In part 1 of this study I examine several models of competitive markets in which a group of uninformed traders uses the equilibrium price of a traded asset as an indirect source of information known to a group of informed traders. Four different models are compared in two homogeneous information cases plus one asymmetric information case, revealing a) an allocative efficiency benefit resulting from the opportunity to trade current consumption for future consumption, b) a 'dealer' benefit accruing to traders who are able to observe and act on demand fluctuations not apparent to other traders, c) a 'hedging' benefit accruing to all traders, and d) a loss of hedging benefits due to information dissemination before hedge trading can take place. The effect of an increase in precision of information given to informed traders is calculated for the above factors and for net welfare.
In part 2, a two-factor model using the instantaneous rate of interest and the return on a consol bond to describe the term structure of interest rates - the Brennan-Schwartz model - is used to derive theoretical prices for American call and put options on U.S. government bonds and treasury bills. These model prices are then compared with market prices. The theoretical model used to value the debt options also provides hedge ratios which may be used to construct zero-investment portfolios which, in theory, are perfectly riskless. Several trading strategies based on these 'riskless' portfolios are examined. / Business, Sauder School of / Graduate
| Identifer | oai:union.ndltd.org:UBC/oai:circle.library.ubc.ca:2429/25565 |
| Date | January 1985 |
| Creators | Dietrich-Campbell, Bruce John |
| Publisher | University of British Columbia |
| Source Sets | University of British Columbia |
| Language | English |
| Detected Language | English |
| Type | Text, Thesis/Dissertation |
| Rights | For non-commercial purposes only, such as research, private study and education. Additional conditions apply, see Terms of Use https://open.library.ubc.ca/terms_of_use. |
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