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.

A procedure is developed for the valuation of options when there are two underlying state variables. The approach involves an extension of the lattice binomial approach developed by Cox, Ross, and Rubinstein to value options on a single asset. Details are given on how the jump probabilities and jump amplitudes may be obtained when there are two state variables. This procedure can be used to price any contingent claim whose payoff is a piece-wise linear function of two underlying state variables, provided these two variables have a bivariate lognormal distribution. The accuracy of the method is illustrated by valuing options on the maximum and minimum of two assets and comparing the results for cases in which an exact solution has been obtained for European options. One advantage of the lattice approach is that it handles the early exercise feature of American options. In addition, it should be possible to use this approach to value a number of financial instruments that have been created in recent years.

Arguments in favour of self-enforced bans on advertising by professionals often rely on the stylized fact that advertising can communicate information about price but not about quality. This being the case, it is argued that allowing professionals to advertise runs the risk that firms will compete vigorously over price at the expense of the quality of their product. This paper shows that even if price can communicate no information directly about quality, it can do so indirectly because price will be a signal of quality. Because of this, allowing advertising is shown to improve consumer welfare.

As a consequence of aggregation over markets, the observed quantity may be less than the quantity demanded and less than the quantity supplied. To deal with such situations, a new technique is proposed for estimating demand and supply curves and the extent of shortage and slack. The technique is applied to the consumption goods markets of Czechoslovakia, the German Democratic Republic, Hungary, Poland, and Yugoslavia. It is found that shortage, even corrected for a discouraged consumer effect, is seldom as great as slack.

Joseph P. Ogden, Alan L. Tucker, The Relative Valuation of American Currency Spot and Futures Options: Theory and Empirical Tests, The Journal of Financial and Quantitative Analysis, Vol. 23, No. 4 (Dec., 1988), pp. 351-368

On introduit le concept de processus aleatoire vectoriel presque integre. Ce type de processus aide a travailler vers une theorie asymptotique generale de la regression pour des series temporelles multiples