bond indenture provisions and the risk of corporate debt abstract this paper examines the effect of alternative bond indenture provisions on the allocation of risk among the firm s claimants the approach taken here differs from that of earlier studies in that risk allocation is examined while the firm s leverage in market value terms is held constant in this context four indenture provisions are examined 1 the time to maturity 2 the promised payment schedule 3 financing restrictions and 4 priority rules it is concluded that risk is transferred from stockholders to bondholders as the time to maturity and promised payment increase appropriately furthermore substitution of longer term debt for an equal amount of shorter term debt also increases the risk to bondholders while decreasing the risk to stockholders the analysis shows that a coupon bond can be represented by a unique discount bond with the same risk and value this permits the characterization of the effective maturity of a risky debt issue a concept analogous to the stochastic duration of a default free coupon bond these results are shown to be independent of the means used to finance the debt issue finally it is concluded that the relative risk associated with different bonds issued by the same firm cannot be determined by the structure of priority rules alone it is also necessary to consider the timing of the promised payments compared to that of the other debt issues in the firm s capital structure

swap rates and credit quality this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards with counterparties of different default risk the promised cash flows of a swap are discounted by a switching discount rate that at any given state and time is equal to the discount rate of the counterparty for whom the swap is currently out of the money that is a liability the impact of credit risk asymmetry and of netting is presented through both theory and numerical examples which include interest rate and currency swaps this article presents a model for valuing claims subject to default by both contracting parties such as swaps and forwards this extends the valuation model for defaultable claims proposed by duffie and singleton 1994 to cases in which the two counterparties have asymmetric default risk the extension permits a reexamination of the impact of credit risk on swap rates while the valuation model applies to all forms of contingent claims in which both contracting parties are at risk to default such as forward contracts we focus on swaps for purposes of illustration for example consider a 5 year interest rate swap between a given party paying a floating rate such as the london inter bank offered rate libor and another counterparty paying a fixed rate replacing the given fixed rate counterparty with a lower quality counterparty whose bond yields are 100 basis points higher increases the swap rate by roughly 1 basis point using our model and typical parameters for libor rate processes this credit impact on swap rates is approximately linear within the range of normally encountered credit quality for a 5 year currency swap given a foreign exchange rate with 15 percent volatility our model shows the impact of credit risk asymmetry on the market swap rate to be roughly 10 fold greater than that for interest rate swaps that is approximately 10 basis points in swap rate per 100 basis points in bond yield credit spread the main goal of this article is to provide a simple and theoretically consistent model allowing such computations

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

new issues in corporate finance flow of funds data are used to compare methods of finance in 5 countries over the period 1970 to 1985 many of the problems associated with previous studies are avoided by estimating net instead of gross financing proportions the degree of consolidation of accounts reciprocal arrangements between borrowers and lenders and compensating deposit requirements on borrowers no longer distort financing patterns corrections for inflation are provided by employing flow rather than stock figures and using own aggregation procedures to derive stock measures significant variations in financing emerge these are not readily explained by traditional descriptions of corporate finance in particular taxation as an alternative the paper suggests that relationships between borrowers and lenders establish forms of commitment that are conducive to the provision of long term finance the separation between investment and finance which has been the starting point of corporate finance theory is untenable in a multiperiod context in which terms of finance define future allocation of control

old problems in the new solutions politically motivated allocation of program benefits and the new fertilizer subsidies summary fertilizer subsidies have been reinstituted in many african countries with innovations seeking to avoid the downsides of past programs the new subsidy paradigm however does not address how to curtail political manipulation which exacerbated inefficiencies of previous programs this paper analyzes whether politics affected voucher allocations in ghana s 2008 fertilizer subsidy program we find that more vouchers were targeted to districts that the ruling party had lost in the previous presidential elections and more so in districts that had been lost by a higher percentage margin this evidence shows that a significant threat to the efficiency of fertilizer subsidies remains

credit risk measurement developments over the last 20 years abstract this paper traces developments in the credit risk measurement literature over the last 20 years the paper is essentially divided into two parts in the first part the evolution of the literature on the credit risk measurement of individual loans and portfolios of loans is traced by way of reference to articles appearing in relevant issues of the journal of banking and finance and other publications in the second part a new approach built around a mortality risk framework to measuring the risk and returns on loans and bonds is presented this model is shown to offer some promise in analyzing the risk return structures of portfolios of credit risk exposed debt instruments

the mispricing of u s treasury bonds a case study this article documents an apparent pricing anomaly involving 94 percent 30 year treasury bonds during the months of may and june 1986 during this period the price of the 94s rose sharply relative to the prices of other long term treasury bonds and created a potential arbitrage opportunity in addition owners of the 94 bonds were able to borrow at a zero interest rate bypledging their bonds detailed examination reveals that this relative pricing anomaly cannot be attributed to changes in the level or term structure of interest rates or to differences between the bonds with respect to liquidity taxation or duration

fdicia after five years at year end 1991 congress enacted fundamental deposit insurance reform for banks and thrifts the fdic improvement act this reform followed the failure of more than 2 000 depository institutions in the 1980s many failed because the incentive incompatibility of the structure of federal government provided deposit insurance encouraged moral hazard behavior by banks and poor agent behavior by regulators insurance was put on a more incentive compatible basis providing for a graduated series of sanctions mimicking market discipline that first may and then must be applied by the regulators on floundering banks this article reviews these changes and evaluates early results

institutionalizing end user demand steering in agricultural r d farmer levy funding of r d in the netherlands abstract the purpose of this paper is to critically examine the institutionalization of demand driven modes of working in the r d planning process and reveal possible weaknesses through an analysis of a system of collective r d funding by farmers the findings indicate that although end users have the opportunity to raise issues that lead to r d queries are influenced by several actors in the r d planning process in such a way that they do not adequately reflect farmers innovation needs conclusions are that more emphasis is required on joint demand articulation and involvement of end users and other stakeholders in the innovation process and on the institutional development of r d funding organizations in order to adopt a more inclusive view on innovation

pricing default swaps empirical evidence in this paper we compare market prices of credit default swaps with model prices we show that a simple reduced form model outperforms directly comparing bonds credit spreads to default swap premiums we find that the model yields unbiased premium estimates for default swaps on investment grade issuers but only if we use swap or repo rates as proxy for default free interest rates this indicates that the government curve is no longer seen as the reference default free curve we also show that the model is relatively insensitive to the value of the assumed recovery rate

the valuation of floating rate instruments abstract a framework for valuing floating rate notes is developed to examine the effects of 1 lags in the coupon formula 2 special contractual features and 3 default risk evidence from a sample of floaters indicates they sold at significant discounts while lags in the coupon formulas and other contractual features make these notes more variable they do not account for the magnitude of the discounts we conclude that the fixed default premium in the coupon formula of a typical note is inadequate to compensate for time varying default premiums demanded by investors who treat other corporate short term paper as close substitutes

jump risks and the intertemporal capital asset pricing model the specification of the stochastic process for stock prices is an important assumption underlying most equilibrium and option pricing models in modern finance this is particularly true of the continuous time capital asset pricing models where it is assumed that asset prices follow diffusion processes with continuous sample paths see merton 1973a breeden 1979 grossman and shiller 1982 the extent to which the implications of these models generalize to discontinuous sample paths is an unanswered question in theoretical finance however the answer to this question is of more than just theoretical interest since accumulated empirical evidence appears to be inconsistent with the continuous sample path assumption see rosenberg 1972 oldfield rogalski and jarrow 1977 rosenfeld 1982 one purpose of this paper is to provide some answers to this question we do this by extending merton s 1973a intertemporal asset pricing model in the special case of a constant investment opportunity set to include discontinuous sample paths for asset prices the constant investment opportunity set assumption is imposed because we are interested in obtaining sufficient conditions under which an instantaneous capital asset pricing model capm results the extension of our model to a stochastic opportunity set is discussed briefly in the text this paper investigates an economy where stock prices follow a jump diffusion process the first part of the analysis derives a sufficient condition under which an instantaneous capm will characterize equilibrium expected returns the sufficient condition is that the jump component of a stock s return must be unsystematic and diversifiable in the market portfolio the second part of the paper is an empirical investigation of the satisfaction of this condition the evidence is seen to be inconsistent with the satisfaction of this hypothesis that is the market portfolio appears to contain a jump component

who is vouching for the input voucher decentralized targeting and elite capture in tanzania input subsidy programs carry support as instruments to increase agricultural productivity provided they are market smart this requires especially proper targeting to contain the fiscal pressure with decentralized targeting of input vouchers currently the instrument of choice nonetheless despite clear advantages in administrative costs the fear of elite capture persists these fears are borne out in the experience from the 2008 input voucher pilot program in kilimanjaro tanzania examined here elected village officials received about 60 percent of the distributed vouchers a factor that significantly reduced the targeting performance of the program especially in more unequal and remote communities when targeting the poor greater coverage and a focus on high trust settings helped mitigate these concerns the findings highlight the continuing need for scrutiny when relying on decentralized targeting a clearer sense of purpose increasing productivity among poorer farmers versus increasing aggregate output could also enhance the targeting performance

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

the default risk of swaps we characterize the exchange of financial claims from risky swaps these transfers are among three groups shareholders debtholders and the swap counterparty from this analysis we derive equilibrium swap rates and relate them to debt market spreads we then show that equilibrium swaps in perfect markets transfer wealth from shareholders to debtholders in a simplified case we obtain closed form solutions for the value of the default risk in the swap for interest rate swaps we obtain numerical solutions for the equilibrium swap rate including default risk we compare these with equilibrium debt market default risk spreads swaps have been one of the most explosive and important innovations in international capital markets in the last 10 years in its simplest form a swap consists of an agreement hetween two entities called counterparties to exchange in the future two streams of cash flows in a currency swap these streams of cash flows consist of a stream of interest and principal payments in one cvtrrency exchanged for a stream of interest and principal payments of the same maturity in another currency in an interest rate swap they consist of streams of interest payments of one type fixed or floating exchanged for streams of interest payments of the other type in the same currency the two types of swap are shown in appendix 1 the economic importance of swap transactions is the fact that they can he comhined with deht issues to change the nature of the liahility for the borrower the sum of a hond issue and a currency swap gives a net liability stream which is equivalent to transforming the bond liability into a different currency a floating rate note combined with an interest rate swap results in a liability equivalent to fixed rate debt two issues have dominated the academic literature on swaps the first concerns the reasons for their use arbitrage of imperfections in capital markets was the original cause of their appearance price and henderson 1984 turnbull 1987 shows that lowering borrowing costs by a synthetic transaction involving a swap is not possible in a complete integrated capital market subsequent authors wall and pringle 1988 arak estrella groodman and silver 1988 smith smithson and wakeman 1987 observe

market manipulation price bubbles and a model of the u s treasury securities auction market this paper models the u s treasury securities auction market and demonstrates that mar ket manipulation can occur in a rational equilibrium it is a dynamic model with traders participating in a when issued market a treasury auction and a resale market manipu lations occur when dealers in the when issued market use their knowledge of the net order flow in order to corner the auction and squeeze the shorts from the when issued market this manipulation equilibrium generates bubbles in treasury security prices and specials in repo rates we also compare discriminatory and uniform price auction rules with respect to manipulation our analysis shows that manipulations can occur in long run equilibrium under discriminatory price auctions but not under uniform price auctions

slow moving capital we study three cases in which specialized arbitrageurs lost significant amounts of capital and as a result became liquidity demanders rather than providers the effects on security markets were large and persistent prices dropped relative to fundamentals and the rebound took months while multi strategy hedge funds who were not capital constrained increased their positions a large fraction of these funds actually acted as net sellers consistent with the view that information barriers within a firm not just relative to outside investors can lead to capital constraints for trading desks with mark to market losses our findings suggest that real world frictions impede arbitrage capital this abstract was borrowed from another version of this item

special repo rates this article provides the causes and symptoms of special repo rates in a competitive market for repurchase agreements a repo rate is in effect an interest rate on loans collateralized by a specific instrument a special is a repo rate significantly below prevailing market riskless interest rates this article shows that specials can occur when those owning the collateral are inhibited whether from legal or institutional requirements or from frictional costs from supplying collateral into repurchase agreements specialness increases the equilibrium price for the underlying instrument by the present value of savings in borrowing costs associated with the repo specials this article characterizes competitive repurchase or repo markets and the equilibrium relationship between repo rates and the underlying cash market prices repurchase markets are often called financing markets since they are effectively vehicles for collateralized borrowing that are often used to finance the purchase of the underlying collateral this article provides causes and effects of specials meaning specific repo rates significantly below prevailing market interest rates for loans of similar maturity and credit risk the example of united states treasury instruments is emphasized because of the extensive use of the treasury repo market as a means of hedging against or speculating on changes in u s interest rates and because of the high incidence of specials in treasury repo rates numerous specific instru

costs and benefits to taxpayers consumers and producers from u s ethanol policies the u s ethanol industry is lobbying hard for an extension of existing ethanol import tariffs and blenders tax credits before they expire at the end of 2010 the purpose of this study is to examine the likely consequences on the u s ethanol industry corn producers taxpayers fuel blenders and fuel consumers if current policy is not extended impacts of different ethanol policies in both 2011 and 2014 were estimated estimates were obtained by developing a new stochastic model that calculates market clearing prices for u s ethanol brazilian ethanol and u s corn the model is stochastic because market clearing prices are calculated for 5 000 random draws of corn yields and wholesale gasoline prices key assumptions in this study are that the strong growth in flex fuel vehicles in brazil continues intermediate ethanol blends with few restrictions are implemented in u s markets in 2014 u s ethanol production capacity reaches 15 billion gallons in 2014 and brazilian ethanol production increases by at least 45 by 2014 projected strong demand for ethanol in brazil combined with a largely saturated u s ethanol market means that elimination of ethanol import tariffs would have almost no impact on u s corn and ethanol markets in 2011 elimination of the tax credit would impact markets modestly with ethanol production declining by an average of about 700 million gallons this reduction in ethanol production would cause corn prices to drop by an average of 23 cents per bushel ethanol prices would drop by 12 cents per gallon elimination of the tax credit would shift the burden of meeting mandates from taxpayers to blenders and consumers taxpayers would save more than 6 billion through elimination of the tax credit or almost 7 00 per gallon of ethanol produced in excess of mandated amounts the impacts of a change in u s ethanol policy in 2014 are larger than 2011 impacts because brazil has a chance to respond by ramping up its ability to export in response to trade liberalization but because of strong domestic demand growth in brazil and limits on how fast brazilian ethanol production can increase the impacts of a change in policy are still modest as long as the mandate is maintained u s ethanol production drops by no more than 500 million gallons corn prices drop by no more than 16 cents per bushel and ethanol prices drop by no more than 35 cents per gallon if the impact of intermediate blends is not as strong as assumed in this study then there will be less incentive for brazil to export ethanol and the impacts of tariff elimination would be even more modest

the real consequences of market segmentation we study the real effects of market segmentation due to credit ratings using a matched sample of firms just above and just below the investment grade cutoff these firms have similar observables including average investment rates however flows into high yield mutual funds have an economically significant effect on the issuance and investment of the speculative grade firms relative to their matches especially for firms likely to be financially constrained the effect is associated with the discrete change

defaulted bonds demand supply and performance 1987 1992 estimates of the market value of total private and public defaulted and distressed debt are as high as 200 billion in 1990 with a slight decline to about 175 billion in 1992 the supply can be expected to shrink in the nearfuture as defaults and bankruptcies by large us companies appear to have peaked at the same time the demand for such securities is likely to remain fairly constant as long as they can offer competitive returns

the impact of default risk on the prices of options and other derivative securities abstract this paper presents a model for valuing derivative securities when there is default risk the holder of a security is assumed to recover a proportion of its no default value in the event of a default by the counterparty both the probability of default and the size of the proportional recovery are random the paper shows how data on bonds issued by the counterparty can be used to provide information about model parameters

the effect of bond rating changes on bond price performance the price reaction of publicly traded industrial bonds to moody s investors service and standard poor s bond rating changes is investigated using a database of month end trader quotes from lehman brothers for march 1985 through march 1995 all standard poor s and moody s rating changes are studied in a period from up to 12 months before the rating change to 12 months after a unique feature of this study is the use of a data set containing recent firm specific information that also provides a long event window downgraded firms reveal a significant announcement effect in both the announcement month and preannouncement period the magnitude of downgrading effects increases dramatically as the sample moves from investment grade to non investment grade firms samples that are restricted to rating changes that are not preceded by any rerating within six months reveal that the market reacts reliably as much as six months before an event upgrade effects are much weaker in magnitude and significance

bank behavior based on internal credit ratings of borrowers abstract this study examines the relation of bank loan terms to borrower risk defined by the banks internal credit rating the analysis is not restricted to a static view it also incorporates rating transition and its implications on the relation money illusion and phenomena linked with relationship banking are discovered as important factors the results show that riskier borrowers pay higher loan rate premiums and rely more on bank finance housebanks obtain more collateral and provide more finance caused by money illusion in times of high market interest rates loan rate premiums are relatively small whereas in times of low market interest rates they are relatively high there was no evidence for an appropriate adjustment of loan terms to rating changes

the implications of corporate bond ratings drift examination of the ratings of over 7000 bonds issued in the 1970 88 period reveals that some 40 to 80 of bonds initially rated bb and above can be expected to experience at least one rating change in the 1 0 years following issuance a rated bonds appear to be more stable than aaarated bonds bb rated bonds the highest junk bond category are the least stable furthermore bonds initially rated a and above have a greater tendency to be downgraded than to be upgraded among the investment grades only bonds initially rated bbb tend to be upgraded more than they are downgraded as for bonds originally rated non investment grade junk there does not appear to be a tendency toward either upgrades or downgrades in the sample period

can government demand stimulate private investment evidence from u s federal procurement abstract demand shocks lower firm financing premiums by increasing the present value of cash flow thereby easing firm financing constraints we study the effects of unanticipated federal spending shocks on firm investment in the united states using a novel panel dataset that combines federal procurement contracts with key financial firm level information consistent with the financial accelerator model our results suggest that 1 dollar of federal purchases increases capital investment of financially constrained firms by 10 to 13 cents over a horizon of 4 quarters but has no effect on investment of unconstrained firms

original issue high yield bonds aging analyses of defaults exchanges and calls this paper presents an aging analysis of 741 high yield bonds and finds default exchange and call percentages substantially higher than reported in earlier studies by december 31 1988 cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue years 1979 1983 and from 3 to 9 percent for issue years 1984 1986 exchanges are also a significant factor although they often are followed by default moreover a significant percentage of high yield debt 26 47 percent for 1977 1982 has been called by december 31 1988 approximately one third of the bonds issued in 1977 1982 has defaulted or been exchanged and an additional one third had been called on average only 28 percent of these issues are still outstanding there is no evidence that early results for more recent issue years differ markedly from issue years 1977 to 1982

valuing commercial mortgages an empirical investigation of the contingent claims approach to pricing risky debt this paper empirically investigates a contingent claims model of commercial mortgage pricing we find that the magnitude of the observed default premia for a sample of nonprepayable fixed rate bullet mortgages can be explained by the contingent claims model in addition the model explains a significant proportion of the period to period changes in the default premia however given an assumed negative correlation between building value changes and interest rate changes the model s risk structure tends to increase less steeply with increasing maturity than the observed risk structure since the seminal work of black and scholes 1973 corporate liabilities have been modeled as options on the total value of the firm this contingent claims approach to bond pricing was refined by merton 1974 to allow for cash dispersals prior to the bonds maturities and by brennan and schwartz 1980 and ingersoll 1987 to allow for interest rate uncertainty although variants of these bond pricing models are currently being used extensively on wall street they have not been tested extensively moreover empirical studies have not successfully accounted for the observed spread between the rates on risky and default free debt jones mason and rosenfeld 1984 empirically investigate a model that assumes a nonstochastic term structure of interest rates while ramaswamy and sundaresan 1986 examine a model with stochastic interest rates to price floating rate notes in both cases the models could not explain the observed default premia the relative lack of empirical analysis is due partly to the complicated nature of corporate bonds major corporations generally have a large number of different bond issues outstanding that have different priorities in the event that the firm goes bankrupt moreover the bonds can have a variety of covenants specifying sinking fund provisions conditions under which technical default will occur and other restrictions that can have an impact on their value although these complications do not preclude pricing various bond issues on a case by case basis they make it difficult to test systematically the accuracy of the pricing model

a one factor model of interest rates and its application to treasury bond options 1990 a one factor model of interest rates and its application to treasury bond options financial analysts journal vol 46 no 1 pp 33 39

modeling biomass procurement tradeoffs within a cellulosic biofuel cost model abstract we develop a long run cellulosic biofuel cost model that minimizes feedstock procurement and processing costs per gallon the distinguishing feature of the model is that it accounts for the procurement tradeoff between the intensive margin biomass producers participation rate and extensive margin biomass capture region to investigate the extent to which this procurement tradeoff affects processors cost minimizing decisions we apply the model to switchgrass ethanol production in u s crop reporting districts results suggest that location characteristics will determine the extent to which processors can reduce their total procurement costs by offering a higher biomass price to increase participation near the plant and reduce transportation costs

pricing foreign currency options under stochastic interest rates abstract in this paper we build a general framework to price contingent claims on foreign currencies using the heath et al 1987 model of the term structure closed form solutions are obtained for european options on currencies and currency futures assuming that the volatility functions determining the term structure are deterministic as such this paper provides an example of a bond price process for both the domestic and foreign economies consistent with grabbe s 1983 formulation of the same problem

term structure movements and pricing interest rate contingent claims this paper derives an arbitrage free interest rate movements model ar model this model takes the complete term structure as given and derives the subsequent stochastic movement of the term structure such that the movement is arbitrage free we then show that the ar model can be used to price interest rate contingent claims relative to the observed complete term structure of interest rates this paper also studies the behavior and the economics of the model our approach can be used to price a broad range of interest rate contingent claims including bond options and callable bonds

the priority structure of corporate liabilities most discussions of corporate capital structure effectively assume that all debt is the same yet debt differs by maturity covenant restrictions conversion rights call provisions and priority here we examine priority structure across a sample of 4995 compustat industrial firms from 1981 to 1991 we analyze the variation in the use of capital leases secured debt ordinary debt subordinated debt and preferred stock both as a fraction of the firm s market value and as a fraction of total fixed claims our evidence provides consistent support for contracting cost hypotheses mixed support for tax hypotheses and little support for the signaling hypothesis

returns to spending on agricultural extension the case of the national agricultural advisory services naads program of uganda the aim of this paper is to assess the direct and indirect impacts of the agricultural extension system of uganda the national agricultural advisory services naads program on household agricultural income data from two rounds of surveys of ugandan rural farm households conducted in 2004 and 2007 as well as different program evaluation methods and model specifications are used to estimate impacts and compute a rate of return the direct and indirect impact of the program is estimated at 37 95 and 27 55 increase in per capita agricultural gross revenue between 2004 and 2007 for households participating directly and indirectly in the program respectively compared to nonparticipants the rate of return on the program s expenditures is estimated at 8 49 the program has been relatively more effective among male headed larger and asset poor households as well as those taking up noncrop high value enterprises and living further away from financial services all weather roads and markets or located in the eastern and northern regions policy implications of the results are drawn

the anatomy of the high yield bond market 1987 the anatomy of the high yield bond market financial analysts journal vol 43 no 4 pp 12 25

the importance and subtlety of credit rating migration abstract bond ratings are usually first assigned by rating agencies to public debt at the time of issuance and are periodically reviewed by the rating companies if deemed warranted changes in ratings are assigned after the review a change in a rating reflects the agency s assessment that the company s credit quality has improved upgrade or deteriorated downgrade a coincident effect in some proximity to the date of the rating change is a change in the price of the issue this article reports on an in depth investigation of the expected ratings changes drift over time our analysis compares rating changes from the two major agencies moody s and s p over the period 1970 1996 for the first time results from several studies which have documented and analyzed these data patterns are contrasted depending upon which study one uses the results and implications can be very different we expect that the findings will have implications for such diverse practitioners as bond investors who concentrate on any or all segments of the corporate bond market eg high yield bond and crossover investors mark to market analysts and traders in the new and growing market for credit risk derivatives and for the many analysts who properly view that credit quality assessment involves the entire spectrum of possible outcomes not just default a follow up study will analyze in greater depth two critical characteristics of the rating drift phenomenon these are unexpected as well as expected rating migration patterns and also the implied impact on the price of the fixed income instrument

duration models for credit rating migration evidence from the financial crisis we introduce a specific duration model to analyze the prediction of the credit rating migration we consider hazard rate processes based on multi state autoregressive conditional duration models to take account of the economic context we model the conditional mean of the duration between two ratings by means of a latent process to this purpose a dynamic ordered probit model is developed to describe the directions taken by the ratings in the presence of multiple states as an illustration we study the migration of credit rating during periods before and after the financial crisis jel c14 c41 g24

the consequences of entrepreneurial finance evidence from angel financings this article documents the fact that ventures funded by two successful angel groups experience superior outcomes to rejected ventures they have improved survival exits employment patenting web traffic and financing we use strong discontinuities in angel funding behavior over small changes in their collective interest levels to implement a regression discontinuity approach we confirm the positive effects for venture operations with qualitative support for a higher likelihood of successful exits on the other hand there is no difference in access to additional financing around the discontinuity this might suggest that financing is not a central input of angel groups

economic potential of biomass based fuels for greenhouse gas emission mitigation use of biofuels diminishes fossil fuelcombustion thereby also reducing net greenhousegas emissions however subsidies are neededto make agricultural biofuel productioneconomically feasible to explore the economicpotential of biofuels in a greenhouse gasmitigation market we incorporate data onproduction and biofuel processing for thedesignated energy crops switchgrass hybridpoplar and willow in an u s agriculturalsector model along with data on traditionalcrop livestock production and processing andafforestation of cropland net emissioncoefficients on all included agriculturalpractices are estimated through crop growthsimulation models or taken from the literature potential emission mitigation policies ormarkets are simulated via hypothetical carbonprices at each carbon price level theagricultural sector model computes the newmarket equilibrium revealing agriculturalcommodity prices regionally specificproduction input use and welfare levels environmental impacts and adoption ofalternative management practices such asbiofuel production results indicate no rolefor biofuels below carbon prices of 40 perton of carbon equivalent at these incentivelevels emission reductions via reduced soiltillage and afforestation are more costefficient for carbon prices above 70 biofuels dominate all other agriculturalmitigation strategies

disrupting demand for commercial seed input subsidies in malawi and zambia summary this study uses nationally representative household level panel data from malawi and zambia to identify the determinants of subsidized maize seed and fertilizer receipt and to estimate how input subsidies affect households commercial purchases of improved maize seed varieties in both countries we find that households in areas where the ruling party won the last presidential election acquire significantly more subsidized inputs than other households results also indicate that each additional kilogram of subsidized maize seed acquired by a household reduces its commercial improved maize seed purchases by 0 58 kg in malawi and by 0 49 kg in zambia on average

the default rate experience on high yield corporate debt recent 1978 83 net returns on high yield low rated debt have been impressive averaging 490 to 580 basis points above the long term government bond index but low rated junk bonds pose a risk of default not present in the higher rated segment of the bond market the authors divided the par value of defaulting debt by total low rated straight debt outstanding to arrive at an estimate of the default rate for high yield bonds excluding johns manville which had the only defaulting debt rated investment grade just prior to the default date for the 1974 84 period this averaged 1 52 per cent or 152 basis points annually year to year variations in the rate were substantial furthermore default experience differed across various industry segments railroads and reits were particularly vulnerable to default in the past although they are unlikely to represent a large portion of future defaults retailer electronic computer airline and oil and gas defaults have become more common in recent years losses from default are actually lower than the default rate alone implies defaulted bonds traded on average at 41 per cent of par shortly after default after accounting for the bonds retained value and the loss of interest the average reduction in return to the investor who had purchased the bonds at par would have been in the range of 96 to 100 basis points annually

the intersection of market and credit risk abstract economic theory tells us that market and credit risks are intrinsically related to each other and not separable we describe the two main approaches to pricing credit risky instruments the structural approach and the reduced form approach it is argued that the standard approaches to credit risk management creditmetrics creditrisk and kmv are of limited value when applied to portfolios of interest rate sensitive instruments and in measuring market and credit risk empirically returns on high yield bonds have a higher correlation with equity index returns and a lower correlation with treasury bond index returns than do low yield bonds also macro economic variables appear to influence the aggregate rate of business failures the creditmetrics creditrisk and kmv methodologies cannot reproduce these empirical observations given their constant interest rate assumption however we can incorporate these empirical observations into the reduced form of jarrow and turnbull 1995b drawing the analogy risk 5 63 70 model here default probabilities are correlated due to their dependence on common economic factors default risk and recovery rate uncertainty may not be the sole determinants of the credit spread we show how to incorporate a convenience yield as one of the determinants of the credit spread for credit risk management the time horizon is typically one year or longer this has two important implications since the standard approximations do not apply over a one year horizon first we must use pricing models for risk management some practitioners have taken a different approach than academics in the pricing of credit risky bonds in the event of default a bond holder is legally entitled to accrued interest plus principal we discuss the implications of this fact for pricing second it is necessary to keep track of two probability measures the martingale probability for pricing and the natural probability for value at risk we discuss the benefits of keeping track of these two measures

an integrated pricing model for defaultable loans and bonds abstract in recent years credit risk has played a key role in risk management issues practitioners academics and regulators have been fully involved in the process of developing studying and analysing credit risk models in order to find the elements which characterize a sound risk management system in this paper we present an integrated model based on a reduced pricing approach for market and credit risk its main features are those of being mark to market and that the spread term structure by rating class is contingent on the seniority of debt within an arbitrage free framework we introduce issues such as the integration of market and credit risk the use of stochastic recovery rates and recovery by seniority moreover we will characterize default risk by estimating migration risk through a mortality rate actuarial based approach the resultant probabilities will be the base for determining multi period risk neutral transition probability that allow pricing of risky debt in the trading and banking book

the economic effects of public financing evidence from municipal bond ratings recalibration we show that the supply of local public financing can have important effects on local economies we identify these effects by exploiting exogenous variation on municipal bond ratings due to moody s recalibration of its scale in 2010 we find that local governments increase expenditures and employment due to an expansion of their debt capacity following an upgrade these increases in local government spending lead to multiplier effects on non tradable employment and income our findings suggest that debt financed increases in government spending can improve economic conditions during recessions

pricing derivatives on financial securities subject to credit risk this article provides a new methodology for pricing and hedging derivative securities involving credit risk two types of credit risks are considered the first is where the asset underlying the derivative security may default the second is where the writer of the derivative security may default we apply the foreign currency analogy of jarrow and turnbull 1991 to decompose the dollar payoff from a risky security into a certain payoff and a spot exchange rate arbitrage free valuation techniques are then employed this methodology can be applied to corporate debt and over the counter derivatives such as swaps and caps the purpose of this article is to provide a new theory for pricing and hedging derivative securities involving credit risk two sources of credit risk are identified and analyzed the first is where the asset underlying the derivative security may default paying off less than promised this is the case for example with imbedded options on corporate debt the second is the credit risk introduced by the writer of the derivative security who may also default examples include over the counter writers of options on eurodollar futures swaps and swaptions for pricing derivative securities involving credit risk there are currently two approaches the first views these derivatives as contingent claims not on the financial securities themselves but as compound options on the assets underlying the financial securities this is the case for example with the pricing of imbedded options on corporate debt see merton 1974 1977 black and cox 1976 ho and singer 1982 chance 1990 and kim ramaswamy and sundaresan 1993 or the pricing of vulnerable options see johnson and stulz 1987 in practice however this valuation methodology is difficult to use first the assets underlying the financial security are often not tradeable and therefore their values are not observable this makes application of the theory and estimation of the relevant parameters problematic second as in the case of corporate debt all of the other liabilities of the firm senior to the corporate debt must first and simultaneously be valued this generates significant computational difficulties as a result this approach has not

the risk and return of low grade bonds an update 1991 the risk and return of low grade bonds an update financial analysts journal vol 47 no 5 pp 85 89

structural shifts in credit rating standards i examine the time series variation in corporate credit rating standards from 1985 to 2007 a divergent pattern exists between investment grade and speculative grade rating standards from 1985 to 2002 as investment grade standards tighten and speculative grade loosen in 2002 a structural shift occurs toward more stringent ratings holding characteristics constant firms experience a drop of 1 5 notches in ratings due to tightened standards from 2002 to 2007 credit spread tests suggest that the variation in standards is not completely due to changes in the economic climate rating standards affect credit spreads loose ratings are associated with higher default rates

production and spatial distribution of switchgrass and miscanthus in the united states under uncertainty and sunk cost abstract the u s cellulosic biofuel mandate has not been enforced in recent years uncertainty surrounding the enforcement of the mandate in addition to high production and harvest cost have contributed to a delay in the widespread planting of bioenergy crops such as switchgrass and miscanthus previous literature has shown that under uncertainty and sunk cost an investment threshold is further increased due to the value associated from holding the investment option in this paper we extend the previous literature by applying a real option switching model to bioenergy crop production first we calculate the county level break even price which triggers a switching away from traditional field crops corn soybeans and wheat to bioenergy crops under various scenarios differing by commodity prices production cost and biomass price expectations we show that the resulting break even prices at the county level can be substantially higher than previously estimated due to the inclusion of the option value in a second step we identify counties that are most likely to grow switchgrass or miscanthus by simulating a stochastic biomass price over time our results highlight two issues first switchgrass or miscanthus are not grown in the midwest under any scenario under low agricultural residue removal rates biomass crops are mostly grown in the southeast second under the assumption of a high removal rates bioenergy crops are not grown anywhere in the u s since the cellulosic biofuel mandate can be covered by agricultural residues

is there cyclical bias in bank holding company risk ratings abstract this paper examines whether bank holding company bhc risk ratings are asymmetrically assigned or biased over business cycles from 1986 to 2003 in a model of ratings determination which accounts for bank characteristics financial market conditions past supervisory information and aggregate macro economic factors we find that bank exam ratings exhibit inter temporal characteristics first exam ratings exhibit some evidence of examiner bias for several periods analyzed when the business cycle turns examiners sometime depart from standards that they set during the previous phases of the cycle however this bias is not widespread or systematic second exam ratings exhibit some inertia our results suggest that examiners rate on the side of not changing rather than upgrading or downgrading an institution s exam rating third we find robust evidence of a secular trend towards more stringent examination bhc ratings standards over time

government debt and corporate leverage international evidence abstract we empirically investigate the impact of government debt on corporate financing decisions in an international setting we show a negative relation between government debt and corporate leverage using data on 40 countries between 1990 2014 this negative relation is stronger for government debt that is financed domestically for firms that are larger and more profitable and in countries with more developed equity markets to address potential endogeneity concerns we use an instrumental variable approach based on military spending and a quasi natural experiment based on the introduction of the euro currency our findings suggest that government debt crowds out corporate debt

credit swap valuation this review of the pricing of credit swaps a form of derivative security that can be viewed as default insurance on loans or bonds begins with a description of the credit swap contract turns to pricing by reference to spreads over the risk free rate of par floating rate bonds of the same quality and then considers model based pricing the role of asset swap spreads as a reference for pricing credit swaps is also considered

security pricing and deviations from the absolute priority rule in bankruptcy proceedings claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 bankruptcy reform act we measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents on average 7 6 of the total awarded to all claimants evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority suggesting that deviations from the rule were expected by the equity markets the absolute priority rule hereafter apr states that a bankrupt firm s value is to be distributed to suppliers of capital such that senior creditors are fully satisfied before any distributions are made to junior creditors and junior creditors are paid in full before common shareholders bankruptcy reorganization proceedings however are leaving shareholders and junior creditors with valuable assets even when senior claimants receive only partial settlements as barrett and sullivan 1988 noted traditionally shareholders have been last in line their claims on a troubled company s assets have had the lowest priority and their impact on the course of bankruptcy code proceedings generally has been next to nil but lately the balance of power has been shifting warner 1977 provided one of the early discussions of the implications of deviations from the apr baldwin and mason 1983 pp 510 511 examined the resolution of claims in the massey ferguson reorganization and provided no support for the hypothesis that the market believes absolute priority rules will be enforced if the firm defaults on its financial obligations franks and torous 1989 analyzed a sample of bankruptcies that occurred during the period 1970 through 1984 and found that 21 of 27 sample cases exhibited departures from the apr more recently weiss 1990 examined 37 firms that filed for bankruptcy between 1980 and 1986 and reported that 27 of the cases involved apr violations

the pricing of options with default risk this paper considers the pricing of options with default risk the comparative statics of such options can differ from those of ordinary options and early exercise of such american call options can be optimal several examples of options with default risk are considered traditionally it has been assumed that options have no default risk such an assumption is reasonable when one studies options traded on an organized exchange in the u s default on such options would require as cox and rubinstein 5 put it a very sudden and strong movement in stock prices one considerably more extreme than any on record p 71 however many options and financial assets containing option like payoffs are sold by firms that have limited assets for such options default is often a possibility that must be taken seriously in this paper we study how options subject to default risk which we hereinafter call vulnerable options are priced it turns out that many of the well established results of the option pricing literature see e g smith 12 and references therein do not hold for vulnerable options in particular the value of a vulnerable european option can fall with time to maturity with the interest rate and with the variance of the underlying asset furthermore it may pay to exercise early a vulnerable american option on a non dividend paying asset

opportunity for profitable investments in cellulosic biofuels research efforts to allow large scale conversion of cellulose into biofuels are being undertaken in the us and eu these efforts are designed to increase logistic and conversion efficiencies enhancing the economic competitiveness of cellulosic biofuels however not enough attention has been paid to the future market conditions for cellulosic biofuels which will determine whether the necessary private investment will be available to allow a cellulosic biofuels industry to emerge we examine the future market for cellulosic biofuels differentiating between cellulosic ethanol and drop in cellulosic biofuels that can be transported with petroleum fuels and have equivalent energy values we show that emergence of a cellulosic ethanol industry is unlikely without costly government subsidies in part because of strong competition from conventional ethanol and limits on ethanol blending if production costs of drop in cellulosic biofuels fall enough to become competitive then their expansion will not necessarily cause feedstock prices to rise as long as local supplies of feedstocks that have no or low valued alternative uses exist then expansion will not cause prices to rise significantly if cellulosic feedstocks come from dedicated biomass crops then the supply curves will have a steeper slope because of competition for land

trust networks and norms the creation of social capital in agricultural economies in ghana this paper contributes to the continuing debate over the multifaceted concept of trust and its ability to provide a richer explanation of processes of economic activity using case studies of agricultural production marketing and financing systems in brong ahafo region of ghana the analysis documents the means by which trust is created among farmers traders and agricultural input suppliers the mechanisms include formal and informal networks of working relations customer friendships pre existing networks and intermediaries the study shows that trust is necessary for the development of a vibrant private sector based on microenterprises in conditions where actors cannot rely on formal legal institutions at present

innovation grants to smallholder farmers revisiting the key assumptions in the impact pathways grant funds specifically targeted to smallholder farmers to facilitate innovation are a promising agricultural policy instrument they stimulate smallholders to experiment with improved practices and to engage with research extension and business development services providers however evidence on impact and effectiveness of these grants is scarce partly because attribution of changes in practices and performance to the grant alone is challenging and the grant is often invested in innovation processes that benefitted from other support in the past we discuss three modalities vouchers business development matching grants and farmer driven innovation support funds our review points to an important and transversal outcome area of innovation grant systems the creation of human and social capital to sustain creative thinking and innovative practices harmonising measurement on these outcomes could enhance the usefulness and comparability of impact studies and facilitate benchmarking of different policy options for smallholder innovation

do input subsidy programs crowd in or crowd out commercial market development modeling fertilizer demand in a two channel marketing system many governments in developing countries distribute fertilizer at subsidized prices in an effort to stimulate small farmers agricultural productivity and food security prior fertilizer demand studies have largely failed to account for the effects of government programs on farmers commercial purchases using a double hurdle model and nationally representative rural household panel data in zambia we distinguish between these sources and measure the contemporaneous crowding in and crowding out effects of government input programs on commercial fertilizer sales where the private sector is relatively active and average wealth is higher areas seemingly more likely to be targeted by government programs results indicate that subsidies have substantially crowded out the private sector in some cases to the point that such programs could actually lower overall fertilizer use on the other hand in poorer areas where the private sector is relatively inactive subsidies help to generate demand and crowd in private sector retailers empirical studies explicitly modeling farmers fertilizer purchase behavior within a dual marketing framework can provide important insights for agricultural policy discussions in developing countries

a yield premium model for the high yield debt market a simple method for determining whether the high yield debt market is rich or poor at any point in time uses the concept of break even yield to measure the current market premium that investors can expect to receive over the yield of the benchmark default risk free bonds covering the sample period 1988 to 1994 analysis of premiums and implied default rates for each of the high yield bond rating categories as well as the overall high yield market indicates that premiums over the break even yield have varied dramatically during the past six years from 0 5 percent to 8 0 percent also total returns are significantly positively correlated with lagged premiums this result implies an effective model for predicting returns over 6 and 12 month horizons

have rating agencies become more conservative implications for capital structure and debt pricing rating agencies have become more conservative in assigning corporate credit ratings over the period 1985 to 2009 holding firm characteristics constant average ratings have dropped by three notches this change does not appear to be fully warranted because defaults have declined over this period firms affected more by conservatism issue less debt have lower leverage hold more cash are less likely to obtain a debt rating and experience lower growth their debt spreads are lower than those of unaffected firms with the same rating which implies that the market partly undoes the impact of conservatism on debt prices this evidence suggests that firms and capital markets do not perceive the increase in conservatism to be fully warranted

ratings migration and the business cycle with application to credit portfolio stress testing the turmoil in the capital markets in 1997 and 1998 has highlighted the need for systematic stress testing of banks portfolios including both their trading and lending books we propose that underlying macroeconomic volatility is a key part of a useful conceptual framework for stress testing credit portfolios and that credit migration matrices provide the specific linkages between underlying macroeconomic conditions and asset quality credit migration matrices which characterize the expected changes in credit quality of obligors are cardinal inputs to many applications including portfolio risk assessment modeling the term structure of credit risk premia and pricing of credit derivatives they are also an integral part of many of the credit portfolio models used by financial institutions by separating the economy into two states or regimes expansion and contraction and conditioning the migration matrix on these states we show that the loss distribution of credit portfolios can differ greatly as can the concomitant level of economic capital to be assigned

do fertilizer subsidies crowd out organic manures the case of malawi we assess the impacts of the malawian farm input subsidy program on manure use at the farm plot level using more than 3 000 farm plot observations from six districts in central and southern malawi over three years 2006 2007 and 2009 the probabilities and intensities of manure use were investigated with the correlated random effects cre probit and tobit models the endogeneity of access to fertilizer subsidies and fertilizer use intensity was controlled for with a control function approach both the probability of manure use and intensity of manure use were positively correlated with the intensity of fertilizer use a 1 increase in fertilizer use intensity is associated with a 1 94 1 96 increase in the intensity of manure use outside the subsidy program and a 0 62 1 66 increase in manure use with the subsidy program a 1 increase in average fertilizer price was associated with a 0 43 0 76 increase in the probability of manure use and a 3 5 5 3 increase in the intensity of manure use

does the source of capital affect capital structure prior work on leverage implicitly assumes capital availability depends solely on firm characteristics however market frictions that make capital structure relevant may also be associated with a firm s source of capital examining this intuition we find firms that have access to the public bond markets as measured by having a debt rating have significantly more leverage although firms with a rating are fundamentally different these differences do not explain our findings even after controlling for firm characteristics that determine observed capital structure and instrumenting for the possible endogeneity of having a rating firms with access have 35 more debt copyright 2006 oxford university press

can r d expenditure avoid corporate bankruptcy comparison between japanese machinery and electric equipment industries using dea discriminant analysis abstract this study compares data envelopment analysis discriminant analysis dea da with altman s financial ratio analysis to identify the position of dea da in financial performance analysis then this study applies dea da to examine whether research and development r d expenditure influences the financial performance of japanese machinery industry and electric equipment industry the investigation of dea da identifies that the r d expenditure makes a positive impact on the financial performance of japanese machinery industry but it yields a negative impact on japanese electric equipment industry the result implies that the influence of r d expenditure on financial performance including the avoidance of bankruptcy depends upon the type of a manufacturing industry a rationale regarding why such a discrepancy has occurred between the two japanese manufacturing industries is because the life cycle of electric equipments is shorter than that of the machinery products furthermore the electric equipment industry faces more fierce competition than the machinery industry this study suggests that the japanese electric equipment industry needs r d expenditure for competition in its global market however it is a high risk and high return investment in contrast the japanese machinery is a technologically mature industry where the r d expenditure influences positively its financial performance in this sense the r d expenditure is a low risk and necessary investment

the future of small farms new directions for services institutions and intermediation summary efficient pre and post harvest services are essential if small farms in high potential areas are to intensify production contribute to economic growth and reduce poverty they also matter if small farms in marginal areas are to manage their natural resource base in the face of growing population pressure and climate change difficulties that smallholders face in accessing services are reviewed showing how incentives for commercial delivery of services to smallholders differ between staple food traditional cash crop and high value product supply chains the major challenge in service delivery to smallholders in much of africa concerns coordination of service development and delivery different forms of intermediary institution for achieving such coordination are examined

does rating analyst subjectivity affect corporate debt pricing we find evidence of systematic optimism and pessimism among credit analysts comparing contemporaneous ratings of the same firm across rating agencies these differences in perspectives carry through to debt prices and negatively predict future changes in credit spreads consistent with mispricing moreover the pricing effects are the largest among firms that are the most opaque likely exacerbating financing constraints we find that masters of business administration mbas provide higher quality ratings however optimism increases and accuracy decreases with tenure covering the firm our analysis demonstrates the role analysts play in shaping investor expectations and its effect on corporate debt markets

interaction of market and credit risk abstract experience during the financial crisis illustrates that the integrated measurement and management of different forms of risk remains a challenge for industry practitioners researchers and financial supervisors alike in the context of related literature this article summarizes new research on the interaction of market and credit risk and implications for risk management that is presented in this special issue the research covered highlights in particular the errors that can occur in the aggregation of the two types of risk and the strong relationships between them that suggest caution in the use of pragmatic distinctions between them the article also touches on some research based lessons for supervisory policies and suggests some directions for future research

financial markets and investment externalities this address explores the link between financial market shocks investment choices and various externalities that can arise from these choices my analysis which emphasizes differences between shocks to debt and equity markets provides insights about some stylized facts from the macro finance literature these insights are illustrated with a discussion of the technology boom and bust in the late 1990s and early 2000s and the housing boom and bust in the mid 2000s

a multi factor credit migration model for sovereign and corporate debts abstract this paper develops a multi factor markov chain model for rating migrations and credit spreads that is applicable to both sovereign and corporate debts the model s central feature is to allow transition matrices to be time varying and driven by rating specific latent variables which encompass economic factors like the business cycle there are three main contributions first the model incorporates well documented empirical properties of transition matrices such as their dependence on business credit cycles and it also allows for inter rating variations in credit quality changes second instead of focusing solely on empirical modeling of rating transitions the paper also shows how the empirical model can be implemented for actual valuations third the estimation and calibration procedures are easy to follow and implement

impacts of increased bioenergy demand on global food markets an agmip economic model intercomparison integrated assessment studies have shown that meeting ambitious greenhouse gas mitigation targets will require substantial amounts of bioenergy as part of the future energy mix in the course of the agricultural model intercomparison and improvement project agmip five global agro economic models were used to analyze a future scenario with global demand for ligno cellulosic bioenergy rising to about 100 exajoule in 2050 from this exercise a tentative conclusion can be drawn that ambitious climate change mitigation need not drive up global food prices much if the extra land required for bioenergy production is accessible or if the feedstock for example from forests does not directly compete for agricultural land agricultural price effects across models by the year 2050 from high bioenergy demand in an ambitious mitigation scenario appear to be much smaller 5 average across models than from direct climate impacts on crop yields in a high emission scenario 25 average across models however potential future scarcities of water and nutrients policy induced restrictions on agricultural land expansion as well as potential welfare losses have not been specifically looked at in this exercise

an empirical test of the incentive effects of deposit insurance the case of junk bonds at savings and loan associations this paper analyzes how financial markets reacted to s l diversification into junk bonds the authors report that junk bond holdings are positively correlated with both the volatility of s l equity returns and the interest rates paid on large cds next they examine the impact of junk bonds on equity returns for poorly capitalized s ls greater risk taking increases the value of deposit insurance and should lead to higher stock returns however a well capitalized institution that increases junk bond holdings should not experience stock price gains the authors find that this is the case for the sample of s ls they studied copyright 1994 by ohio state university press