the dynamic cost and persistence of asset inequality in an agrarian economy abstract a growing literature suggests that asset inequality can be economically costly in the presence of agency costs that constrain labor and capital markets unclear in this literature is whether asset markets and optimal individual accumulation of self finance capacity suffice to eliminate costly inequality over time this paper uses numerical dynamic programming methods to explore this question with a model of an initially inegalitarian agrarian economy while an egalitarian asset distribution emerges over time the process involves sufficiently great productivity losses along the way that a redistributive policy could improve on the market s performance by both equity and efficiency criteria

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

can land market reform mitigate the exclusionary aspects of rapid agro export growth abstract agro export growth has been associated with land concentration and employment instability in the wake of exclusionary agro export booms land market reform has been proposed as a way to improve peasant land access through the market developing a model of the economic competitiveness of different classes of producers this paper evaluates the likely effectiveness of land market reform while the model itself gives ambiguous answers numerical simulation identifies a large gap between market price and peasants abilty to pay for land among the components of land market reform policy progressive land taxation appears unlikely to close that competitiveness gap while farm land mortgage banks appear more likely to mitigate exclusionary aspects of growth

the effect of unemployment insurance sanctions on the transition rate from unemployment to employment sanctions or punitive benefits reductions are increasingly used as a tool to enforce compliance of unemployment insurance claimants with search requirements this article analyses sanctions using a unique administrative data set of individuals who started collecting unemployment insurance in the netherlands in 1992 after correction for selectivity in the imposition of sanctions we find that sanctions substantially raise individual re employment rates

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

investment and equity effects of land regularisation the case of nicaragua we use data from nicaragua to examine the impact of award of registered and non registered title on land values and changes in land attached investment registration acquisition through purchase and agrarian reform title all are associated with significant increases in the value of plots receipt of registered title is found to increase land values by 30 and at the same time greatly increase the propensity to invest bringing such investment closer to the optimum in line with descriptive statistics indicating great demand for land right regularisation especially from the poor this suggests that titling can have a positive distributional effect at the same time the legal validity and official recognition of the titles issued appears to be of great importance

an analysis of offer functions of banks and credit unions in guatemala economists have sought to identify institutions which might fill the gap in household access to credit arising from rationing by formal lenders credit unions have been identified as institutions which might use informational and monitoring advantages to fill that gap using information on household perceptions of their access to credit this article analyses the impact of certain credit unions on the access to credit of households in guatemala regression results indicate that credit unions serve markets unserved by formal lenders and that information on household perceptions of their access to credit is important in making inferences about lender lending activities

access to capital and agrarian production organisation there are two problems both universal that entrepreneurs in any economy must contend with firstly an agent generally has access only to a limited amount of working capital secondly workers hired by an agent are subject to moral hazard and this necessitates their supervision this paper models for an agrarian economy the constraints imposed on entrepreneurs activities by these two problems and endogenously determines the various organisational forms of production as well as the allocation of resources that will obtain with a simple model we endeavour to explain a diverse set of empirical observations pertaining to the less developed countries in terms of the general processes that determine the distribution of income among the various agents and the hierarchical relationships that develop among them agricultural production typically involves a period of several months between the time the inputs are purchased and the time the output is marketed access to working capital and hence to the credit market thus plays an important role in a farmer s production decisions the distribution of access to credit in turn tends to be an important determinant of income distribution in poor agrarian economies credit is invariably rationed according to the ability to offer collateral the amount of working capital a farmer can mobilise therefore depends on the amount of land he owns which is often a good proxy for his overall wealth and thus his ability to offer collateral further since hired hands have a propensity to shirk they need to be supervised and therefore the

estimating the effect of counseling and monitoring the unemployed using a job search model this paper examines the impact of the counseling and monitoring program for the unemployed with particular reference to their job finding rate application intensity and matching probability the effectiveness of counseling and monitoring is measured by using a job search model in which the job finding rate is equal to the product of the application intensity and the matching probability counseling and monitoring is an intensive job search assistance program designed to help unemployed people receiving unemployment benefits to find a job as quickly as possible the empirical analysis is based on data from a social experiment a sample of the inflow into unemployment was randomly assigned to a treatment and a control group the empirical results based on formal reduced form models show that counseling and monitoring does reduce the time taken to find a job because people participating in the program make more applications than those who are not participating although no differences are found in matching probabilities

wealth weather risk and the composition and profitability of agricultural investments despite the growing evidence that farmers in low income environments are risk averse there has been little empirical evidence on the importance of risk in shaping the actual allocation of production resources among farmers differentiated by wealth the authors use panel data on investments in rural india to examine how the composition of productive and nonproductive asset holdings varies across farmers with different levels of total wealth and across farmers facing different degrees of weather risk income variability is a prominent feature of the experience of rural agents in low income countries the authors report evidence based on measures of rainfall variability that the agricultural investment portfolio behavior of farmers in such settings reflects risk aversion due evidently to limitations on consumption soothing mechanisms such as crop insurance or credit markets the authors results suggest that uninsured weather risk is a significant cause of lower efficiency and lower average incomes a one standard deviation decrease in weather risk measured by the standard deviation of the timing of the rainy season would raise average profits by up to 35 percent among farmers in the lowest wealth quartile moreover rainfall variability induces a more unequal distribution of average incomes for a given distribution of wealth wealthier farmers are willing to absorb significant risk without giving up profits to reduce production risk smaller farmers have to invest their limited wealth in ways that reduce their exposure to risk at the cost of lower profit rates the authors found that at high levels of rainfall variability differences in rates of profit per unit of agricultural assets were similar across classes of wealth but over the sample range of rainfall variability these rates of profit were always higher for the poorer farmers than for the wealthier ones suggesting that the disadvantages of small farmers in risk diffusion are more than offset by their labor cost advantage

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 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

middlemen in bilateral search markets this article examines the role of middlemen in bilateral search markets e g employment agencies real estate brokers it is shown that the middleman narrows the set of buyer firm and seller worker types who search seller types with high valuations and buyer types with low valuations drop out of the search market and instead trade through the middleman the middleman also decreases the equilibrium search intensities of those agents who search it is proven that the middleman improves welfare if search is very costly and inefficient and decreases welfare if search is effectively costless and very efficient

level playing fields and laissez faire postliberal development strategy in inegalitarian agrarian economies focusing on the rural sector in latin america this paper explores the microeconomic linkages between distribution and growth which drive the possible reproduction of rural poverty over time the result of this exploration is a neostructuralist perspective which argues that actually existing laissez faire agrarian economies do not present a level playing field and that low wealth farms face disadvantages which tend to reproduce or even deepen sectoral inequality the paper then tries to identify the sorts of public policy and collective action which might modify the nature of growth and distribution in post liberalization agrarian market economy

household strategies and rural livelihood diversification this article reviews the recent literature on diversification as a livelihood strategy of rural households in developing countries with particular reference to sub saharan africa livelihood diversification is defined as the process by which rural families construct a diverse portfolio of activities and social support capabilities in order to survive and to improve their standards of living the determinants and effects of diversification in the areas of poverty income distribution farm output and gender are examined some policy inferences are summarised the conclusion is reached that removal of constraints to and expansion of opportunities for diversification are desirable policy objectives because they give individuals and households more capabilities to improve livelihood security and to raise living standards

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

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

the relation between farm size and farm productivity the role of family labor supervision and credit constraints abstract the paper shows that if the performance of hired farmhands is affected by supervision from family members and if the availability of credit is dependent on the amount of land owned then a systematic positive or negative relationship between per acre yields and farm size will prevail a model with no supervision effects on labor productivity would predict that yields are unaffected by farm size the paper also investigates the relation between land utilization and owned holding size when land rental possibilities are limited results are shown to be compatible with various observed patterns in ldcs

do labor market policies have displacement effects evidence from a clustered randomized experiment this article reports the results from a randomized experiment designed to evaluate the direct and indirect displacement impacts of job placement assistance on the labor market outcomes of young educated job seekers in france we use a two step design in the first step the proportions of job seekers to be assigned to treatment 0 25 50 75 or 100 were randomly drawn for each of the 235 labor markets e g cities participating in the experiment then in each labor market eligible job seekers were randomly assigned to the treatment following this proportion after eight months eligible unemployed youths who were assigned to the program were significantly more likely to have found a stable job than those who were not but these gains are transitory and they appear to have come partly at the expense of eligible workers who did not benefit from the program particularly in labor markets where they compete mainly with other educated workers and in weak labor markets overall the program seems to have had very little net benefits

default correlation an empirical investigation of a subprime lender in recent years subprime lending has grown substantially as an important sector of the credit markets this paper is concerned with the risk management of subprime loan portfolios and the importance of default correlation in measuring that risk using a large portfolio of residential subprime loans from an anonymous subprime lender we show that default correlation is substantial for this lender in particular the significance of default correlation increases as the internal credit rating declines our results suggest that lenders and regulators would be well served investing in the understanding of default correlation in subprime portfolios

does adding up of economic capital for market and credit risk amount to conservative risk assessment there is a tradition in the banking industry of dividing risk into market risk and credit risk both categories are treated independently in the calculation of risk capital but many financial positions depend simultaneously on both market risk and credit risk factors in this case an approximation of the portfolio value function separating value changes into a pure market risk plus pure credit risk component can result not only in an overestimation but also in an underestimation of risk we discuss this compounding effect in the context of foreign currency loans and argue that a separate calculation of economic capital for market risk and for credit risk may significantly underestimate true risk

regulatory implications of credit risk modelling abstract this introduction places in context the papers on credit risk modelling contained in the special issue we explain why credit risk modelling has become such a focus of interest for practitioners and financial supervisors even though as we explain the current modelling technologies have significant weaknesses they offer the possibility of major changes in the ways banks are managed and regulated the main impediment to greater use of these models especially by regulators is the difficulty involved in back testing the risk measures they produce we suggest some thoughts on how back testing and other types of model assessment might be performed

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

credit constraints credit unions and small scale producers in guatemala abstract efficient and equitable development outcomes may depend in part on whether formal financial institutions leave low wealth producers tightly constrained in their access to credit if so can cooperative institutions efficiently relax these constraints these issues are explored using survey data gathered from 950 small scale producer households in areas of guatemala with market oriented credit unions that mobilize savings and make unsubsidized loans nonprice rationing by banks is found to be common among lower wealth households while credit unions relax credit constraints for a significant portion of those rationed by banks but not the poorest of the study households

risk wealth and sectoral choice in rural credit markets we model the role of the informal credit sector in developing countries the informational advantage of informal lenders is portrayed as the ability to monitor borrowers monitoring reduces the incentive problem and allows for contracts with lower collateral this enables informal lenders to serve both individuals who cannot post the collateral required by the formal sector and those who are able but do not want to post collateral the model is consistent with the conventional view of the informal sector as recipient of spillover demand from the formal sector it also shows that the informal sector may provide partial insurance as the lower collateral requirement implies greater consumption smoothing for borrowers

asset smoothing consumption smoothing and the reproduction of inequality under risk and subsistence constraints abstract a growing literature asks whether low wealth agents can accumulate assets over time or whether they are trapped in poverty this paper develops a stochastic dynamic programming model with endogenous asset price risk to explore savings and portfolio decisions in a resource poor environment characterized by risk and subsistence constraints optimal portfolio strategies are found to bifurcate despite divisible assets and fully rational agents wealthier agents acquire a higher yielding portfolio and pursue conventional consumption smoothing poorer agents acquire a less remunerative portfolio and pursue asset smoothing rather than consumption smoothing asset based risk coping thus results in positive correlation between initial wealth and portfolio rate of return

peasant household behaviour with missing markets some paradoxes explained a model of peasant household behavior under varying degrees of household specific food and labor market failures is constructed to show that these structural features can explain several well known patterns of peasant response which have often been attributed to peculiar motives presumed specific to peasants the model explains sluggish response to cash crops prices and high instability in perceived food and labor scarcities the key role of manufactured consumer goods prices in stimulating peasants effort in cash crops production the effectiveness of taxation as opposed to incentives in stimulating cash crops production and the key role of technological change in food production to enhance cash crop production results are obtained analytically in the case of one market failure and by numerical simulation with more than one

pricing the risk of recovery in default with absolute priority rule violation abstract this paper proposes a simple approach to infer the risk neutral density of recovery rates implied by the prices of the debt securities of a firm the proposed approach is independent of modeling default arrival rates and allows for the violation of absolute priority rule the paper demonstrates that a new statistic the adjusted relative spread captures risk neutral recovery information in debt prices interest rates and firm tangible assets are shown to be significant determinants of the price of recovery an application illustrates the pricing of credit derivatives written on the realized recovery rate

active labor market policy evaluations a meta analysis this article presents a meta analysis of recent microeconometric evaluations of active labour market policies we categorise 199 programme impacts from 97 studies conducted between 1995 and 2007 job search assistance programmes yield relatively favourable programme impacts whereas public sector employment programmes are less effective training programmes are associated with positive medium term impacts although in the short term they often appear ineffective we also find that the outcome variable used to measure programme impact matters but neither the publication status of a study nor the use of a randomised design is related to the sign or significance of the programme estimate

making negotiated land reform work initial experience from colombia brazil and south africa abstract the paper describes background initial experience and future challenges associated with a new negotiated approach to land reform this approach has emerged as following the end of the cold war and broad macroeconomic adjustment many countries face a second generation of reforms to address deep rooted structural problems and provide the basis for sustainable poverty reduction and economic growth it reviews possible theoretical links through credit market or political channels between asset ownership and economic performance program characteristics in each country as well as lessons for implementation and implications for monitoring and impact assessment are discussed

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

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

credit natural disasters coffee and educational attainment in rural honduras summary this paper exploits a two stage estimation approach to examine the impact on secondary school attainment in rural honduras of four key variables affecting household choices wealth credit access crop choice and shocks the first stage estimates the probability that a household is credit constrained while the second estimates secondary school educational attainment of appropriately aged children the second stage includes variables for crop selection and household wealth shocks from hurricane mitch in addition to other characteristics of the child household and community that can influence educational attainment credit constrained households have lower educational attainment and are more likely to be adversely affected by negative shocks

credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

toward a political ecology of migration land labor migration and climate change in northwestern nicaragua summary smallholder labor migration and its relationship to climate change adaptation has received increasing attention with migration often represented either as part of successful adaptive livelihood diversification or as symptomatic of a lack of in place adaptive capacity using a case study we focus on the relationship between labor migration agrarian livelihood diversification and climate change to further a more nuanced understanding of migration as adaptation than is implied by a simple dichotomy of success versus failure smallholder diversification both on and off farm has largely been framed as a risk spreading practice that lowers climate change vulnerability but after decades of advocating livelihood diversification with labor migration now increasingly a part of smallholder livelihood activities it is urgent to pose a number of questions why do smallholders migrate how does labor migration unfold for them and with what outcomes our primary goal here is to explore the nature of the relationship of labor migration to climate change and climate change adaptation through empirical fieldwork in northwestern nicaragua we explore the role of labor migration in smallholder household production and reproduction as families confront increasingly difficult climatic conditions for agricultural production and a relative absence of the state within a neoliberal political economy our analysis draws on household surveys and qualitative interviews and focus groups we carried out in the municipality of somotillo in northwestern nicaragua over three years 2013 15 our findings demonstrate that household labor migration neither facilitates adaptation to climate change nor reflects a failure to adapt but rather reflects the weak position of smallholders in interlocking relations of power and the relative land scarcity experienced by many we argue that labor migration barely maintains semi subsistence agricultural production and reinforces existing social inequalities raising questions regarding a conceptualization of migration as adaptation and the benefits of this type of livelihood diversification

determinants and impacts of rural land market activity evidence from nicaragua summary use of data from nicaragua to examine the performance of land rental and sales markets during 1995 98 which coincide with the implementation of major macroeconomic and sectoral reforms leads to three main conclusions first even though the data point toward an inverse farm size productivity relationship and large differences in land productivity between large and small producers land markets have not led to an equalization of returns among the groups considered second both in 1995 and in 1998 land sales markets have contributed to land concentration suggesting that credit market imperfections impeded demand in land sales markets third the policy reforms undertaken after 1995 have led to a structural shift in the performance of the land rental market instead of transferring land to large owners as it did in 1995 the land market now moves land from large to small producers the quantities involved however remain limited we conclude that if it is to contribute to equity and efficiency liberalization of land sales markets has to be complemented by measures to reduce the attractiveness of speculative land accumulation furthermore measures to reduce the transaction costs of land rental e g titling and to increase effective demand from small producers e g technical assistance and credit will be needed 2003 elsevier ltd all rights reserved

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

does the public employment service affect search effort and outcomes in this paper we examine the disincentive effects of the public employment service on the search effort of unemployed workers and on their exit rate from unemployment for that purpose we specify a structural search model with fixed and variable costs of search in which unemployed workers select their optimal search intensity given the exogenous arrival rate of job contacts coming from the public employment agency because the theoretical effect of an increase in this exogenous job contact arrival rate on the structural exit rate from unemployment is ambiguous we estimate this model using individual unemployment duration data our results show that the exit rate from unemployment increases with the arrival rate of job contacts obtained by the public employment service especially for low educated and low skilled workers they also show that the search effort is more costly for low educated women and low skilled adult unemployed workers this last result suggests that a public employment agency that matches searchers and employers is beneficial in the sense that it saves searchers in terms of search costs they would otherwise bear

an economic capital model integrating credit and interest rate risk in the banking book banks often measure credit and interest rate risk in the banking book separately and then add the risk measures to determine economic capital this approach misses complex interactions between the two risk types we develop a framework where these risks are analysed jointly since banking book positions are generally not marked to market our model is based on book value accounting our simulations show that interactions matter and that ignoring them leads to risk overstatement the magnitude of the errors depends on the structure of the balance sheet and on the repricing characteristics of assets and liabilities

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

does land titling improve credit access quasi experimental evidence from rural china based on official surveys conducted in 2010 and 2015 we study how the chinese land titling reform beginning in 2009 affected rural households access to credit we find that the reform had differe

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

monitoring job offer decisions punishments exit to work and job quality unemployment insurance systems include the monitoring of unemployed workers and punitive sanctions if job search requirements are violated we analyze the causal effect of sanctions on the ensuing job quality notably on wages and occupational level we use swedish data and estimate duration models dealing with selection on unobservables we also develop a theoretical job search model that monitors job offer rejection versus job search effort the empirical results show that after a sanction the wage rate is lower and individuals move more often to a part time job and a lower occupational level incurring human capital losses

land tenure and property rights theory and implications for development policy this article explores the nature of property rights systems their evolution and their effect on resource allocation it is argued that certain institutional arrangements for land rights have evolved in order to reduce uncertainty and increase efficiency in credit as well as in land markets of particular relevance to developing countries the article emphasizes the contribution of public sector infrastructure to effective land rights systems an appendix to the article presents a formal model analyzing the effects of security of land rights on land prices the intensity of cultivation and the use of credit empirical evidence from thailand supports several of the propositions derived from the model

bank liquidity providing in a real synergy management under a cap based valuation since banks often lend via commitments their lending and deposit taking may be two manifestations of one primitive function the provision of liquidity on demand we explore this function under a cap based valuation we find that i the strike price of the cap based valuation increases the bank s liquid asset holdings by increasing its loan rate and loan commitment rate with the strategic rate adjustment complements and decreases the bank s external finance need by increasing its deposit rate when the bank realizes a less risky state of the world and ii the number of caplet days decreases the bank s liquid asset holdings by decreasing its loan rate and loan commitment rate with the strategic rate adjustment complements and the strategic timing substitutes and increases the bank s external finance need by decreasing its deposit rate with the strategic timing substitutes when the bank realizes a more risky state our findings provide alternative explanations concerning the bank s liquidity funct

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

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

default parameter estimation using market prices this article presents a new methodology for estimating recovery rates and the pseudo default probabilities implicit in both debt and equity prices in this methodology recovery rates and default probabilities are correlated and depend on the state of the macroeconomy this approach makes two contributions first the methodology explicitly incorporates equity prices in the estimation procedure this inclusion allows the separate identification of recovery rates and default probabilities and the use of an expanded and relevant data set equity prices may contain a bubble component which is essential in light of recent experience with internet stocks second the methodology explicitly incorporates a liquidity premium in the estimation procedure which is also essential in light of the large observed variability in the yield spread between risky debt and u s treasury securities and the illiquidities present in risky debt markets

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

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

how to invest optimally in corporate bonds a reduced form approach abstract in this paper we analyze the impact of default risk on the portfolio decision of an investor wishing to invest in corporate bonds default risk is modeled via a reduced form approach and we allow for random recovery as well as joint default events depending on the structure of the model we are able to derive almost explicit results for the optimal portfolio strategies it is demonstrated how these strategies change if common default factors can trigger defaults of more than one bond or recovery rates are stochastic in particular we analyze the effect of beta distributed loss rates

extrinsic versus intrinsic problems of agricultural cooperation anti incentivism in tanzania and china peasant willingness to engage in collective farming and the efficiency of collective farms once established may be preconditioned on local self determination participatory control discriminating work incentives and external manoeuvrability in the absence of such preconditions whether or not there exist economies of scale sufficient to offset effectively minimised incentive problems cannot be determined anti incentivism bureaucratic controls and extractive external environments are identified as factors inhibiting successful collective farming in both tanzania and china explanations of these tendencies in the two countries are sought in their political economies and ideological structures

typology for flight to quality episodes and downside risk measurement abstractwe propose a total return based framework to measure downside risk associated with phenomenon of capital outflows from riskier to safer financial markets the proposed method consists of three elements i the general definition of the flight to quality ftq phenomenon ii the typological classification of the flight to quality occurrences for associating them with the phases of the business cycle and iii the automated technique to diagnose the time frames and to measure the impact of flight to quality on financial instruments the proposed framework is applied to analyse the global scale capital inflows outflows from emerging markets public debt to the us treasuries and vice versa the results show that different phases of business cycles and gdp growth rates including turning points could be associated with flights to quality of different types and causality origins addressing downside risk crystallizations in flight to quality occurrences new perspectives of integrated interest rate r

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

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

structural transformation and smallholder agriculture an information theoretic analysis of the nicaraguan case in light of continued debate regarding the capacity of small scale agricultural producers to compete amidst globalization and or liberalization we examine recent trends in the distribution and use of agricultural landholdings in developing nations via refined exploration of the nicaraguan case with nationally representative living standards measurement survey type data for the years 1998 2001 and 2005 we employ markov chain methods within an information theoretic framework in an attempt to advance the analysis of structural transformation in developing countries beyond the examination of trends in mean farm sizes or gini coefficients approaches ill suited to the detection of the apparent complexities of structural change further while markov chain analysis has witnessed relatively widespread application in the investigation of structural transformation in developed nations we offer a novel methodological extension by allowing for the simultaneous exploration of structural transformation across multiple dimensions namely structural change in both the distribution and use of agricultural landholdings as well as the incorporation of microlevel determinants of farm size and land use change the results of the inquiry above all suggest that nicaragua s agricultural and livestock sector is characterized by a definitive persistence of smallholders while a moderate tendency toward bifurcation in the distribution of landholdings would appear to obscure any immediate relationship between operational landholdings and land productivity we contend that such trends are in fact consistent with the often observed inverse farm size productivity relationship

the impact of market friendly reforms on credit and land markets in honduras and nicaragua summary this article explores the impacts on credit access and agrarian structure of land market liberalization policies undertaken in honduras and nicaragua during the 1990s like liberalization efforts pursued in many latin american countries these market friendly reforms were designed to activate land transfers and enhance agricultural efficiency in large part by improving the access of the rural poor to both credit and land markets panel data sets gathered in honduras and nicaragua are used to compare title credit and land access patterns before and after the reforms descriptive nonparametric regression analyses show that despite major gains in titling across the land size spectrum and some increase in land market activity the other hoped for improvements in credit and land access did not occur and appear unlikely to occur without further policy attention to credit markets

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

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

does supervision matter some hypothesis tests using indian farm level data abstract a model is developed and estimated to test for heterogeneity of family and hired labor in agricultural production and to estimate the impact of employer supervision on the productivity of hired labor plot level data are used from a rice growing village in semi arid tropical india the hypothesis that family and hired labor are homogeneous inputs was rejected results indicate that family member supervision is required to increase hired labor productivity output loss attributable to operating at reduced supervision intensity was greater than 10 on over 40 of the plots

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

the effect of benefit sanctions on the duration of unemployment this paper investigates the effectiveness of unemployment benefit sanctions in reducing unemployment duration swiss data on benefit sanctions allow us to separate the effect of a warning that a person is not complying with eligibility requirements from the effect of the actual enforcement of a benefit sanction moreover public employment services are given substantial leeway in setting the monitoring intensity results indicate that both warning and enforcement have a positive effect on the exit rate out of unemployment and that increasing the monitoring intensity reduces the duration of unemployment of the nonsanctioned jel j64 j65 j68

is the threat of reemployment services more effective than the services themselves evidence from random assignment in the ui system we examine the effect of the worker profiling and reemployment services system this program profiles unemployment insurance ui claimants to determine their probability of benefit exhaustion and then provides mandatory employment and training services to claimants with high predicted probabilities using a unique experimental design we estimate that the program reduces mean weeks of ui benefit receipt by about 2 2 weeks reduces mean ui benefits received by about 143 ana increases subsequent earnings by over 1 050 most of the effect results from a sharp increase in early ui exits in the treatment group relative to the control group jel j650

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

outreach sustainability and leverage in monitored and peer monitored lending abstract i study the contract design problem facing microfinance lending organizations mfos that want to maximize the impact and outreach of their lending activities to a target population of poor borrowers while remaining financially sustainable tradeoffs between outreach sustainability and financial leverage are shaped by the endogenous monitoring and delegation costs that arise within a chain of agency relationships subject to moral hazard between borrowers loan staff mfo equity owners and outside investors all else equal sustainable mfos that target poorer borrowers must charge higher interest rates have higher staff costs per dollar loaned and are less leveraged analysis of data for 72 mfos tends to support the findings

the relationship between credit and productivity in chinese agriculture a microeconomic model of disequilibrium credit is an important element in agricultural production systems it allows producers to satisfy the cash needs induced by the production cycle which characterizes agriculture preparation planting cultivation and harvesting of the crops are typically done over a period of several months in which very little cash revenue is earned while expenditures on materials purchased inputs and consumption must be made in cash cash income is received a short time after the harvest in the absence of credit markets farmers would have to maintain cash reserves so as to facilitate production and consumption in the next cycle the availability of credit allows both greater consumption and greater purchased input use and thus increases welfare of the farmers

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

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

the impact of structural adjustment and property rights conflicts on nicaraguan agrarian reform beneficiaries abstract in nicaragua structural adjustment policies under the new government have led to sharply reduced agricultural producer credit and tighter conditions for its use along with conflicts over property rights that emerged from the sandinista era land confiscations the effect has been to speed a process of parceling and land sales among the population of agrarian reform beneficiaries which was the main recipient of redistributed lands faced with imperfect capital markets and tenure uncertainty small scale producers have resorted to distress sales of their parcels that could lead to a restratification of land ownership patterns

risk rationing and wealth effects in credit markets theory and implications for agricultural development we develop a model that shows that asymmetric information can result in two types of credit rationing conventional quantity rationing and risk rationing whereby farmers are able to borrow but only under high collateral contracts that offer them lower expected well being than a safe subsistence activity after exploring its incidence with respect to wealth we show that risk rationing has important policy implications specifically land titling will be only partially effective because it does not enhance producers willingness to offer up the collateral needed to secure loans under moral hazard constraints efforts to enhance agricultural investment and the working of agricultural credit markets must step beyond land titling and also deal with risk copyright 2008 oxford university press