During the last two decades there has been an explosion in the number of complex financial instruments that are traded on the financial markets. Naturally, being able to value the increasing number of traded complex financial instruments has an academic interest. Such valuation methods are, however, certainly not only of interest to academics. For agents on the financial markets, it is of crucial importance to be able to assess the value of new exotic securities. This is equally true for financial services firms that construct and promote the instruments, borrowers that sell the products for the financing of their activities and investors that buy the products. Many new financial instruments have attributes that make Contingent Claims Analysis (CCA) superior to other currently known valuation methods. CCA is a technique for determining the price of an asset whose payoffs depend upon the evolution of one or more underlying state variables. One problem that often arises when this framework is used is that it is not possible to find a closed-form solution for the price. Numerical methods must therefore be relied on. Furthermore, in many cases and especially in cases where there is more than one underlying state variable, which many complex financial instruments require for accurate valuation, numerical methods become computationally laborious. Hence, research concerning and development of efficient numerical methods that can be used in the CCA context is important. This dissertation consists of four different papers (papers A to D). Paper A provides discussion of the process of financial innovation. A lengthy appendix is attached to paper A. In this appendix, more thn 100 more or less complex financial instruments are described briefly. Papers B to D have a common theme, which is valuation of complex financial instruments with the help of CCA and numerical methods. The research task of paper B is to answer a question that has unclear status in academic literature. The question is "How do errors (or different modelling choices) in boundary conditions affect solutions when the implicit finite difference method is used?". In papers C and D, numerical methods which can be used to price financial instruments with several underlying state variables are developed and tested. The methods in paper C are finite difference methods, and the method in paper D is a lattice (or tree) approach. / Diss. Stockholm : Handelshögsk.

As the stock market is volatile and often short-term, there is a high demand for safe investments outside the stock market and institutional investors like pension funds, insurance companies and asset managers are increasingly searching for low-risk investments that can deliver safe returns.   Alternative investments, like real estate, are a popular way to invest institutional capital. However, debates whether pension savers should have the right to transfer their pension capital without restrictions and discussions about the suitability of institutional investors to own real estate directly has made liquidity a more important aspect when investing institutional capital.   Forecasts and expectations suggest that a large part of Sweden’s public real estate portfolio, such as schools, hospitals and nursing homes, will be sold or produced privately as new builds in the future. Earlier studies have also shown that this type of real estate, with long leases and reliable tenants, is suitable for securitization, that is to say for issuing tradable securities such as bonds based on the cash flows from such assets.   The high demand for institutional capital to find safe and liquid investments and the large future divestment of public properties create opportunities for financial innovation.   This thesis aims to research if there are arbitrage opportunities to exploit due to differences between the real estate market and the capital market in the pricing of public real estate. The thesis will also examine the possibility of setting up a fund structure to profit in practice from these opportunities and study what the business model of such a firm would look like.

Our thesis aims to help the market participants to understand the source of the risk in green bonds market. We estimate the liquidity risk effects in green bonds' yield spreads as well as controlling for credit risk, bond-specific chracteristics and macroeconomic variables. Both of our liquidity measures suggest that green bonds are more liquid than investment grade US corporate bonds. We find that liquidity effect in green bonds' yield spreads is pronounced, and the result is robust after controlling for potential endogeneity bias. The power of green bonds' liquidity premium is about 10 to 100 times as strong as speculative grade German bonds and investment grade US corporate bonds respectively. In addition to the lack of clear risk profile in green bonds market, our three-stage least squares regression shows that credit risk influences the liquidity risk of green bonds, this indicates that credit risk is a potential source of private information that affects the high liquidity of green bonds. This result has an implication for policy as the credit risk and liquidity risk could be the pitfalls in green bonds market.

[pt] Este trabalho desenvolve e estabelece a existência de equilíbrio para um modelo sequencial com dois estágios, mercados financeiros incompletos, risco de crédito e colateral endógeno. No primeiro estágio, ao escolherem o colateral, de acordo com uma regra exogenamente determinada, os agentes emitem ativos personalizados que serão transacionados no segundo estágio, em uma economia Walrasiana com dois períodos. A nossa estrutura permite o surgimento de modelos nos quais os próprios agentes escolhem suas garantias, de forma similar aos modelos já existentes de colateral endógeno. Tais modelos exibem o que podemos chamar de A Maldição do Vencedor, situação na qual o agente escolhe, racionalmente, oferecer colateral nulo, inviabilizando, em equilíbrio, a transação de ativos. Com isso, a economia é jogada para um equilíbrio Pareto inferior no qual não existem mercados financeiros. Ao introduzir uma sequencialidade nas escolhas, conseguimos resolver esse problema, pois os agentes antecipam o efeito da escolha de colateral sobre os payoffs de equilíbrio, escolhendo, racionalmente, colaterais positivos. Assim, conseguimos não somente solucionar uma limitação dos modelos existentes, como ainda, permitir o surgimento de inúmeros sub-modelos através das diversas possibilidades para a regra de escolha na determinação do colateral. / [en] This paper develops and establishes the existence of equilibrium for a sequential model with two stages, incomplete financial markets, credit risk and endogenous collateral. In the first stage, by choosing the collateral, according to a predetermined and exogenously given rule, the agents issue personalized securities that will be traded in the second stage in aWalrasian economy with two periods. Our structure allows for models in which the agents choose their own collateral, similar to the existing endogenous collateral models. Those models exhibit what we might call, The Winner s Curse, a situation in which the agent choose, rationally, to offer no collateral, making asset trading impossible, in equilibrium. The economy is then thrown in a Paretoinferior equilibria in which there are no financial markets. By introducing the agent s choice in a sequential fashion, we avoid such a problem, because the agents anticipate the effects of their collateral choice over the equilibrium payoffs, therefore choosing rationally, positive collateral. That way, we are able, not only to solve a shortcoming of the existing models, but also to allow for a variety of sub-models through the several possible choices for the collateral determining rule.

Les dernières décennies ont été témoin d’un accroissement considérable du poids et de l’influence de la finance au sein des sociétés contemporaines, un phénomène que les sciences sociales ont commencé à cerner grâce à la notion de financiarisation. La financiarisation demeure un phénomène peu étudié en droit. Notre thèse contribue à son étude en adoptant une approche socio-juridique : elle part de l’hypothèse qu’une telle transformation des rapports sociaux et économiques a été l’occasion de controverses sur la scène juridique, à partir desquelles on peut mieux comprendre ce que représente la financiarisation en droit. Nous avons choisi d’aborder ces controverses à partir d’une question spécifique, celle de l’innovation financière, en prenant comme cas d’étude un type particulier d’instruments financiers ayant bouleversé le paysage de la finance depuis leur apparition dans les années 1980 : les swaps, ou les instruments dérivés de gré à gré. À partir d’une analyse des documents contractuels produits par l’industrie, de la littérature professionnelle de droit financier et du contentieux relatif aux swaps, notre étude retrace l’histoire juridique de ces instruments financiers. Il ressort de notre étude qu’en se livrant à un travail de mise en forme juridique de l’innovation financière, les juristes ont non seulement favorisé le succès des nouveaux marchés d’instruments financiers, mais qu’ils ont en outre amorcé une profonde transformation de la culture juridique du monde des affaires. La financiarisation coïncide ainsi, en droit, avec un renouvellement des concepts, des valeurs, des pratiques, des instruments et des modes d’argumentation que déploient les juristes des milieux financiers. Nous soutenons que, sous l’influence de ces derniers, c’est en fin de compte le droit lui-même qui s’est financiarisé, d’une façon qui a sensiblement accru l’autonomie juridique de l’industrie financière. / The last few decades have witnessed a considerable increase in the weight and influence of finance in contemporary societies, a phenomenon that social scientists have begun to study with the concept of financialization. Financialization remains rarely studied in law. This dissertation contributes to its study by adopting a socio-legal approach: it assumes that such a transformation of social and economic relations must have given rise to controversies in the legal arena, from which one could better understand what financialization means in law. I have chosen to approach these controversies through a specific question, that of financial innovation. I took as a case study a particular type of financial instruments, which have transformed the financial landscape since their invention in the 1980s: swaps, or over-the-counter (OTC) derivatives. Based on the analysis of contractual documents crafted by the industry, of the professional literature in financial law, and of the case law arising from swap disputes, this study recounts the legal history of these financial instruments. It shows that legal practitioners, through the legal shaping of financial innovation, have not only fostered the success of the new markets for financial instruments, but have also initiated a profound transformation of business’s legal culture. Financialization thus coincides, in law, with a renewal of concepts, values, practices, instruments and modes of argument deployed by financial lawyers. I argue that, under the influence of the latter, it is ultimately the law itself that was financialized, in a way that significantly increased the legal autonomy of the financial industry.

The financial crisis that struck financial markets in 2008 was devastating for the global economy. The impact continues to be felt in the market - most recently in sovereign defaults. 1 There are many questions as to the origin of the crisis and how the same events may be prevented in the future. This dissertation explores two financial instruments: securitisation and credit default swaps (CDSs) and attempts to establish the role they played in the financial crisis. To fully understand the events that unfolded before and during the crisis, a sound theoretical understanding of these instruments is required. This understanding is important to discern the future of stable financial markets and to gain insight into some of the potential risks faced by financial markets. The South African perspective regarding securitisation, CDSs and the global financial crisis is an important field of study. The impact of the crisis on South Africa will be explored in this dissertation, as well as, the effect of the crisis on South Africa's securitisation market (which has proved healthy and robust over the first part of the new millennium despite the global slowdown of these instruments) and the CDS market. A key goal of this work is to establish whether or not CDSs have been used in South Africa to hedge the credit risk component of bonds linked to asset–backed securities (ABSs). This will provide an indication of the maturity of the South African credit risk transfer (CRT) market and how South Africa compares to more developed financial markets regarding complexity, regulation, sophistication and market sentiment. Through the exploration and understanding of these concepts, the efficacy of emerging economies to adapt to globalisation, and how welcome financial innovation has proved to be in emerging markets will be addressed. / Thesis (M.Com. (Risk management))--North-West University, Potchefstroom Campus, 2012.

The financial crisis that struck financial markets in 2008 was devastating for the global economy. The impact continues to be felt in the market - most recently in sovereign defaults. 1 There are many questions as to the origin of the crisis and how the same events may be prevented in the future. This dissertation explores two financial instruments: securitisation and credit default swaps (CDSs) and attempts to establish the role they played in the financial crisis. To fully understand the events that unfolded before and during the crisis, a sound theoretical understanding of these instruments is required. This understanding is important to discern the future of stable financial markets and to gain insight into some of the potential risks faced by financial markets. The South African perspective regarding securitisation, CDSs and the global financial crisis is an important field of study. The impact of the crisis on South Africa will be explored in this dissertation, as well as, the effect of the crisis on South Africa's securitisation market (which has proved healthy and robust over the first part of the new millennium despite the global slowdown of these instruments) and the CDS market. A key goal of this work is to establish whether or not CDSs have been used in South Africa to hedge the credit risk component of bonds linked to asset–backed securities (ABSs). This will provide an indication of the maturity of the South African credit risk transfer (CRT) market and how South Africa compares to more developed financial markets regarding complexity, regulation, sophistication and market sentiment. Through the exploration and understanding of these concepts, the efficacy of emerging economies to adapt to globalisation, and how welcome financial innovation has proved to be in emerging markets will be addressed. / Thesis (M.Com. (Risk management))--North-West University, Potchefstroom Campus, 2012.

Studi condotti sulla crisi finanziaria del 2007-09 e la recessione economica hanno evidenziato l’inadeguatezza delle teorie predominanti e la loro inefficacia nel proporre adeguate soluzioni di policy. La presenza di moneta bancaria nell’economia e di un sistema finanziario caratterizzato da innovazione finanziaria e speculazione modificano profondamente la natura stessa del processo di credit creation. Una nuova prospettiva sulla relazione tra finanza e crescita economica necessita essere sviluppata cercando di colmare le lacune esistenti tra New Growth Theory e Evolutionary Theory, come J.A. Schumpeter (1934) e altri studiosi hanno evidenziato. I fattori strutturali sono alla base della persistente instabilita` finanziaria nell’economia. Questo studio tenta di spiegare l’ipotesi che sta alla base dell’intera analisi circa il passaggio avutosi nell'impianto strutturale dell'economia da un virtuous cycle ad un bad cycle, e dimostrare l’esistenza di cio` che definiamo wealth trap, la quale e` ipotizzata essere conseguenza di un sistema finanziario tecnologicamente avanzato, ma non socialmente avanzato. Un modello non lineare ad Agenti (AMB) chiamato BFSE (Based-line Financial System Economy) mostra , tramite la sperimentazione sul modello ICEACE(Erlingsson et al., 2011), evidenze sulla centralita` del sistema finanziario e dell’esistenza del bad cycle. Una discussione sulle macroprudential policies e le politiche strutturali e` introdotta. / Studies of the 2007-09 credit crisis and the resulting recession have revealed the inadequacy of the predominant theoretical frameworks and their failure to propose adequate policy solutions. The presence in the economy of bank money and a financial system characterized by financial innovation and speculation changes the nature of credit creation. As J.A. Schumpeter (1934) and others scholars have recognized, a new perspective on the financial-growth relationship needs to be developed by filling the gaps in New Growth Theory and Evolutionary Theory - two Sons of Schumpeter - and in some way combining them. Structural factors are at the bottom of the persistence of the financial instability in the economy. The goal of this research is to explain the main hypothesis of the historical passage of the economy from a virtuous to a bad cycle and to show the existence of the wealth trap, which is a consequence of a high-technologically advanced financial system within the economic system. A non-linear ABM (Agent Based Model) called BFSE provides, through experimentation using ICEACE model (Erlingsson et al., 2011), interesting evidences of the centrality of the financial system and the bad cycle. Macroprudential and structural policies are introduced.

新藥研發為一高風險、高報酬的產業，股票或債券投資人通常不願承擔那麼高的風險。本研究利用類似Mortgage Backed Securities的概念，發行RBO（Research Backed Obligation），募集50億美金的Megafunds，投資在200個藥物上。RBO包含了Senior bond、Junior bond，以及Equity三個tranche。Senior與Junior的利率分別為5%與8%，在4年與6年後到期，Equity不發利息或股利，而是於投資期間結束後，領回基金總額扣除Bond後的價值。 本研究使用2003-2011年共5820個新藥臨床實驗結果，依照藥物型式、對應疾病分為59類，將各種藥物於各階段臨床實驗的成功機率帶入模型。每種藥物模擬5000次。最後得到投資各種藥物時，Senior bond與Junior bond的違約機率與違約時的期望損失，以及Equity報酬率的期望值與標準差。 分析模擬的結果，可得到除了其中三種藥物之外，Senior與Junior bond的違約機率皆分別在5 bp與2.5 %以下。至於Equity的部分，除了其中四種藥物的報酬率較低外，多數藥物年化報酬率的期望值在8-16%間、標準差在14-15.5%間。各藥物的風險並不會差太多，然而各種藥物報酬率的期望值彼此間有所差距。故以RBO投資新藥產業時，仍需注意投資的藥物種類。 / Biomedical innovation has become riskier and more difficult to finance with traditional sources such as private and public equity. Here we propose a financial structure called RBO (Research Backed Obligations) which is similar to Mortgage Backed Securities. In RBO structure, a $5 billion ‘Megafunds’ is financed by issuing Senior bonds, Junior bonds, and Equity. Senior bond and Junior bond tranches yield 5% and 8% annually, due within 4 and 6 years, respectively. Equity tranche does not pay any interest and obtain the residual asset after all debt obligations have been satisfied. ‘Megafunds’ will be invested on the 200 biomedical programs at various development stage to reduce the portfolio’s risk. We use the historical clinical trail data of 5820 new drug programs from 2003 to 2011. These drugs are classified into 59 groups by molecular type and disease area. Success rates of each development stage are imported into our simulation model, 5000 simulations for each drug group. The simulation result included the default rate of the Senior bonds and Junior bonds, loss of the bonds when the bonds default, and the expected value and standard deviation of the Equity return. We show that except for 3 drug groups, the default rate of Senior bond and Junior bond are less than 5 bp and 2.5% respectively for all the drugs. The expected return of Equity are between 8-16% of almost all the drug, although 4 drug groups show poorer performance. The standard deviations are between 14-15.5% for all drug groups. Consequently, almost all the drug groups have similar risks, but the expected return of the Equity tranche of these drug groups are quite different.

This thesis aims to analyze the origins of the 2007-2009 financial and economic crisis in the US and describe the most significant channels that caused its transmission to the EU countries. Second part of this paper compares both the progress and consequences the financial and economic crisis had for the United Kingdom and Germany with respect to institutional differences of their economic models. Firstly, the second part of this paper focuses on the main institutional patterns including market for corporate control, banking sector, market as a means of financial allocation, labour market flexibility and the economic role of the state. Secondly, using an elaborate micro and macroeconomic data analysis I compare both the progress and the impacts the crisis had on the UK and German economy. Hereby I show that some of the differences in the progress and economic consequences the crisis had for the UK and Germany (price bubble on the real estate market, firms' financial distress, lower domestic and foreign demand and increased unemployment rate) reflected the institutional particularities of their economic models.