Edwin O. Fischer

Dynamic Recapitalization Policies and the Role of Call Premia and Issue Discounts

In a dynamic framework, the advantage of leverage depends upon the firms recapitalization policy. We show that if bonds are callable at par, then equityholders have an incentive to recapitalize too early. Call premia and issue discounts, however, mitigate the agency problem of early recapitalization. The model provides the optimal call premium and issue discount as a function of firm-specific characteristics. An analysis of a bond sample supports the models prediction that the optimal call premium is positively related to firm risk.

Diffusion Process Specifications for Interest Rates

Aim of this paper is the empirical investigation of several diffusion process specifications for the instantaneous interest rate, which have been recently suggested in the finance literature. We derive estimation equations for the parameters of diffusion processes with linear drift and non-constant variances. The results show that none of the specifications is sufficient in explaining the long-run behavior of the investigated interest rate.

Optimal Portfolios with Traditional and Alternative Investments:An Empirical Investigation

This article empirically investigates the diversification effects on a traditional portfolio by introducing alternative investments (hedge funds, managed futures, real estate, private equities, and commodities). The authors analyze two portfolios: the one with the lowest risk (Minimum Risk Portfolio, or MRP) and the one with the highest (modified) Sharpe Ratio (Maximum Relative Performance Portfolio, or MRPP) for the period April 1999 to April 2009. This article is the first attempt to incorporate a variety of risk measures (Volatility, Value at Risk, and Conditional Value at Risk) as the objective function for portfolio optimization and for different estimates for the expected return (historical estimates, robust Bayes-Stein estimates, Capital Asset Pricing Model (CAPM) estimates, and Black-Litterman estimates). Furthermore, the alternative risk measures are additionally modified for the skewness and the kurtosis: modified VaR and modified CVaR. The influences of the higher moments on asset allocation are also examined in connection with different risk measures and various estimators for expected returns.

Portfolio Optimization: A Combined Regime-Switching and Black–Litterman Model

Traditionally portfolios are optimized with the single-regime Markowitz model using the volatility as the risk measure and the historical return as the expected return. This study shows the effects that a regime-switching framework and alternative risk measures (modified value at risk and conditional value at risk) and return measures (CAPM estimates and Black–Litterman estimates) have on the asset allocation and on the absolute and relative performance of portfolios. It demonstrates that the combination of alternative risk and return measures within the regime-switching framework produces significantly better results in terms of performance and the modified Sharpe ratio. The usage of alternative risk and return measures is also shown to meet the need that asset returns very often are not distributed normally and serially correlated. To eliminate these empirical shortcomings of asset returns an unsmoothing algorithm is used in combination with the Cornish–Fisher expansion.

Forensic Finance: Market Abuse and Price Manipulation in Security Markets on the Trail

On 19th March 2009, several national newspapers in Austria reported on a “turbo scandal” that had been suspected on the Vienna Stock Exchange for several years. Concerned investors argued that the issuers of turbo certificates tried to raid the underlying prices of these down-and-out call options by selling underlyings with prices under the barriers, resulting in valueless turbos. The goal of this research is to find out which variables are crucial for the research, which stocks were manipulated and who their manipulators were. According to our empirical results, we define suspicious issuers for each stock and classify them as being highly, moderately, less suspicious or rather unsuspicious issuers.

Die Bewertung von Kreditgarantien mittels Hyperoptionen

Zusammenfassung. Aus finanzwirtschaftlicher Sicht können Kreditgarantien als Verkaufsoptionen auf das anteilige Gesamtvermögen einer Unternehmung interpretiert werden. Die Bewertung von Kreditgarantien erfolgt üblicherweise mit dem Ansatz von Merton. Bei diesem Modell wird jedoch unterstellt, daß sowohl für den garantierten Kredit als auch für das nicht garantierte Fremdkapital vor Ablauf der Laufzeit keinerlei Zins– und Tilgungszahlungen geleistet werden. Unsere Arbeit präsentiert ein Modell zur Bewertung von Garantien auf Kredite mit beliebigen Zins– und Tilgungsmodalitäten. Das vorgeschlagene Bewertungsmodell wird auf Kredite mit unterschiedlichen Tilgungsformen angewendet. Darüber hinaus werden Sensitivitätsanalysen bezüglich der Einflußfaktoren auf die aus dem Modell resultierenden Prämiensätze durchgeführt.Summary. From a financial point of view, loan guarantees can be seen as put options on parts of the companys value. Usually, loan guarantees are valued by the model by Merton. This model, however, assumes that there are neither interest payments nor repayments of the loan itself (be it guaranteed or not) before the time to maturity. Our paper presents a model that allows the valuation of loan guarantees regardless of the terms and conditions of interim payments. The suggested model is applied to loans with different conditions of repayment. Furthermore, we investigate how changes in the parameters affect the risk adjusted premia of loan guarantees.

Die Bewertung riskanter Investitionen mit dem risikolosen Zinsfuß

Fur die Berucksichtigung unsicherer kunftiger Cash Flows bei der Bewertung von Investitionen werden in der Literatur zwei Risikokorrekturverfahren angefuhrt: Das Verfahren mit dem risikoangepasten Kalkulationszinsfuβ und das Verfahren mit dem Sicherheitsaquivalent. Aufbauend auf Blacks SDR-Ansatz werden in dieser Arbeit zwei neue Risikokorrekturverfahren vorgestellt: Das Verfahren mit dem Wertabschlag fur das Risiko und das Verfahren mit dem Risikokorrekturfaktor. Es wird gezeigt, das die beiden neuen Verfahren weniger strenge theoretische Annahmen benotigen und in der Praxis leichter einsetzbar sind.