Papers Published in Journals
Corporate Securities Innovation: An Update
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Comment: The Need to Enhance the Effectiveness of Discussants and Some Suggested Guidelines for Session Organizers and Discussants
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College Tuition Prepayment Programs: Description, Investment Portfolio Composition, and Contract Pricing
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Capital Budgeting and CAPM: Choosing the Market Risk Premium
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Calculating Damages in Broker Raiding Cases
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Bank Discount, Coupon Equivalent, and Compound Yields: Comment
Glasgo, Landes, and Thompson (GLT) attempted in 1982 to demonstrate that formulas used to calculate the coupon equivalent yield of a short-term discounted note contain a theoretical inconsistency and a serious bias. They propose the use of a compound yield formula instead. Finnerty counters that the flaws lie not within the long-accepted formulas for calculating coupon equivalent yield, but within GLT's interpretation of those formulas. It is demonstrated, following GLT's notation, that GLT's recommended alternative is not clearly superior; it is simply designed to handle a different problem. GLT's formula is more appropriate for comparing the yields of 2 discounted notes of different maturities. The customary formulas are more appropriate for comparing the yields of a discounted note and a coupon-bearing instrument that mature the same day. Whichever formula is used, any yield comparison must be based on yields that have been calculated on a consistent basis.
Arranging Financing for Biotechnology Ventures
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Arbitrage-Free Spread: A Consistent Measure of Relative Value
Yield to maturity (YTM) has well-recognized limitations when interpreted as a measure of relative value among fixed-income securities with embedded options. Option-adjusted spread (OAS) is superior to YTM because it adjusts for the value of any embedded options. However, OAS is not as robust a measure of relative value as many fixed-income professionals apparently believe it to be. Moreover, different broker-dealers may use different computational procedures to arrive at an OAS. An alternative rich-cheap index, called the arbitrage-free spread (AFS), is shown to be a consistent measure of relative value. The arbitrage-free return (AFR) counterpart to AFS is also described. AFR and AFS can be applied to any fixed-income security or derivative thereof for which there is a specified debt service stream. In a reply, Hayre points out that, with the traditional method of discounting cash flows by today's zero-coupon curve, a spread added to the discount rates can be interpreted as a parallel shift of today's curve. With the OAS method of a large number of randomly generated discount rate paths that simulate future interest behavior, such an interpretation cannot be made.
An Overview of Derivatives Litigation, 1994 to 2000
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An Introduction to Credit Swaps
Often simply referred to as credit swaps, their purpose is to provide protection against deterioration in the credit quality or financial condition of a reference asset or entity. The reference asset or entity is usually a corporation, a government, or some other debt issuer or borrower to which the credit protection buyer has some credit exposure. In a credit swap the protection seller makes payment only if a specified credit event occurs. The protection buyer makes an upfront payment, or series of payments to the seller for the protection afforded by the credit swap. Credit swaps are broadly used for risk management and for investment purposes.
