Nengjiu Ju
Shanghai Jiao Tong University
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Publication
Featured researches published by Nengjiu Ju.
Journal of Financial and Quantitative Analysis | 2005
Nengjiu Ju; Robert Parrino; Allen M. Poteshman; Michael S. Weisbach
This paper examines optimal capital structure choice using a dynamic capital structure model that is calibrated to reflect actual firm characteristics. The model uses contingent claim methods to value interest tax shields, allows for reorganization in bankruptcy, and maintains a long-run target debt to total capital ratio by refinancing maturing debt. Using this model, we calculate optimal capital structures in a realistic representation of the traditional trade-off model. In contrast to previous research, the calculated optimal capital structures do not imply that firms tend to use too little leverage in practice. We also estimate the costs borne by a firm whose capital structure deviates from its optimal target debt to total capital ratio. The costs of moderate deviations are relatively small, suggesting that a policy of adjusting leverage infrequently is likely to be reasonable for many firms.
Journal of Computational Finance | 2002
Nengjiu Ju
Asian options belong to the so-called path-dependent derivatives. They are among the most difficult to price and hedge both analytically and numerically. Basket options are even harder to price and hedge because of the large number of state variables. Several approaches have been proposed in the literature, including Monte Carlo simulations, tree-based methods, partial differential equations, and analytical approximations among others. The last category is the most appealing because most of the other methods are very complex and slow. Our method belongs to the analytical approximation class. It is based on the observation that though the weighted average of lognormal variables is no longer lognormal, it can be approximated by a lognormal random variable if the first two moments match the true first two moments. To have a better approximation, we consider the Taylor expansion of the ratio of the characteristic function of the average to that of the approximating lognormal random variable around zero volatility. We include terms up to σ6 in the expansion. The resulting option formulas are in closed form. We treat discrete Asian option as a special case of basket options. Formulas for continuous Asian options are obtained from their discrete counterpart. Numerical tests indicate that the formulas are very accurate. Comparisons with all other leading analytical approximations show that our method has performed the best overall in terms of accuracy for both short and long maturity options. Furthermore, unlike some other methods, our approximation treats basket (portfolio) and Asian options in a unified way. Lastly, in the appendix we point out a serious mathematical error of a popular method of pricing Asian options in the literature.
Journal of Derivatives | 1999
Nengjiu Ju; Rui Zhong
American exercise has always presented a problem for option pricing models. For put options and calls on underlying assets with a continuous proportional cash payout, American exercise turns valuation into a free boundary problem with no closed-form solution. The approximation formula derived by Baroni-Adesi and Whaley has been a very useful tool, but the approximation works best only for short maturities and every long maturities. The formula is less accurate for intermediate maturities of a couple of years, which are now common for over-the-counter option contracts and exchange-traded LEAPS. Other approximation methods based on numerical techniques can be made arbitrarily accurate, but are computationally much more burdensome. Ju and Zhong present a very useful new closed-form model, obtained by introducing correction terms to the Baroni-Adesi and Whaley formula. The model is much more accurate than most alternatives and is also computationally more efficient. As important as improved accuracy, for many users, is the fact that as a closed-form solution, programming Ju and Zhongs model is much simpler than setting up a numerical algorithm.
Journal of Financial Economics | 2006
Gurdip Bakshi; Nengjiu Ju; Hui Ou-Yang
The treatment of this article renders closed-form density approximation feasible for univariate continuous-time models. Implementation methodology depends directly on the parametric-form of the drift and the diffusion of the primitive process and not on its transformation to a unit-variance process. Offering methodological convenience, the approximation method relies on numerically evaluating one-dimensional integrals and circumvents existing dependence on intractable multidimensional integrals. Density-based inferences can now be drawn for a broader set of models of equity volatility. Our empirical results provide insights on crucial outstanding issues related to the rank-ordering of continuous-time stochastic volatility models, the absence/presence of nonlinearities in the drift function of equity volatility, and the desirability of pursuing more flexible diffusion function specifications.
Review of Economic Dynamics | 2014
Hui Chen; Nengjiu Ju; Jianjun Miao
We study an investors optimal consumption and portfolio choice problem when he confronts with two possibly misspecified submodels of stock returns: one with IID returns and the other with predictability. We adopt a generalized recursive ambiguity model to accommodate the investors aversion to model uncertainty. The investor deals with specification doubts by slanting his beliefs about submodels of returns pessimistically, causing his investment strategy to be more conservative than the Bayesian strategy. This effect is large for extreme values of the predictive variable. Unlike in the Bayesian framework, model uncertainty induces a hedging demand, which may cause the investor to decrease his stock allocations sharply and then increase with his prior probability of IID returns. Adopting suboptimal investment strategies by ignoring model uncertainty can lead to sizable welfare costs.
Management Science | 2012
Nengjiu Ju; Xuhu Wan
This paper studies the optimal contract between risk-neutral shareholders and a constant relative risk-aversion manager in a continuous-time model. Several interesting results are obtained. First, the optimal compensation is increasing but concave in output value if the manager is more risk averse than a log-utility manager. Second, when the manager has a log utility, a linear contract is optimal when there is no explicit lower bound on the compensation, and an option contract is optimal when there is an explicit lower bound. Third, optimal effort is stochastic (state dependent). Fourth, consistent with empirical findings and contrary to standard agency theory predictions, the relationship between pay-performance sensitivity and firm performance and that between pay-performance sensitivity and firm risk can be nonmonotonic. This paper was accepted by Wei Xiong, finance.
Computational Materials Science | 1994
Nengjiu Ju; Aurel Bulgac; John W. Keller
Abstract We review the theoretical description of the response of isolated fullerenes to external electromagnetic fields and inelastic electron scattering. Recent electron energy loss spectroscopy (EELS) experimental results on C 70 are presented. The theoretical results compare rather well with experimental photoexcitation results in C 60,70 and EELS data on gas targets C 60,70 .
The Journal of Business | 2001
Robert S. Goldstein; Nengjiu Ju; Hayne E. Leland
Social Science Research Network | 2002
Nengjiu Ju; Hayne E. Leland; Lemma W. Senbet
Physical Review B | 1993
Nengjiu Ju; Aurel Bulgac