We present a tree algorithm, called the willow tree, for financial derivative pricing. The setup of the tree uses a fixed number of spatial nodes at each time step. The transition probabilities are determine by solving linear programming problems. The willow tree method is radically superior in numerical performance when compared to the binomial tree method.

This thesis presents an empirical investigation of the role of competition in determining (1) bidder firm behaviour in, and (2) the resulting valuation effects of, corporate takeovers. The study is based on the most comprehensive sample currently available of interfirm tender offers for publicly traded U. S. target firms during the period 1971-1990. Corporate takeover contests differ in complex ways with respect to the asymmetric information and bargaining environment, distributions of bidder reservation values and target share ownership, and information acquisition costs. There is substantial theoretical work examining the strategic role of the choice of payment method, bidder elimination and target management resistance, and of particular interest in this thesis, pre-bid acquisition of target shares ("toehold") and its impact on the subsequent tender offer price. Despite a voluminous empirical literature on corporate acquisitions, systematic evidence on the extent and role of bidder toeholds on bidding strategies is sparse. While the toehold has been shown to be prevalent in takeover contests, the extant empirical literature contains few results pointing to the strategic role suggested by theory. The lack of statistical significance may reflect a combination of small samples, weak experimental design, and biases in estimation. This thesis remedies the small sample problem by examining more than 1350 takeover contests in the U. S. from 1971 to 1990. The experimental design is improved by including a larger set of sample controls, and addressing the bias issue by estimating a set of equations which simultaneously determines the toehold and the takeover premium. The wealth effects of takeover contests are estimated as a function of toeholds, the number of bids/bidders, the outcome of the bid, and the target management response. Other empirical issues, including the effect of toeholds on the probability of target management resistance and emergence of a second bid in the contest, are also examined. Finally, a new econometric technique is developed for simultaneously estimating event probabilities and conditional expected event returns in order to determine whether entering the takeover auction, and responding to rival bids for the target shares, on average enhances the wealth of the initial bidders' shareholders.

Final work of Master Studies, 54 pages, 20 figures, 12 tables, 41 references, 6 appendix, lietuvių kalba. KEY WORDS – securities, stock, portfolio, models. Research object – stock portfolio formatting models. Research aim - to analyze stock portfolio formatting models and their adaptability under conditions of Lithuania. Objectives: • to research theoretical aspects of securities portfolio formatting; • to explore modern stock portfolio formatting models; • to construct stock portfolio formatting models under conditions of Lithuania. Research methods - statistical, monographic, deduction and induction.

Darbe išanalizuoti vertybinių popierių portfelio formavimo teoriniai aspektai, atlikta vertybinių popierių portfelių formavimo modelių palyginamoji analizė bei sudaryti efektyvūs vertybinių popierių portfeliai iš Lietuvos įmonių akcijų ir vyriausybės obligacijų pagal skirtingus portfelių tipus (agresyvųjį, nuosaikųjį, konservatyvųjį. Šiems tyrimams atlikti buvo naudojami sisteminės ir loginės analizės, statistinis, monografinis bei indukcinis ir dedukcinis metodai. / Analyzed securities portfolio theoretical formatting aspects, formatting models of securities portfolio and constructed effective securities portfolio from Lithuanian companies stocks and the governmental bonds for 3 different securities types (aggressive, moderate, conservative). Have been used systemic, logical analysis, statistical, monographic, deduction and induction research methods.

Au cours de la dernière année, la régie d'entreprise a subi des bouleversements majeurs. Autrefois reléguée au second plan comme relevant des affaires internes de la compagnie, les récents scandales financiers aux États-Unis ont poussé à l'avant plan la problématique de la régie d'entreprise et le rôle que doivent assumer les divers intervenants du marché. Le congrès américain a réagi très rapidement aux scandales par l'adoption d'une loi. Les autorités canadiennes durent se questionner sur le type de réforme qui devrait conduire le Canada vers une meilleure régie d'entreprise tout en conservant sa compétitivité dans un contexte de mondialisation. Le présent mémoire se veut une approche pratique à la problématique de la régie d'entreprise. Au-delà des théories élaborées, le contexte actuel requiert une action concrète adaptée au milieu et au contexte économique canadien. En ce sens, la réaction des autorités canadiennes aux changements en place aux États-Unis nous renseignera non seulement sur la philosophie des autorités canadiennes, mais également sur l'approche qui sera privilégiée par celles-ci dans l'évolution de la régie d'entreprise qui doit mener à la reprise de confiance des investisseurs dans le marché, confiance durement ébranlée par les récents scandales financiers. / Over the past year, corporate governance has suffered many hits. Traditionnally pushed aside as management's problem, the recent wave of financial scandais in the United-States has put corporate governance at the front end. In that context, the role of market participants must be redefined. The United-States Congress reacted very rapidly to the scandais by adopting a new by-Iaw, the Sarbanes-Oxley Act. The Canadian authorities had to question themselves as to what kind of reform Canada would need to put it on the path of better Corporate Governance without compromising its competitiveness in a global market. The present paper follows a practical approach to the recent Corporate Governance problems. Beyond the theories elaborated on Corporate Governance, today's context requires concrete action adapted to the Canadian economic environment. In this sense, the reaction of the Canadian authorities to the new rules in the United-States will give insight as to what is the Canadian authorities' philosophy on the subject and what lies ahead for regulatory changes in Canada in the market's search to regain investor confidence after a wave of financial scandais. / "Mémoire présenté à la faculté des études supérieures en vue de l'obtention du grade de Maître en droit (LL.M.)"

This thesis studies the impacts of credit risk, or the risk of default, on the pricing of fixed income securities. It consists of three essays. The first essay extends the classical corporate debt pricing model in Merton (1974) to incorporate stochastic volatility (SV) in the underlying firm asset value and derive a closed-form solution for the price of corporate bond. Simulation results show that the SV specification for firm asset value greatly increases the resulting credit spread levels. Therefore, the SV model addresses one major deficiency of the Merton-type models: namely, at short maturities the Merton model is unable to generate credit spreads high enough to be compatible with those observed in the market. In the second essay, we develop a two-factor affine model for the credit spreads on corporate bonds. The first factor can be interpreted as the level of the spread, and the second factor is the volatility of the spread. Our empirical results show that the model is successful at fitting actual corporate bond credit spreads. In addition, key properties of actual credit spreads are better captured by the model. Finally, the third essay proposes a model of interest rate swap spreads. The model accommodates both the default risk inherent in swap contracts and the liquidity difference between the swap and Treasury markets. The default risk and liquidity components of swap spreads are found to behave very differently: first, the default risk component is positively related to the riskless interest rate, whereas the liquidity component is negatively correlated with the riskless interest rate; second, although default risk accounts for the largest share of the levels of swap spreads, the liquidity component is much more volatile; and finally, while the default risk component has been historically positive, the liquidity component was negative for much of the 1990s and has become positive since the financial market turmoil in 1998.

The objective of this research proposal is to explore the extent to which credit derivatives can be used effectively by domestic financial institutions, in particular, Commercial Banks to hedge the credit risk associated with lending to the Small, Medium and Micro enterprise (SMME) market segment, thereby making lending to this market segment an attractive and viable banking proposition. The financial services sector in South Africa has come under severe criticism from Government, trade unions and the unbanked, low income earners for not fulfilling their social responsibility, in terms of, not banking the Small, Medium and Micro enterprise (SMME) customer base. In particular, financial institutions have been accused of ignoring or not giving sufficient attention to the financial/credit needs of this market segment. These parties have argued that many of the domestic financial institutions are applying standard credit criteria to this market segment, which they feel is incorrect. This has often resulted in SMME's having their requests for credit facilities declined by domestic financial institutions and then having to resort to approaching unscrupulous "loan sharks" for credit facilities, which facilities are often made available to them at exorbitant interest rates. The alleged reluctance on the part of domestic financial services institutions to make available credit facilities, in the form of start-up business loans and asset-based finance to the SMME segment has possibly hindered economic growth, productivity, employment and resulted indirectly in a host of other social anomalies. Alister Ruiters of the Department of Trade and Industry has been publicly vociferous in his attack on domestic financial institutions (Business Day, August18, 1999). It would appear these financial institutions are only prepared to do business with this market segment in partnership with Government, where Government bears a large proportion of the risk by providing guarantees or indemnities on behalf of the client. Examples of such guarantees include Khula and Sizabantu guarantees issued by agencies controlled within the ambit of the Department of Trade and Industry. Financial service institutions have defended their actions by countering that the credit risk attached to making loans available to the SMME market segment is often unacceptable to them. Many of these potential clients are characterised by adverse credit records, show little stability, in terms of, employment and domicilium and often do not have any tangible collateral available to support their loan requests. That is, the risk from lending to this market segment far outweighs the potential returns. Further, these financial institutions have argued that with South Africa having been accepted into the international fold and following the accelerated pace of globalisation, new markets have opened up for their shareholders. Hence, shareholders are requiring improved returns (capital gains and/or dividends); else they are at liberty to move their funds to other investment destinations. The pressure on domestic financial institutions to deliver consistently better returns on equity has been and continues to be a difficult one. This is exacerbated by the increasing competitive pressure from both retail competitors who are now offering financial services, such as Pick 'n Pay Financial Services, Woolworth's, and foreign financial institutions, who have entered the domestic scene. For many of the retail competitors the offering of financial services is seen merely as an extension of their product line. Existing infrastructure, in the form of, branches /outlets and technology are largely already in place. Further, they are not bound by the same liquidity reserve requirements imposed by the South African Reserve Bank (SARB), as are the domestic financial institutions they now compete against. Hence, the retail competitors' profit margins are likely to be higher. Further, as many of the foreign financial institutions are not constrained by the same social responsibility obligations local financial institutions face and as they have not invested substantially in branch networks and other infrastructure in South Africa, their profit margins are higher and hence their returns on equity is likely to be significantly higher than the domestic financial institutions. Following the increasing popularity of Credit Derivatives in countries, such as, the United States of America, the United Kingdom and India, it is my intention to explore whether this instrument can be used effectively by domestic financial institutions as an hedging tool to insure against what they might otherwise consider unacceptable risk in the SMME market segment. That is, will the use of credit derivatives make the lending of funds to this client base an acceptable or attractive proposition to domestic financial institutions. However, we first need to define credit risk and credit derivatives before we proceed further. Creditex (Commentary, May 2001) defines credit risk as: "the risk of loss following default. " PriceWaterhouseCoopers defines a credit derivative as : "a credit risk management instrument that allows a financial institution to transfer credit risk to another party". Having, in simple terms, defined what we mean by credit risk and credit derivatives, we proceed by suggesting how credit derivatives can be used as an effective hedging tool and also some of the possible shortcomings that may be associated with the use of credit derivatives in South Africa. Cheow and Chiu (Managing Credit Risks, May 23,2001) suggest credit derivatives have the potential to transform the way in which Commercial Banks do business. The impact of credit derivatives is likely to result in changes in Bank's operating and credit models of assessment, pricing policies and offer insight into how products and services may be developed and implemented. Traditionally Banks appear to have been involved in all aspects of lending from origination to administration, monitoring and collection. These authors suggest the resulting credit model emanating from the use of credit derivatives is likely to only concentrate on origination of the loan with the view of later selling-off the book itself or insuring the credit risk. This latter alternative involves credit derivatives. We turn our attention to highlighting some possible constraints to the effective use of credit derivatives in South Africa. These are as follows :  Lack of effective infrastructure  Lack of liquidity  Lack Of Transparency  Restrictive Central Bank regulations and exchange controls  limited number of large financial institutions. / Thesis (MBA)-University of Natal, Durban, 2002.

Takeovers play an important role in the economy as they serve to reallocate economic resources to more efficient uses and replace inefficient management. Unregulated takeover bids pose a threat to the interests of the target company shareholders. The legislature pays special attention to takeover bids to make sure that the bona fide interests of the target company shareholders are duly protected. This is the primary purpose of the takeover bid regulation in Ontario. The regulation is also aimed at ensuring the horizontal equity among target shareholders and the efficient functioning of the capital market. This thesis analyzes the present regulation of takeover bids in Ontario and argues that while the whole system of takeover bid regulation is consistent with the proclaimed purposes, there are two issues that fall out of the coherent structure. The restriction on free transferability of shares and the adoption by boards of directors of shareholder rights plans do not enhance the protection of target company shareholders and do not correspond to the proclaimed purposes.

While the literature on underpricing of initial public offerings (IPOs) of common stock is various and expansive, very little research has been undertaken in countries where capital markets are less developed.  This thesis therefore attempts to address the shortage of such research in Egypt, which has been witnessing an important phase of transition towards a broader adoption of market-oriented policies through the revitalisation of its stockmarket since 1991.  The aim is to measure the short-run performance of IPOs in an effort to compare the maturity of the Egyptian capital market with that of other nations, both of developed countries and a peer group of developing countries.  This thesis also seeks to determine whether the underpricing phenomenon is due to the usual factors suggested by classical IPO theories or is related to some specific features of the Egyptian market transformation.  This thesis employs a sample of 59 Egyptian IPOs listed in the Egyptian Stock Exchange (ESE) during 1994-2005. This thesis suggests the winner’s curse model can be applied.  On average, Egyptian IPOs offer an initial return of about 10.16%, which is considered, to some extent, lower than the initial returns of many other developing countries.  Additionally, there is a general tendency for privatised IPOs (PIPOs) to be underpriced to a greater degree than private sector IPOs.  The industry of the firm and year of an IPO significantly affects the level of underpricing in Egypt.  Results are consistent with the political economy theory as the Egyptian government tried to build up investors’ confidence by underpricing PIPOs more than private-sector IPOs, underpricing regulated industries more than competitive industries and underpricing early IPOs more than late IPOs.

This dissertation consists of three essays in international asset pricing. The first essay develops a model where investors face barriers to foreign portfolio investment. Using the standard mean-variance framework, risk return relationships for all securities are developed. It is also shown that: (1) previous models adopting this approach are special cases of this model, and (2) all investors generally prefer complete removal of barriers over other market structures. Essay #2 empirically explores the issue of the degree of segmentation of the international capital market for risky securities. Using the 'emerging market' (EM) data base, it is shown that the international capital market is neither completely segmented nor completely integrated. Finally, the third essay investigates the relationship between stock returns and inflation for the EM securities. It is shown that stock returns are positively (negatively) related to inflation, for the group of high (low) inflation countries in the sample.