Thomas E. Copeland, A Probability Model of Asset Trading, The Journal of Financial and Quantitative Analysis, Vol. 12, No. 4, Proceedings of the 1977 Western Finance Association Meeting (Nov., 1977), pp. 563-578

An important maintained hypothesis in financial economics states that the average interest rate on a firm's debt is positively related to its leverage. This hypothesis has a long history going back at least to the work of Kalecki [4] where it was used to derive a determinate size for the competitive firm when the production function is homogeneous of degree one. The upward sloping interest rate-leverage relationship has also played an important role in the theory of finance. In this connection, it is somewhat interesting to find both Modigliani-Miller [5] and their many critics in complete agreement on the nature of this relationship. In particular, their statement on this subject conveys the impression that this relationship is governed by an unalterable law when they write: “Economic theory and market experience both suggest that the yields demanded by lenders tend to increase with the debt-equity ratio of the borrowing firm” [5, p. 273].

In [1, p. 999] I wrongly stated that “the solution locus generated by the chance-constrained problem is efficient (for the class of utility function implied by the expected wealth-probability of ruin criterion) if the assets follow a multinomial distribution with means above the survival level.” In support of this statement footnote 6 of [1] attempted to establish the quasiconcavity of the expected utility functionin the (μ, σ) plane, where F is the normal distribution, z = (s-μ)/σ

This paper examines the pricing of convertible bonds and preferred stocks. The optimal policies for call and conversion of these securities are determined via the criterion of dominance. The techniques underlying the Black-Scholes Option Model are used to price convertible securities as contingent claims on the firm as a whole.

Journal Article The Economic Theory of Fertility Decline: Comment Get access William E. Cullison William E. Cullison Federal Reserve Bank of Richmond Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 91, Issue 2, May 1977, Pages 345–347, https://doi.org/10.2307/1885422 Published: 01 May 1977

I. Introduction, 59.—II. The model, 62.—III. Empirical analysis, 66.—IV. Further implications, 74.—V. Conclusions, 77.—Appendix: data and sources, 77.

I. A summary of the debate, 390.—II. The neoclassical contributions to the debate, 393.-111. An eclectic model of wage dynamics, 398.-1V. Empirical analysis of the basic equation, 403.—V. Conclusions, 411.—Appendix, 414. The persistent problem of "stagflation"—the presence of both high unemployment and rapid inflation—may suggest that the ac-celerationist denial of a trade-off between inflation and unemploy-ment should be accepted without further delay. 1 This study presents empirical research suggesting that any inflation-unemployment trade-off is indeed only transitory, but the claim is made that the accelerationists have reached their conclusion by a false route, their voluntary-unemployment-job-search theories. In order to support these positions, the Phillips Curve debate is briefly reviewed, cyclical patterns of unemployment are analyzed, and an eclectic model of wage movements is developed and estimated. The first section attempts to clarify the debate by focusing on three dis-

[Conditions under which a single iteration approximation to the maximum likelihood estimator dominates ordinary least squares are approximated analytically for the class of linear models for which the eigenvectors of the error covariance matrix are known.]