In this paper we present a critical viewpoint on interpretation of one of the most important innovation in the recent world economy. This is erivatives’ market, the options segment in particular. The standard options such as plain vanilla, nonstandard exotics or hybrid options and more recent specification called credit derivatives are actively traded around the world absorbing a significant volume of cash flows. The goal of the paper is to present the misunderstanding of the core problems in this field. This is an option price discovery. The modern probability and statistics theories are applied to provide investors and institutions information regarding the cost of the investment risk and on the other hand develop a better proximity between given historical data and analytical theory. We will show bellow that critical arguments are related to the basic fundamentals of the investment sciences that unfortunately are still difficult to comprehend by theoretical researchers, supervisory organizations, and investors.

Abstract Universal corporate banks are defined as financial institutions that may offer the entire range of financial services, and own equity in financial and non-financial firms. The emergence of universal corporate banks is one of the responses of banks to the environmental changes in global financial markets. An idealized model of corporate bank is developed to describe the nature of corporate bank. The corporate banking policies include internationalization of financial services and information net-work, expansion and integration of corporate banking functions, creating close corporate clients relationship, acquiring knowledge and information advantage in corporate and financial markets, performance of corporate control and corporate governance to influence corporate management. Transaction cost and other theories are used to explain the universal corporate bank, especially the rationale for expansion and r-organization, for developing close corporate relationship, for acquiring information and knowledge of corporate clients, and the influence concerning corporate governance. In this study, the evolution of regulation, present situation of banking system, future development of corporate banking in some countries are investigated. It is found that free selection of organizational structure and financial activities of financial institutions is a general tendency in these countries. The problems such as conflicts of interest, culture conflict encountered when implementing corporate banking policies are discussed in this study. Different organization designs, management models, external regulations, and corporate culture are introduced as solutions. The development of corporate bank has great implications for financial reform in China. The pre-requisitions and barriers of developing universal corporate in China are discussed. A case study of China Construction Bank is utilized to illustrate the current situation and further development of banks in China. It is argued that a gradually financial liberalization with correct order should be accomplished. Some recommendations are produced for further reform of financial market in China including diversification of bank’s ownership, permission of foreign banks enter Chinese financial market, liberalizing interest rate, and establishing a fully floated foreign exchange market.

The integration of two vertically linked business units allows the single owner to choose the compensation contracts of the managers of the two units coordinatively and thus internalizes a production externality when there is technological synergy or complementarity. On the other hand, vertical integration changes the way in which a disagreement is handled when the two managers cannot agree on a transfer price for the intermediate product. Specifically, integration gives the single owner an extra option: transfer the product without establishing a price. Knowing that the owner cannot commit to costly outside trade, the managers have stronger incentives to disagree on the transfer price and hence the information that would be conveyed by the market prices is lost. Consistent with the conventional wisdom, two key determinants of vertical integration in our model are intermediate-product-market uncertainty and production synergy between the two units. The model yields new predictions linking both the integration decision and contract choices to several variables commonly thought to be important for vertical integration.

This paper develops an integrated model of asset pricing and moral hazard. In particular, we combine a version of the Capital Asset Pricing Model (CAPM) with a multi-agent moral hazard model. The excess dollar returns for risky stocks, optimal contracts for managers (agents) that involve relative performance, and equilibrium stock prices are explicitly characterized. We show that the CAPM linear relation in terms of the expected dollar returns still holds in the presence of moral hazard and that our  is given by the ratio of the covariance between a firm’s stock return and the market return over the variance of the market return, with both returns adjusted for the compensation to the managers. The equilibrium price of a stock decreases with its idiosyncratic risk, but the expected excess dollar return of the stock is independent of it. Consequently, the risk premium, which is defined as the ratio of the excess return to the stock price, increases with idiosyncratic risk. We also show that the risk aversion of the principal in our model leads to less emphasis on relative performance evaluation than in a model with a risk-neutral principal. This result may shed light on why the empirical evidence for relative performance evaluation is mixed, even though the theoretical prediction based on a risk-neutral principal strongly supports it. In addition, we show that if the manager of a firm is compensated based solely on his own performance, then the expected dollar return of the firm increases with its idiosyncratic risk. This exercise illustrates that, in the presence of moral hazard, contracting plays a key role in the determination of the expected return of a stock. Furthermore, we show that under certain conditions, the equilibrium contract is a linear combination of the stock price and the level of the market portfolio.

In this paper we study how a firm’s capital structure choice affects informed trading of its securities in the secondary markets and consequently, the information efficiency of its security prices. We identify two new factors as the potential determinants of the firm’s optimal capital structure policy: the liquidity premium caused by informed trading and, perhaps more importantly, the improved operating efficiency due to information revelation from its security prices. We show that, from these two perspectives, the optimal debt level is achieved at the point where there is no informed trading in the bond market and the informed traders are just about to trade in the bond market. Thus, the cost of debt financing differs in nature from that of the existing models. This has very different implications for the significance of the cost of debt financing and for financial system design. Our model can also explain the relative trading volumes in debt and equity markets.

This paper provides an in-depth analysis of the Hansen-Jagannathan (HJ) distance, which is a measure that is widely used for diagnosis of asset pricing models, and also as a tool for model selection. In the mean and standard deviation space of portfolio returns, we provide a geometric interpretation of the HJ-distance. In relation to the traditional regression approach of testing asset pricing models, we show that the HJ-distance is a scaled version of the aggregate pricing errors, and it is closely related to Shanken’s (1985) cross-sectional regression test (CSRT) statistic, with the only major dierence in how the zero-beta rate is estimated. For the statistical properties, we provide the exact distribution of the sample HJ-distance and also a simple numerical procedure for computing its distribution function. In addition, we propose a new test of equality of HJ-distance for two nested models. Simulation evidence shows that the asymptotic distribution for sample HJ-distance is grossly inappropriate for typical number of test assets and time series observations, making the small sample analysis empirically relevant.

Most existing empirical studies on affine term structure models have primarily focused on in-sample Þt of historical bond yields and ignored out-of-sample forecast of future bond yields. Using an omnibus nonparametric procedure for density forecast evaluation developed in this paper, we provide probably the first comprehensive empirical analysis of the out-of-sample performance of affine term structure models in forecasting the joint conditional probability density of bond yields. We show that although it is difficult to forecast the conditional mean of bond yields, some affine models have good forecasts of the joint conditional density of bond yields and they significantly outperform simple random walk models in density forecast. Our analysis demonstrates the great potential of affine models for financial risk management in fixed-income markets.

We extend the research of Michael Frenkel and christiane Nickel (2001) and present a modified Dornbusch overshoot model to study the impacts of different control degree of different capital on price-exchange rate system with a microstructure in foreign exchange market in the steady state. It is found that the impact on the stability of price-exchange rate system is an alternative choice between saddle stability and entire stability.

We demonstrate that limited participation can arise endogenously in the presence of model uncertainty. Our model generates novel predictions on how limited participation relates to equity premium and diversification discount. When the dispersion in investors?model uncertainty is small, full participation prevails in equilibrium. In this case, equity premium is unrelated to model uncertainty dispersion and a conglomerate trades at a price equal to the sum of its single segment counterparts. When model uncertainty dispersion is large, however, investors with relatively high uncertainty optimally choose to stay sidelined in equilibrium. In this case, equity premium can decrease with model uncertainty dispersion. This is in sharp contrast to the understanding in the existing literature that limited participation leads to higher equity premium. Moreover, when limited participation occurs, a conglomerate trades at a discount relative to its single segment counterparts. The discount increases in model uncertainty dispersion and is positively related to the proportion of investors not participating in the markets.

On the basis of analyzing the relative literatures，from the view of the origin of venture capital，the thesis summarizes the main theories and methods about the research of high-tech venture capital recently．Next，it summarizes progress of high-tech venture capital research，and points out some shortcomings of high-tech venture capital research in our country．Finally，it expounds some future directions on high-tech venture capital．