Working Paper Abstracts – 1976

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Working Paper Abstracts – 1976

01-76

This paper finds necessary and sufficient conditions on the stochastic structure of asset returns for portfolio choice to be equivalent to choice among a limited number of mutual funds of assets, independent of investors’ preferences. This type of separation result is central to much of modern financial theory and, as a consequence, the distributions which satisfy these conditions, the separating distributions, from the underlying basis for much of this theory.

02-76

Working from the assumption that Modigliani and Pogue made in their recent article, I (1) explain why there is no incentive for a portfolio manger to prefer their Plan 1 fee over their Plan 2 fee, (2) explain why the portfolio manager and investment company are superfluous, and (3) rebut the authors’ unduly pessimistic conclusions about portfolio manager behavior in an unregulated capital market.

03-76
No Abstract

04-76
No Abstract

05-76
No Abstract

06-76
No Abstract

07-76
No Abstract

08-76
No Abstract

09-76
No Abstract

10-76
No Abstract

11-76
No Abstract

12-76
No Abstract

13-76

In this paper I develop a model for the pricing of a European-type option to exchange one asset for another. I prove that a similar American-type option is never exercised until the last possible moment. Thus, the formula for the value of the American-type option is the same as that for the European-type option. This sort of option is not only a call option on the one asset, but also a put option on the other. Thus, the formula gives a closed-form expression for a special sort of American put option, and one can derive a put-call parity theorem for options of this sort. I also show how the model applies to four real-world financial arrangements; the investment advisor’s performance incentive fee, the general margin account, the corporate exchange offer, and the standby commitment.