Price ; Stocks ; Assets ;. Article Journal of Financial and Quantitative Analysis. Theory of Finance from the Perspective of Continuous Time. Article Review of Economic Studies. Theory ; Growth and Development ; Risk and Uncertainty ;. Merton and Paul A. Investment ; Decision Making ;. On the Pricing of Corporate Debt: The Risk Structure of Interest Rates. Samuelson and Robert C.
Investment ; Finance ;. The Optimality of a Competitive Stock Market. Merton and Marti G. Competition ; Stocks ; Markets ;. Capital ; Assets ;. Theory ; Markets ;. Theory ; Price ;. Appendix to Paul A. Samuelson's 'Mathematics of Speculative Price'. Article Journal of Economic Theory. Governing Rules, Regulations, and Reforms ;. Article Western Economic Journal. Welfare or Wellbeing ; Economy ; Growth and Development ;. Article Review of Economics and Statistics.
Lifetime Portfolio Selection under Uncertainty: Risk and Uncertainty ; Investment ;. Article Industrial Management Review. Journal Article Journal of the History of Ideas. The Retirement Phase Nobel Laureate Panel Discussion: What Retirement Means to Me.
Merton , Paul A. Samuelson and Robert M. Merton, and Myron S. Foreword Financial Derivatives Pricing Foreword The World of Equity Derivatives Chapter Innovations in Investment Management Foreword Macrofinancial Risk Analysis The Future of Retirement and Planning. Retirement ; Planning ;. Economics ; Finance ;. Chapter Mathematical Finance - Bachelier Congress Finance ; Mathematical Methods ; Practice ;. Foreword Risk Management Chapter The Intellectual Venture Capitalist: The Global Financial System Project.
Merton and Peter Tufano. Chapter Les Prix Nobel Foreword Mathematics of Derivative Securities Chapter The Legacy of Norbert Wiener: A Centennial Symposium The Case of Replicating Portfolios. Foreword Managing Derivative Risks Chapter The Global Financial System: A Functional Perspective Finance ; Framework ;. The Informational Role of Asset Prices: The Case of Implied Volatility. Asset Pricing ; Price ; Volatility ; Information ;. Financial Infrastructure and Public Policy: Perspectives and Challenges Management of Risk Capital in Financial Firms.
Chapter Operation and Regulation of Financial Markets Operation and Regulation in Financial Intermediation: Pension Benefit Guarantees in the United States: The Changing Nature of Debt and Equity: Borrowing and Debt ; Equity ; Change ;. Chapter Handbook of Monetary Economics Chapter Pensions in the U.
What are the Real Tradeoffs. Zvi Bodie, Alan J. Marcus and Robert C. Compensation and Benefits ; Cost vs Benefits ;. Chapter The New Palgrave: A Dictionary of Economic Theory and Doctrine Chapter Issues in Pension Economics Merton , Zvi Bodie and Alan J. Compensation and Benefits ; Integration ;. Chapter Macroeconomics and Finance: Essays in Honor of Franco Modigliani Financial Markets ; Stocks ; Mathematical Methods ;. Chapter Pensions, Labor and Individual Choice Implicit Labor Contracts Viewed as Options: A Discussion of 'Insurance Aspects of Pensions'.
Chapter Recent Advances in Corporate Finance Mason and Robert C. Mathematical Methods ; Corporate Finance ;. The Role of the Stock Market. Stanley Fischer and Robert C. Macroeconomics ; Financial Markets ;. Chapter Financial Aspects of the U. Compensation and Benefits ; Public Sector ;.
Essays in Honor of Paul Cootner Mathematical Methods ; Economics ; Finance ;. Chapter Handbook of Mathematical Economics On the Microeconomic Theory of Investment under Uncertainty. The Regulation of Financial Institutions Capital Requirements in the Regulation of Financial Intermediaries: Chapter Studies in Risk and Return Capital ; Asset Pricing ; Mathematical Methods ;. A Framework for Understanding Financial Institutions.
Merton and Robert T. Systemic Risk and the Refinancing Ratchet Effect. Zvi Bodie and R. A Case of Israel. The Equity Plus Fund A. Merton and Alberto Moel.
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Savings and Loans and the Mortgage Markets. Other Unpublished Work Disclose the Fair Value of Complex Securities. Robert Kaplan, Robert C.
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Merton and Scott Richard. Value ; Financial Instruments ; Corporate Disclosure ;. Corporate Dividend Dynamics at the Firm Level. Mathematical Methods ; Economics ;. Mathematical Methods ; Price ;. Restrictions on Rational Option Pricing: A Set of Arbitrage Conditions. Stock Options ; Valuation ; Trade ;. Business and Environment Business History Entrepreneurship.
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Functional and Strategic Finance Winter Areas of Interest financial engineering financial innovation global risk management Additional Topics capital markets capital structure credit risk equity-based pay financial analysis institutional investing investment banking investment management long-term investing market efficiency mutual funds real options valuation Industries banking brokerage financial services insurance industry investment banking industry retail financial services. Finance ; Economics ; Citation: Cleeton This book seeks to explain finance through its functions rather than its institutions, concentrating on the three pillars of finance: Bodie, Zvi, Robert C.
Merton, and David L. Overview ; Translated into Korean and Hungarian. Lim, Terence, Andrew W. Foundation and Trends in Finance. Risk Management ; Finance ; Citation: Bodie, Zvi, and Robert C. Finance ; Innovation and Invention ; Cases ; Citation: Cite View Details Related. Book The Global Financial System: A Functional Perspective D. Book Cases in Financial Engineering: Finance ; Financing and Loans ; Citation: History ; Science ; Citation: Merton Corporate America began to really take notice of the looming retirement crisis in the wake of the dot-com crash, when companies in major industries went bankrupt in large part because of their inability to meet their pension obligations.
The result was an acceleration of America's shift away from employer-sponsored pension plans toward defined-contribution DC plans—epitomized by the ubiquitous k —which transfer the investment risk from the company to the employee. With that transfer has come a dangerous shift in investment focus, argues Nobel Laureate Robert C. Traditional pension plans were conceived and managed to provide members with a guaranteed income. And because that objective filtered right through the scheme, members thought of their benefits in those terms.
Ask a member what her pension is worth and she'll reply with an income figure: Most DC schemes, however, are designed and managed as investment accounts with the goal of accumulating the largest possible pot of savings. Communication with savers is framed entirely in terms of assets and returns. Methods for evaluating value-at-risk estimates Jose A. Heat waves, meteor showers, and trading volume: Treasury market Michael J. Evaluating credit risk models Jose A. Regulatory evaluation of value-at-risk models Jose A. Regulatory evaluation of value-at-risk models using probability forecasts Jose A.
Exchange rate cointegration across central bank regime shifts Jose A. Modeling volatility dynamics Francis X. Evaluating the predictive accuracy of volatility models Jose A. Forecast evaluation and combination Francis X. Work in Progress , October With Christensen. Such long-lived liabilities still need to be discounted, and yield curve extrapolations based on the information in observed yields can be used. We find slight biases in extrapolated long bond yields of a few basis points.
In addition, the DNS model allows the generation of useful financial risk metrics, such as ranges of possible yield outcomes over projection horizons commonly used for stress-testing purposes. Therefore, we recommend using DNS models as a simple tool for generating extrapolated yields for long-term interest rate risk management. We examine the effect of negative nominal interest rates on bank profitability and behavior using a cross-country panel of over 5, banks in 27 countries. Our data set includes annual observations for Japanese and European banks between and , which covers all advanced economies that have experienced negative nominal rates, including currency union members as well as both fixed and floating exchange rates countries.
When we compare negative nominal interest rates with low positive rates, banks experience losses in interest income that are almost exactly offset by savings on deposit expenses and gains in non-interest income, including capital gains on securities and fees. We find heterogeneous effects of negative rates: Low-deposit banks have enjoyed particularly striking gains in non-interest income, likely from capital gains on securities.
Overall, our results indicate surprisingly benign implications of negative rates for commercial banks thus far. Fiscal deficits, elevated debt-to-GDP ratios, and high inflation rates suggest hyperinflation could have potentially emerged in many European countries after World War I. We demonstrate that economic policy uncertainty was instrumental in pushing a subset of European countries into hyperinflation shortly after the end of the war. Germany, Austria, Poland, and Hungary GAPH suffered from frequent uncertainty shocks — and correspondingly high levels of uncertainty — caused by protracted political negotiations over reparations payments, the apportionment of the Austro-Hungarian debt, and border disputes.
In contrast, other European countries exhibited lower levels of measured uncertainty between and , allowing them more capacity with which to implement credible commitments to their fiscal and monetary policies. Impulse response functions show that increased uncertainty caused a rise in inflation contemporaneously and for a few months afterward in GAPH, but this effect was absent or much more limited for the other European countries in our sample.
Our results suggest that elevated economic uncertainty directly affected inflation dynamics and the incidence of hyperinflation during the interwar period. The introduction of macroprudential responsibilities at central banks and financial regulatory agencies has created a need for new measures of financial stability. While many have been proposed, they usually require further transformation for use by policymakers. We propose a transformation based on transition probabilities between states of high and low financial stability.
Forecasts of these state probabilities can then be used within a decision-theoretic framework to address the implementation of a countercyclical capital buffer, a common macroprudential policy. Our policy simulations suggest that given the low probability of a period of financial instability at year-end , U. This difference is known as the on-the-run premium. In this paper, yield spreads between pairs of Treasury Inflation-Protected Securities TIPS with identical maturities but of separate vintages are analyzed.
Adjusting for differences in coupon rates and values of embedded deflation options, the results show a small, positive premium on recently issued TIPS — averaging between one and four basis points — that persists even after new similar TIPS are issued and hence is different from the on-the-run phenomenon observed in the nominal Treasury market.
The ability of the usual factors from empirical arbitrage-free representations of the term structure — that is, spanned factors — to account for interest rate volatility dynamics has been much debated. We examine this issue with a comprehensive set of new arbitrage-free term structure specifications that allow for spanned stochastic volatility to be linked to one or more of the yield curve factors. Treasury yields, we find that much realized stochastic volatility cannot be associated with spanned term structure factors. However, a simulation study reveals that the usual realized volatility metric is misleading when yields contain plausible measurement noise.
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We argue that other metrics should be used to validate stochastic volatility models. A common assumption in the academic literature and in the actual supervision of banking systems worldwide is that franchise value plays a key role in limiting bank risk-taking. As the underlying source of franchise value is assumed to be market power, reduced competition has been considered to promote banking stability.
Boyd and De Nicolo propose an alternative view where concentration in the loan market could lead to increased borrower debt loads and a corresponding increase in loan defaults that undermine bank stability. Martinez-Miera and Repullo encompass both approaches by proposing a nonlinear relationship between competition and bank risk-taking. Using unique datasets for the Spanish banking system, we examine the empirical nature of that relationship. After controlling for macroeconomic conditions and bank characteristics, we find that standard measures of market concentration do not affect the ratio of non-performing commercial loans NPL , our measure of bank risk.
However, using Lerner indexes based on bank-specific interest rates, we find a negative relationship between loan market power and bank risk. This result provides evidence in favor of the franchise value paradigm.
Chester S. Spatt
To date, the literature has examined a variety of macroeconomic and microeconomic factors that influence firm financing. In this paper, we examine access by Spanish firms to external financing, both from bank and non-bank sources. We use dynamic panel data estimation techniques to estimate our models over a sample of 60, firms during the period from to We find that Spanish firms are quite dependent on short-term non-bank financing such as trade credit , which makes up about 65 percent of total firm debt.
Our results indicate that this type of financing is less sensitive to firm characteristics than short-term bank financing. However, we also find that short-term bank debt seems to be accessed more during economic expansions, which may suggest a substitution away from non-bank financing as firm conditions improve.
Short-term bank debt also seems to be accessed more as funding rates rise, possibly again suggesting a substitution away from higher-priced non-bank alternatives. In particular, we provide evidence of a potential hold-up problem in loan markets. Moreover, collateral plays a key role in making long-term finance available to firms. In this paper, we propose a procedure based on mixed-frequency models and network analysis to help address both of these policy concerns.
We decompose firm-specific stock returns into two components: We construct networks based on the co-movement of these components. Analysis of these networks allows us to identify time periods of increased risk concentration in the banking sector and determine which firms pose high systemic risk. Our results illustrate the efficacy of such modeling techniques for monitoring and potentially enhancing national financial stability.
We use an arbitrage-free term structure model with spanned stochastic volatility to determine the value of the deflation protection option embedded in Treasury inflation protected securities TIPS. The model accurately prices the deflation protection option prior to the financial crisis when its value was near zero; at the peak of the crisis in late when deflationary concerns spiked sharply; and in the post-crisis period.
During , the average value of this option at the five-year maturity was 41 basis points on a par-yield basis. The option value is shown to be closely linked to overall market uncertainty as measured by the VIX, especially during and after the financial crisis. To support the economy, the Federal Reserve amassed a large portfolio of long-term bonds.
Unlike past examinations of this interest rate risk, we attach probabilities to alternative interest rate scenarios. These probabilities are obtained from a dynamic term structure model that respects the zero lower bound on yields.
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In response to the global financial crisis that started in August , central banks provided extraordinary amounts of liquidity to the financial system. To investigate the effect of central bank liquidity facilities on term interbank lending rates, we estimate a six-factor arbitrage-free model of U. Treasury yields, financial corporate bond yields, and term interbank rates.
This model can account for fluctuations in the term structure of credit risk and liquidity risk. A significant shift in model estimates after the announcement of the liquidity facilities suggests that these central bank actions did help lower the liquidity premium in term interbank rates. Firms choosing Japanese underwriters tend to be Japanese, riskier, and smaller. We find that Japanese underwriting fees, while higher overall on average, are actually lower after conditioning for issuer characteristics. Moreover, firms tend to sort properly in their choice of underwriter, in the sense that a switch in underwriter nationality would be predicted to result in an increase in underwriting fees.
Foreign entry led to a statistically and economically significant decrease in underwriting fees in the Samurai bond market, as spreads fell by an average of 23 basis points. Overall, our results suggest that the market for underwriting services is partially segmented by nationality, as issuers appear to have preferred habitats, but entry increases market competition.
Robert C. Merton - Faculty - Harvard Business School
We construct probability forecasts for episodes of price deflation i. The estimated deflation probabilities are generally consistent with those from macroeconomic models and surveys of professional forecasters, but they also provide high-frequency insight into the views of financial market participants. The probabilities can also be used to price the deflation protection option embedded in real Treasury bonds.
We examine the determinants of issuance of yen-denominated international bonds over the period from through In principle, bond issuers that have exibility in their funding currency could also conduct a carry-trade strategy by funding in yen during this low interest rate period. We examine the characteristics of firms who appeared to have adopted this strategy using a data set containing almost 80, international bond issues. Journal of Financial Economics. November , 98, 2, - Featured in the Forbes Magazine February 12, Edward Elgar Publishing Inc.
Featured in Barron's Spot. PDF link to Elsevier Science. Option Prices with Uncertain Fundamentals: Please keep in mind the obvious point that my comments only reflect the version of the manuscript I received to discuss, and clearly not the current version of the same paper. Like children, papers evolve. Discussion of Heterogeneity and Asset Prices: