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Merton's portfolio problem is a problem in continuous-time finance and in particular intertemporal portfolio choice. An investor must choose how much to consume and must allocate their wealth between stocks and a risk-free asset so as to maximize expected utility .
In finance, a holdout problem occurs when a bond issuer is in default or nears default, and launches an exchange offer in an attempt to restructure debt held by existing bond holders. Such exchange offers typically require the consent of holders of some minimum portion of the total outstanding debt, often in excess of 90%, because, unless the ...
For example, for bond options [3] the underlying is a bond, but the source of uncertainty is the annualized interest rate (i.e. the short rate). Here, for each randomly generated yield curve we observe a different resultant bond price on the option's exercise date; this bond price is then the input for the determination of the option's payoff.
Cheaper than buying individual bonds: The bond market is usually less liquid than the stock market, with wider bid-ask spreads costing investors more money. With a bond ETF, you can use the fund ...
The underlying stock, index or basket of equities is defined as Reference Shares. In most cases, Reverse convertibles are linked to a single stock. There are also inverse reverse convertibles, which are the opposite of a reverse convertible. The owner benefits as long the underlying stock does not go above a predetermined barrier.
Bond vs Bond: Identify and trade bonds that are mispriced compared to other very similar bonds. LIBOR vs Bond : Take advantage of anomalies in the spread between Bond and Libor Curves. Frequently, these above described anomalies occur when market participants are forced to make non-economic decisions due to accounting regulations, book clean-up ...
The arbitrage-free price for a derivatives contract can be complex, and there are many different variables to consider. Arbitrage-free pricing is a central topic of financial mathematics. For futures/forwards the arbitrage free price is relatively straightforward, involving the price of the underlying together with the cost of carry (income ...
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