This paper examines the pricing of S&P 100 calls using 14 months of transactions data. We find that market prices of S&P 100 calls differ systematically from Black-Scholes values. The biases in Black-Scholes model prices are both statistically and economically significant and correspond to biases that arise if market prices incorporate a stochastically changing volatility of the index.

This paper examines multiperiod corporate financial policy in a world where the only market imperfection is taxation. The optimal financial policy determines the firm's capital structure and debt maturity structure. Two implications of this policy are: (1) there can be a set of debt-asset ratios that is consistent with firm value maximization, and (2) debt maturity structure is irrelevant to firm value.

Theodore M. Barnhill, Quality Option Profits, Switching Option Profits, and Variation Margin Costs: An Evaluation of Their Size and Impact on Treasury Bond Futures Prices, The Journal of Financial and Quantitative Analysis, Vol. 25, No. 1 (Mar., 1990), pp. 65-86

This paper explores the implications for the information content of acquisition offers in an economy with asymmetric information. It is shown that mergers can be socially beneficial due to risk reduction and information asymmetry even when there are no productive synergies and when positive premia are paid. The properties of equilibria with and without mergers are derived and contrasted in order to obtain a quantitative bound on potential merger premia. Theory is related to empirical evidence, where our results show that aggregate valuation gains can accrue on a purely informational basis. Moreover, the model developed here has important implications for the reported differences in tender offer and merger studies.

Livingston contends that short futures/long cash traders can eliminate the potential costs of the quality option through use of a dynamic trading strategy. It is proposed here that if this is possible then futures prices will never reach a stable equilibrium. Alternatively, if Livingston's argument is flawed, then no risk-free arbitrage opportunities are likely to be available to either short cash/long futures or long cash/short futures traders. Under such conditions, futures prices will reach an equilibrium when the expected return and risk of each type position are equally attractive.

In a world of asymmetric information in which only the insiders know the quality of the firm, it is claimed that debt, even if it is risky, is more advantageous than outside equity because issuance of debt is less attractive to inferior firms. The advantage to debt arises from the fact that it can keep unprofitable firms out of the market, thus improving the average quality of firms in the market. This advantage exists even if the firms cannot be perfectly sorted in the signaling equilibrium.

Linda M. Kahn, Discussion: Multiperiod Pension Plans and ERISA, The Journal of Financial and Quantitative Analysis, Vol. 17, No. 4, Proceedings of the 17th Annual Conference of the Western Finance Association, June 16-19, 1982, Portland, Oregon (Nov., 1982), pp. 633-635

Kenneth M. Eades, Empirical Evidence on Dividends as a Signal of Firm Value, The Journal of Financial and Quantitative Analysis, Vol. 17, No. 4, Proceedings of the 17th Annual Conference of the Western Finance Association, June 16-19, 1982, Portland, Oregon (Nov., 1982), pp. 471-500

In this paper Ho and Saunders apply a model that has been used to analyze dealer spreads to banking.A potential contribution to a field can arise whenever a well-developed framework of analysis in one problem area is applied to another field. The risk of a mechanical application, however, is that the institutional structure of the two problem areas is so different that no real insights are gained. What are the facts here?

Stephen M. Schaefer, Taxation and Bond Market Equilibrium in a World of Uncertain Future Interest Rates: Comment, The Journal of Financial and Quantitative Analysis, Vol. 16, No. 5 (Dec., 1981), pp. 773-777