynamic Strategies,” Simon Fraser University, mimeo,
May 1993 (forthcoming Management Science).
* Black, Fischer, and Scholes, Myron, “The Pricing of Options and Corporate Liabilities,” Journal
of Political Economy, 81 (May/June 1973), 637- 654.
Boyle, Phelim P., and David Emanuel, “Mean Dependent Options,” mimeo, University of Waterloo, August 1985.
Boyle, Phelim P., Jeremy Evnine, Stephen Gibbs, “Valuation of Options on Several Underlying
Assets,” mimeo, University of Waterloo & WFIA, August 1988.
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Brennan, Michael J., and Schwartz, Eduardo S., “The Valuation of American Put Options,”
Journal of Finance, (May 1977), 449-464.
Courtadon, George, “Interest Rate Uncertainty and the Pricing of American Call Options,”
mimeo, 1982.
Cox, John C., and Chi-fu Huang, “Option Pricing Theory and Its Applications,” in George Constantinides (ed), ... , 1989.
Cox, John C., and Ross, Stephen A., “The Valuation of Options for Alternative Stochastic Processes,” Journal of Financial Economics, 3 (Jan./Mar. 1976), 145-166.
Cox, John, Stephen Ross, and Rubinstein, Mark, “Option Pricing: A Simplified Approach,” J. of
Financial Economics, (September 1979), 229-264.
Goldman, B., H. Sosin and M. Gatto, “Path Dependent Options: Buy at the Low, Sell at the
High,” Journal of Finance, 30 (1979), 1111-27.
Johnson, Herb, “Options on the Maximum or the Minimum of Several Assets,” mimeo, University
of California, Davis, December 1985.
Kreps, David M., “Multiperiod Securities and the Efficient Allocation of Risk: Comment on the
Black-Scholes Opt. Pricing Model,” in S. Lippman and J. McCall (eds), Econ.of Uncert.&
Info, 1982
McKean, H. P., Jr., “Appendix: A Free Boundary Problem for the Heat Equation Arising from
a Problem in Mathematical Economics,” Industrial Management Review, 6 (Spring 1965),
32-39.
Melino, Angelo, and Stuart M. Turnbull, “The Pricing of Foreign Currency Options,” mimeo,
University of Toronto, May 1987.
Melino, Angelo, and Stuart Turnbull, “Pricing Foreign Currency Options with Stochastic Volatility,” mimeo, University of Toronto, June 1988.
* Merton, Robert C., “The Theory of Rational Option Pricing,” Bell Journal of Economics and
Management Science, 4 (Spring 1973), 141-183.
* Merton, Robert C., “Option Pricing when Underlaying Stock Returns are Discontinuous,” Journal
of Financial Economics, 3 (Jan./Mar. 1976), 125-144.
Myneni, Ravi, “The Pricing of the American Option,” Annals of Applied Probability, 2 (1992),
1-23.
Ross, Stephen A., “Options and Efficiency,” Quarterly Journal of Economics, 90 (February 1976),
75-89.
Samuelson, Paul A., “Rational Theory of Warrant Pricing,” Industrial Management Review, 6
(Spring 1965), 13-31.
Samuelson, Paul A., and Merton, Robert C., “A Complete Model of Warrant Pricing That Maximizes Utility,” Industrial Management Review, 10 (Winter 1969), 17-46.
Smith, Clifford, “Option Pricing: A Review,” J. of Financial Economics, 3 (Jan.-Mar. 1976),
3-51.
3.
Futures Contracts
Black, Fischer, “The Pricing of Commodity Contracts,” J. Financial Economics, 3 (1976), 167179.
Brenner, Menachem, Georges Courtadon and Marti Subrahmanyam, “Options on the Spot and
Options on Futures,” Journal of Finance, 40 (December 1985), 1303-1317.
* Cox, J.C., Ingersoll, J.E., and Ross, S.A., “The Relation Between Forward Prices and Futures
Prices,” J. Financial Economics, 9 (Dec. 1981), 321-346.
Duffie, Darrell, Futures Markets, 1989.
Jones, Robert A., “Conversion Factor Risk in Treasury Bond Futures: Comment,” Journal of
Futures Markets, 5 (Spring 1985), 115-119.
Econ. 811
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Kane, Alex, and Marcus, Alan J., “Conversion Factor Risk and Hedging in the Treasury-Bond
Futures Market,” Journal of Futures Markets, 4 (Spring 1984), 55-64.
Kane, Alex and Alan Marcus, “Valuation and Optimal Exercise of the Wild Card Option in the
Treasury Bond Futures Market,” mimeo, Boston University, July 1985.
* Ramaswamy, Krishna, and Suresh M. Sundaresan, “The Valuation of Options on Futures Contracts,” Journal of Finance, 40 (December 1985), 1319- 1340.
4.
Interest Rates and Debt Instruments
Bennett, Dennis E., D. Cohen, and J. McNulty, “Interest Rate Swaps and the Management of
Interest Rate Risk for Mortgage Lenders,” Housing Finance Review, 7 (Summer 1988), 24965.
* Brennan, Michael J., and Schwartz, Eduardo S., “Savings Bonds, Retractable Bonds and Callable
Bonds,” Journal of Financial Economics, 5 (1977), 67-88.
Brennan, Michael J., and Schwartz, Eduardo S., “A Continuous Time Approach to the Pricing of
Bonds,” J. of Banking and Finance, 3 (1979), 133- 155.
Brennan, Michael J., and Schwartz, Eduardo S., Savings Bonds: Theory and Empirical Evidence,
Monograph Series in Finance and Economics, 1979-4, Business School of New York University.
Brennan, Michael J., and Schwartz, Eduardo S., “Conditional Predictions of Bond Prices and
Returns,” Journal of Finance, 35 (May 1980), 405-417.
Brennan, Michael J., and Schwartz, Eduardo S., “Analyzing Convertible Bonds,” Journal of
Financial and Quantitative Analysis, 15 (November 1980), 907-29.
Brennan, Michael J., and Schwartz, Eduardo S., “Duration, Bond Pricing and Portfolio Management,” UBC Working Paper 793, June 1981
Brennan, Michael J., and Schwartz, Eduardo S., “Bond Pricing and Market Efficiency,” Financial
Analyst’s Journal, Sept./Oct. 1982, 3-10.
Brennan, Michael J., and Schwartz, Eduardo S., “An Equilibrium Model of Bond Pricing and a
Test of Market Efficiency,” J. Financial and Quantitative Analysis, 17 (Sept. 1982),
Brennan, Michael J., and Schwartz, Eduardo S., “Alternative Methods for Valuing Debt Options,”
UBC Working Paper 888, June 1982.
Brown, Stephen J., and Philip H. Dybvig, “The Empirical Implications of the Cox, Ingersoll, Ross
Theory of the Term Structure of Interest Rates,” J. of Finance, 41 (July 1986), 617-630.
Chen, Ren-Raw, and Louis Scott, “Maximum Likelihood Estimation for a Multifactor Equilibrium
Model of the Term Structure of Interest Rates,” Journal of Fixed Income, December 1993,
14-31.
* Chen, Ren-Raw, and Louis Scott, “Multi-Factor Cox-Ingersoll-Ross Models of the Term Structure:
Estimates and Tests from a Kalman Filter Model,” mimeo, Univ. of Georgia, July 1995 (July
1993).
Courtadon, Georges, “The Pricing of Options on Default-Free Bonds,” J. Financial and Quantitative Analysis, 17 (March 1982), 75-100.
* Cox, J. C., Ingersoll, J. E. Jr., and Ross, S. A., “A Reexamination of Traditional Hypotheses
about the Term Structure of Interest Rates,” Journal of Finance, 36 (September 1981),
769-99.
* Cox, John C., Jonathan E. Ingersoll, Jr., and Stephen A. Ross, “A Theory of the Term Structure
of Interest Rates,” Econometrica, 53 (March 1985), 385-407.
Das, Anjiv Ranjan, “Discrete-Time Bond and Option Pricing for Jump-Diffusion Processes,”
mimeo, Harvard Business School, October 1994.
Dothan, L. Uri, “On the Term Structure of Interest Rates,” J. Financial Economics, 6 (1978),
59-69.
Duffie, Darrell, and Rui Kan, “A Yield-Factor Model of Interest Rates,” mimeo, Stanford University, August 1995 (orig. June 1992).
Econ. 811
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* Duffie, Darrell, and Kenneth Singleton, “Econometric Modelling of the Term Structures of Defaultable Bonds,” mimeo, Graduate School of Business, Stanford University, 1994
* Duffie, Darrell, and Kenneth J. Singleton, “An Econometric Model of the Term Structure of
Interest Rate Swap Yields,” mimeo, Stanford University, September 1995.
Gibbons, Michael R., and Krishna Ramaswamy, “A Test of the Cox, Ingersoll and Ross Model of
the Term Structure,” mimeo, University of Pennsylvania, April 1992.
* Heath, David, Robert Jarrow and Andrew Morton, “Bond Pricing and the Term Structure of
Interest Rates: A New Methodology for Contingent Claims Valuation,” Econometrica, 60
(1992), 77-106.
Heston, Steven L., “Testing Continuous Time Models of the Term Structure of Interest Rates,”
Working Paper no. 29, Series F, Yale School of Organization adn Management, June 1992.
Ho, Thomas, and S. Lee, “Term Structure Movements and Pricing Interest Rate Contingent
Claims,” Journal of Finance, 41 (1986), 1011-29.
Hull, John, and Alan White, “An Extension to the Schaefer-Schwartz Bond Option Pricing
Model,” University of Toronto, mimeo, April 1989. (WEA meetings 1989)
Jacobs, Rodney L., and Jones, Robert A., “A Two Factor Latent Variable Model of the Term
Structure of Interest Rates,” mimeo, Simon Fraser University, February 1986.
Longstaff, Francis A., “Multiple Equilibria and Term Structure Models,” Journal of Financial
Economics, 32 (1992), 333-344.
Marsh, Terry A., “Equilibrium Term Structure Models: Test Methodology,” Journal of Finance,
35 (May 1980), 421-435.
Marsh, Terry A., and Rosenfeld, Eric R., “Stochastic Processes for Interest Rates and Equilibrium
Bond Prices,” Journal of Finance, 38 (May 1983), 635-646.
McConnell, John J., and Eduardo S. Schwartz, “LYON Taming,” Journal of Finance, 41 (July
1986), 561-575.
Pearson, Neil D., and Tong-sheng Sun, “An Empirical Examination of the Cox, Ingersoll and Ross
Model of the Term Structure of Interest Rates,” mimeo, University of Rochester, June 1991.
Ramaswamy, Krishna, and Suresh M. Sundaresan, “The Valuation of Floating Rate Instruments:
Theory and Evidence,” mimeo, University of Pennsylvania, December 1985.
Richard, Scott F., “An Arbitrage Model of the Term Structure of Interest Rates,” Journal of
Financial Economics, 6 (1978), 33-57.
Schaefer, Stephen M., and Eduardo S. Schwartz, “Time-Dependent Variance and the Pricing of
Bond Options,” Journal of Finance, 42 (December 1987), 1113-28.
Scott, Louis, “The Valuation of Interest Rate Derivatives in a Multi- Factor Term Structure Model
with Deterministic Components,” University of Georgia, mimeo, March 1995.
Toevs, Alden L., “Gap Management: Managing Interest Rate Risk in Banks and Thrifts,” Federal
Reserve Bank of San Francisco Economic Review, Spring 1983, 20-35.
* Vasicek, Oldrich, “An Equilibrium Characterization of the Term Structure,” Journal of Financial
Economics, 5 (1977), 177-188.
5.
Stock Index Futures and Portfolio Insurance
Brennan, Michael J., and Eduardo S. Schwartz, “Time-Invariant Portfolio Insurance Strategies,”
Journal of Finance, 43 (June 1988), 283-300.
Connor, Gregory, and Robert A. Korajczyk, “A Test for the Number of Factors in an Approximate
Factor Model,” Journal of Finance, 48 (September 1993), 1263-1292.
Cornell, Bradford, and Kenneth R. French, “Taxes and the Pricing of Stock Index Futures,”
Journal of Finance, 38 (June 1983), 675-694.
Cornell, Bradford, and Kenneth R. French, “The Pricing of Stock Index Futures,” Journal of
Futures Markets, 3 (Spring 1983), 1-14.
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Merrick, John J., “Portfolio Insurance with Stock Index Futures,” Journal of Futures Markets, 8
(August 1988), 441-456.
Modest, David M., and Mahadevan Sundaresan, “The Relationship Between Spot and Futures
Prices in Stock Index Futures Markets: Some Preliminary Evidence,” Journal of Futures
Markets, 3 (Spring 83), 15-41
6.
Default Risk and Credit Exposure
Abken, Peter, “Valuation of Default-Risky Interest-Rate Swaps,” Advances in Futures and Options Research, 6 (1993), 93-116.
Cooper, Ian, and Antonio Mello, “The Default Risk of Swaps,” Journal of Finance, 46 (1991),
597-620.
* Duffee, Gregory R., “On Measuring Credit Risks of Derivative Instruments,” Finance and Economics Discussion Paper 94-27, Federal Reserve Board, Washington, D.C., September 1994.
* Duffie, Darrell, and Ming Huang, “Swap Rates and Credit Quality,” mimeo, Graduate School of
Business, Stanford University, October 1994 (rev. June 1995).
Gilberti, Daniela, Marcello Mentini, and Pietro Scabellone, “The Valuation of Credit Risk in
Swaps: Methodological Issues and Empirical Results,” Journal of Fixed Income, 2 (1993),
24-36.
Hull, John, “Assessing Credit Risk in a Financial Institution’s Off- Balance Sheet Commitments,”
Journal of Financial and Quantitative Analysis, 4 (December 1989), 489-501.
Hull, John, and Alan White, “The Impact of Default Risk on the Prices of Options and Other
Derivative Securities,” University of Toronto, mimeo, April 1992.
* Jarrow, Robert A., and Stuart M. Turnbull, “Pricing Derivatives on Financial Securities Subject
to Credit Risk,” Journal of Finance, 50 (March 1995), 53-86.
Johnson, Herb, and Rene Stultz, “The Pricing of Options with Default Risk,” Journal of Finance,
42 (June 1987), 267-80.
* Jones, Robert A., “Credit Risk and Credit Rationing,” mimeo, Simon Fraser University, November
1995.
Longstaff, Francis A., and Eduardo S. Schwartz, “A Simple Approach to Valuing Risky and
Floating Rate Debt,” Journal of Finance, 50 (July 1995), 789-820.
7.
Natural Resources, Real Options and Project Valuation
Brazee, Richard, and Robert Medelsohn, “Timber Harvesting with Fluctuating Prices,” mimeo,
University of Michigan School of Natural Resources (Brazee), December 1987.
* Brennan, Michael J., “An Approach to the Valuation of Uncertain Income Streams,” Journal of
Finance, 28 (July 1973), 661-673.
* Brennan, Michael J., and Schwartz, Eduardo S., “Evaluating Natural Resource Investments,”
Journal of Business, 58 (January 1985), 135- 157.
Capozza, Dennis R. and Robert Helsley, “The Structure of Urban Land Prices and Rents with
Growth and Uncertainty,” mimeo, University of British Columbia, September 1986.
Constantinides, George M., “Market Risk Adjustment in Project Valuation,” Journal of Finance,
33 (May 1978), 603-616.
Deneckere, Raymond, Jodeph Buongiorno, and Sun Il Bark, “Optimal Hedging in Lumber Futures
Markets,” Forest Science, 32 (1986), 634-642.
Dothan, L. Uri, and Williams, J., “Term-Risk Structures and the Valuation of Projects,” J.
Financial and Quantitative Analysis, 15 (November 1980), 875-906.
Grenadier, Steven R., and Allen M. Weiss, “Investment in Technological Innovations: An Option
Pricing Approach,” mimeo, Stanford University, January 1995.
* Heaney, John, and Jones, Robert A., “The Timing of Investment,” mimeo, January 1988.
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Heaney, W. John, and Robert A. Jones, “Interest Rate Volatility and Real Investment,” mimeo,
Simon Fraser University, June 1989.
* Ingersoll, Jonathan E., Jr., and Stephen A. Ross, “Waiting to Invest: Investment and Uncertainty,”
Journal of Business, 65 (January 1992), 1-29.
* McDonald, Robert L., and Siegel, Daniel, “The Value of Waiting to Invest,” Quarterly Journal of
Economics, 51 (1986), 707-27.
Paddock, James L., Siegel, D.R., and Smith, J.L., “Option Valuation of Claims on Real Assets:
The Case of Offshore Petroleum Leases,” Quarterly Journal of Economics, 103 (Aug. 1988),
479-508.
Palm, Scott K., Neil Pearson and James Read Jr., “Option Pricing: a new approach to mine
valuation,” CIM Bulletin, 79 (May 1986), 61-66.
Pindyck, Robert S., “Irreversible Investment, Capacity Choice, and the Value of the Firm,” American Economic Review, 78 (December 1988), 969-85.
Reed, William J., and Harry R. Clarke, “Harvest Decisions and Asset Valuation for Biological
Resources Exhibiting Size Dependent Stochastic Growth,” International Economic Review,
31 (Fall 90), 147-69.
Ross, Stephen A., “A Simple Approach to the Valuation of Risky Streams,” Journal of Business,
51 (1978), 453-475.
8.
Inflation and Real Interest Rates
Benninga, Simon, and Protopapadakis, Aris, “Real and Nominal Interest Rates Under Uncertainty: The Fisher Theorem and the Term Structure,” Journal of Political Economy, 91
(Oct. 1983), 856-67
Carr, Peter, “A Note on the Pricing of Commodity-linked Bonds,” Journal of Finance, 42 (1987),
1071-76.
Evans, Martin D. D., and Karen K. Lewis, “Do Expected Shifts in Inflation Affect Estimates of
the the Long-Run Fisher Relation,” Journal of Finance, 50 (March 1995), 225-254.
Evans, Lewis, and John Okunev, “Fisher’s Relationship in a Volatile World,” Economic Letters,
40 (November 1992), 309-311.
Fischer, Stanley, “The Demand for Index Bonds,” Journal of Political Economy, 83 (June 1975),
509-534.
Fisher, Irving, The Theory of Interest as Determined by Impatience to Spend Income and Opportunity to Invest, New York: Macmillan, 1930.
Kandel, Shmuel, Aharon R. Ofer and Oded Sarig, “Real Interest Rates and Inflation: An Ex-ante
Empirical Analysis,” W.P. no. 2-95, R. White Center for Financial Research, University of
Pennsylvania, January 1995.
Malliaris, A. G., and M. E. Malliaris, “Interest Rates and Inflation,” Economic Letters, 37 (December 1991), 351-356.
Mishkin, Frederic A., “Is the Fisher Effect for Real? A Reexamination of the Relationship between
Inflation and Interest Rates,” NBER Working Paper 3632, February 1991.
Rose, Andrew K., “Is the Real Interest Rate Stable?,” Journal of Finance, 43 (December 1988),
1095-1112.
* Schwartz, Eduardo, “The Pricing of Commodity-Linked Bonds,” Journal of Finance, 37 (May
1982), 525-39.
9.
Mortgage Pricing and Prepayments
* Brennan, Micahel J., and Eduardo S. Schwartz, “Determinants of GNMA Mortgage Prices,”
AREUEA Journal, 13 (Fall 1985), 209-228.
Buser, Stephen A., and Patric H. Hendershott, “Pricing Default-free Fixed- Rate Mortgages,”
Housing Finance Review, 3 (October 1984), 405-430.
Econ. 811
10
Buser, Stephen A., Patric H. Hendershott and Anthony B. Saunders, “Pricing Life-of-Loan Rate
Caps on Default-free Adjustable-rate Mortgages,” AREUEA Journal, 13 (Fall 1985), 248260.
Capozza, Dennis R., and Gau, George W., “The Pricing and Implementation of Mortgage Rate
Insurance,” mimeo, University of British Columbia, August 1983.
Foster, Chester and Robert Van Order, “An Option-based Model of Mortgage Default,” Housing
Finance Review, 3 (October 1984), 351-372.
Hall, Arden R., “Valuing the Mortgage Borrower’s Prepayment Option,” AREUEA Journal, 13
(Fall 1985), 229-247.
Hendershott, Patric H., “Mortgage Pricing: What have we learned so far?” NBER Working Paper
No. 1959, June 1986.
Kau, James B., D. C. Keenan, W. J. Muller III and J. F. Epperson, “The Valuation and Securitization of Commercial and Multifamily Mortgages,” mimeo, University of Georgia, undated
(1986?).
* Schwartz, Eduardo, and Walter Torous, “Prepayment and the Valuation of Mortgage Backed
Securities,” University of California Los Angeles, mimeo, December 1987.
10.
Regulatory and Institutional Issues
Bank Act: Regulations with Guidelines and Other Regulatory Documents, Tory, Tory DesLauriers
& Binnington, 5th edition, Scarborough: Carswell, 1992.
Bank of England, “Derivatives: Report of an Internal Working Group,” mimeo, April 1993.
Dimson, Elroy, and Paul Marsh, “Capital Requirements for Securities Firms,” Journal of Finance,
50 (July 1995), 821-852.
Grossman, Sanford J., “Program Trading and Stock and Futures Price Volatility,” Journal of
Futures Markets, 8 (August 1988), 413-420.
Global Derivatives Study Group, Derivatives: Practices and Principles, Appendix I: Working
Papers, Washington, D.C.: Group of Thirty, July 1993.
* Jones, Robert A., “Regulating Off-Balance Sheet Risks and Canada’s Competitive Position,” in
T. J. Courchene and E. H. Neave (ed), Financial Derivatives.: Managing and Regulating
Off-Balance Sheet Risks, Kingston: John Deutsch Institute, 1994.
* O’Connor, Sean M., “The Development of Financial Derivatives Markets: The Canadian Experience,” Bank of Canada, mimeo, May 1993.
Stigum, Marcia, The Money Market (2nd edition), Homewood, Illinois: Dow Jones - Irwin, 1983.
(or more recent edition)
Uyemura, Dennis G., and Donald R. Van Deventer, Financial Risk Management in Banking,
Chicago, Ill.: Bankers Publishing Co., 1993.