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This dissertation consists of four essays on pricing fixed income derivatives and risk management. The first essay presents pricing and duration formulas for floating rate bonds and interest rate swaps with embedded options. It combines Briys et al.'s approximation with the extended Vasicek term structure model to value caps and floors. Using this approach, it computes the durations of caps, floors, collars, floating rate bonds with collars and interest rate swaps with collars, and provides comparative statics analyses of these durations with respect to the underlying variables such as the cap rate, the floor rate, the interest rate volatility, and the level of interest rates. The second essay explores a class of polynomial Taylor series expansions for approximating the bond return function, and examines its implication for managing interest rate risk. The generalized duration vector models derived from alternative Taylor series expansion extend Fong and Fabozzi's M-square model and Nawalkha and Chambers' M-vector model, and the empirical tests show that immunization results can be improved for models g( t) = tα with α less than 1 when higher order generalized duration vectors are used. The third essay develops a methodology to build recombining trees for pricing American options on bonds under deterministic volatility HJM models. Without imposing the HJM drift restriction, our approach uses the Nelson-Ramaswamy transformation to generate recombining forward rate trees. We show that the option prices obtained from our recombining trees satisfy Merton's bond option PDE when step size approaches zero. Numerical simulations provide evidence that this approach is efficient in pricing both European and American contingent claims. The fourth essay obtains computationally efficient trees for pricing European options under two types of proportional volatility HJM models. We construct a numeraire economy in which European options are priced using a maturity-specific equivalent martingale measure. We then show that for the two types of proportional volatility models, European option prices are independent of the forward rate drift under this maturity-specific equivalent martingale measure. Our method is particularly beneficial when used to price long-dated caps, floors and collars because these instruments involve a large number of long-dated puts and calls.

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This dissertation develops efficient lattice procedures for pricing American options under stochastic volatility models, and stochastic volatility models extended with jumps in asset returns. It also develops the framework for building lattices for stochastic volatility models extended with jumps in both asset returns and volatility. These lattices allow pricing of American options under stochastic volatility/jump models of Bates [1996], Pan [2002], Duffie, Pan, and Singleton [2000], and others. The first chapter corrects the square root transform of Nelson and Ramaswamy [1990] and develops a more efficient truncated tree for the square root process as well as the entire class of constant elasticity of variance models. As another contribution this chapter proposes jump extensions to the CIR and CEV processes of the short rate. The second chapter develops a new two-dimensional orthogonal transform that allows the construction of two-dimensional lattices for various stochastic volatility models. The transform creates a new process which is conditionally independent of the volatility process. The conditional independence plays a useful role in developing recombining lattices. The results are demonstrated using the examples of Hull and White [1987] and Heston [1993] models. The third chapter shows how the two-dimensional transform developed in the previous chapter could be modified to allow the construction of recombining lattices for the stochastic volatility model extended with jumps in asset returns. This chapter also lays down the foundation for building recombining lattices for the models that allow jumps in both asset returns and volatility. The theory is developed for two cases: (i) jumps between asset returns and volatility process are perfectly correlated, and (ii) jumps between asset returns and volatility process are partially correlated. The contribution of the third chapter is especially significant given no recombining lattice approaches have been developed in the literature to simultaneously account for stochastic volatility and jumps. As a final contribution, the forth chapter estimates the parameters of four models using cross-section of market data on European options on S&P 100 index. The performance of four models is assessed by applying developed lattice procedures to price American options on S&P 100 using parameters estimated from European options.

The strategic management literature draws attention to the importance of congruence between strategy, technology strategy and structure, and the potential for disjuncture. Bearing this in mind, we developed a cross-national, exploratory, institutional study of the retail banking industry, focusing specifically on information technology implementation at the unit level. The study employs a dual methodological focus at two levels of analysis, with extensive, semi-structured interviews at the corporate and regional level, followed by a questionnaire at the unit, branch manager level. A response rate of 81% seems to imply a concern for the timeliness of the research. In both Canada and the U.S.A., governmental deregulation and widespread technological developments have resulted in increased competition and restructuring of the industry. Against this backdrop of turbulence, information technology has the potential to change significantly the decision-making structure of the branch system. The most striking difference between the banking systems of the U.S.A. and Canada are the disproportionate number of branch units per bank, approximately 1:10. In some important aspects, decision-making in the Canadian bank is decentralized to the branch manager level, while in the U.S.A. bank decision-making is centralized to the regional level. The study concludes that the strength of the Canadian bank rests on its extensive, decentralized branch network. Conversely in the U.S.A., the bank is restricted in its expansion by the lack of decision-making at the branch level. Arguably, technology can be used to centralize or decentralize decision-making, constrained by existing structure and technological capability. In both countries the technology strategy is somewhat incompatible with structure. Constrained by industry structure, both banks espouse different strategies, and have dissimilar structures. Competitive strategy, in Porter's terms, is shown to be inappropriate, with both banks seeking to maximize cost efficiency, and simultaneously develop differentiation.

This master thesis examines key differences between Islamic and conventional banks. We use a data on 2374 banks from 47 countries for the 2010-2016 period. We apply comparative statistical analysis, Ordinary Least Squares regression and System Generalized Method of Moments to estimate the effects of both bank types on their profitability and stability. The contribution of the thesis is threefold. First, we find a significantly higher profitability of Islamic banks compared to conventional ones. Second, we did not find any evidence that Islamic banks are less stable. Finally, we conclude that the women participation in financial activities is correlated with the development of conventional, not Islamic, banks JEL Classification G21, C33, F33, F34, J11 Keywords Islamic banking, bank profitability, bank stability, gender participation Author's e-mail Sabina.mammadli@hotmail.com Supervisor's e-mail Petr.teply@fsv.cuni.cz Master's Thesis Proposal Institute of Economic Studies Faculty of Social Sciences Charles University in Prague Author: Bc. Sabina Mammadli Supervisor: Doc. PhDr. Petr Teplý, PhD. E-mail: Sabina.mammadli@hotmail.c om E-mail: Petr.teply@fsv.cuni.cz Phone: 608 550 236 Phone: 222 112 326 Specializatio n: CSF Defense Planned: June 2017 Proposed Topic: An Application of Islamic Banking Principles in...

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Jensen and Meckling (1976) depict the firm as a nexus of financial contracts that offer optimal mechanisms to mitigate various frictions between agents, e.g., equity holders versus debt holders, principal versus agent, etc. In this study, we focus on two particular types of loan contract, performance pricing and revolving line of credit. Chapter 1 examines how default risk and accounting quality of borrowers affect the likelihood of using performance pricing in bank loan contracts. Consistent with the notion of negative hedging, higher default risk firms are less likely to use performance pricing loans. We also find that firms with poorer accounting quality are less likely to receive performance pricing loans. Stronger lender-borrower relationship that would mitigate information asymmetry and enhance monitoring, is found to be associated with greater likelihood of using performance pricing loans. In addition, we find that conditional on using performance pricing loans, firms with lower (higher) accounting quality are more likely to receive credit rating (accounting) based performance pricing provision. Furthermore, we document that the likelihood of receiving performance pricing loans is significantly reduced after borrowers' accounting quality deteriorates, e.g., after they restate their financial reports. These results supports the positive accounting theory, suggesting that a significant cost associated with performance pricing loans is borrowers' incentives to manipulate accounting information so as to obtain a lower loan spread. Theoretical literature suggests that firms use lines of credit as a liquidity insurance to secure a desirable investment level in the event of future downturn (Tirole, 2005). In Chapter 2, we examine whether lines of credit provide liquidity insurance or simply convenience to firms via focusing on the drawdown rate. We find that drawdown rate is on average significantly lower than the imputed market rate on a bank loan given the financial condition of a firm at the time of drawdown, which supports the theoretical notion that lines of credit offer liquidity insurance. In addition, we document that stronger (or existence of) prior lending relation is associated with a lower drawdown rate, however bank reputation has no impact on the drawdown rate. Furthermore, we find that the impact of lending relation on the drawdown rate only exists in borrowers subject to greater information asymmetry. While we document that borrowers are penalized (paying a higher spread and more likely pledging collateral) on new lines of credit issued after their drawdown, they are penalized much less as they borrow from high reputation banks. Our results suggest that bank reputation and lending relation help provide a more efficient liquidity insurance, however via different channels. Chapter 3 examines how a firm's performance pricing loans affect manager's incentive to manipulate earning. We find that firms with a greater slope or convexity in their performance pricing loans have significantly larger discretionary accruals. However, the positive association between the slope or convexity of PSD and discretionary accruals is significantly reduced as the lenders are of higher reputation or have had a prior lending relationship with the borrowers. These results suggest that bank reputation and prior lending relation serve as an effective monitoring mechanism, which in turn mitigates managers' incentive to manage earnings. / Business Administration/Finance