Corporate Finance

While residents receive similar benefits from many local government programs, only about one-third of all households have children in public schools. We argue that capitalization of school spending into house prices can encourage even childless residents to support spending on schools. We identify a proxy for the extent of capitalization — the supply of land available for new development — and show that towns in Massachusetts with little undeveloped land have larger changes in house prices in response to a plausibly exogenous spending shock.

We propose a new three-pronged plan to address the recent harmful flood of foreclosures. Our plan would address the major barriers that inhibit the ability of third-party servicers to modify mortgages the way portfolio lenders are now doing with greater success. The plan provides greater compensation for servicers to perform their duties, removes legal constraints that inhibit modification, and addresses critical second liens that often get in the way of effective mortgage modifications.

We investigate determinants of slave family discounts in the New Orleans slave market. We find large price discounts for families unrelated to scale effects, childcare costs, legal restrictions, or transport costs. We posit that because family members voluntarily cared for each other, sellers sometimes found it advantageous to keep families together (when families included needy or dependent members). Evidence from ship manifests carrying slaves for sale in New Orleans provides direct evidence for selectivity bias in explaining slave family discounts.

This paper provides an optimal filtering methodology in discretely observed continuous-time jump-diffusion models. Although the filtering problem has received little attention, it is useful for estimating latent states, forecasting volatility and returns, computing model diagnostics such as likelihood ratios, and parameter estimation. Our approach combines time-discretization schemes with Monte Carlo methods. It is quite general, applying in nonlinear and multivariate jump-diffusion models and models with nonanalytic observation equations.

The global economic crisis in September 2008 was preceded by the crises of 2007: the subprime mortgage crisis, the corporate credit crunch, and the "quant liquidity crunch." The evolution of these crises appears to have resulted from a set of "deleveraging" that started in the subprime mortgage market but then spilled over into a number of other asset markets and resulted in large premiums in multiple markets. To respond to these events, new proprietary factors have been deployed that are not vulnerable to the actions of others.

We investigate the effect of discrete sampling and asset price jumps on fair variance and volatility swap strikes. Fair discrete volatility strikes and fair discrete variance strikes are derived in different models of the underlying evolution of the asset price: the Black-Scholes model, the Heston stochastic volatility model, the Merton jump-diffusion model and the Bates and Scott stochastic volatility and jump model.

This paper introduces new variance reduction techniques and computational improvements to Monte Carlo methods for pricing American-style options. For simulation algorithms that compute lower bounds of American option values, we apply martingale control variates and introduce the local policy enhancement, which adopts a local simulation to improve the exercise policy. For duality-based upper bound methods, specifically the primal-dual simulation algorithm, we have developed two improvements.

Four studies investigated whether activating a social identity can lead group members to choose options that are labeled in words associated with that identity. When political identities were made salient, Republicans (but not Democrats) became more likely to choose the gamble or investment option labeled "conservative." This shift did not occur in a condition in which the same options were unlabeled.