Papers by Mark Shackleton
European Financial Management
Applied Economics Letters, 2003
and-conditions-of-access.pdf This article may be used for research, teaching and private study pu... more and-conditions-of-access.pdf This article may be used for research, teaching and private study purposes. Any substantial or systematic reproduction, redistribution , reselling , loan or sub-licensing, systematic supply or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material.
J Bus Finan Account, 2004
ABSTRACT We model Continuous Workout Mortgages (CWMs) in an economic environment with refinancing... more ABSTRACT We model Continuous Workout Mortgages (CWMs) in an economic environment with refinancings and prepayments by employing a market-observable variable such as the house price index. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulae for mortgage payment and mortgage balance of a repayment CWM; (c) a closed form formula for the actuarially fair mortgage rate of an interest-only CWM. For repayment CWMs we extend our analysis to include two negotiable parameters: adjustable \"workout proportion\" and adjustable \"workout threshold.\" These results are of importance as they not only help understanding the mechanics of CWMs and estimating key contract parameters. Our results also provide guidance on how to mitigate systemic risk.
This study extends the Hull and White (1993 J. Derivatives 1 21-31) binomial method to construct ... more This study extends the Hull and White (1993 J. Derivatives 1 21-31) binomial method to construct a trinomial model for the valuation of American-style options whose strike price can be reset to a new level. The reset criterion is conditioned upon the average underlying asset price hitting the reset barrier in a specified period although the model proposed can accommodate
Page 1. Economic Hysteresis Effects and Hitting Time Densities for CIR Diffusions José Carlos Dia... more Page 1. Economic Hysteresis Effects and Hitting Time Densities for CIR Diffusions José Carlos Dias and Mark B. Shackleton∗ Abstract Using the so-called mean-reverting square-root process of Cox et al. (1985b) we generalize ...
The Mathematical Gazette, 2011
Snakes and ladders is an ancient Indian game of chance that offers amusement as well as a metapho... more Snakes and ladders is an ancient Indian game of chance that offers amusement as well as a metaphor for life's many ups and downs. Games offer useful and fun ways of conveying ideas as well as solution techniques and this game has considerable mathematical tractability. This note shows how snakes and ladders can be used to represent the ups and downs of share ownership and determine fair values of a multistage project that pays fixed dividends at uncertain completion times and has random returns
Participating mortgages (PM) are described by the real estate finance literature as an efficient ... more Participating mortgages (PM) are described by the real estate finance literature as an efficient form of financial contracting. This paper investigates different variants of a PM such as Shared Income Mortgage (SIM), Shared Appreciation Mortgage (SAM) and Shared Equity Mortgage (SEM). We resort to the closed-form formulae derived in Shackleton and Wojakowski (2007) to price profit caps and floors of the variants of a PM. Finite maturity pricing formulae are scarce but particularly useful in real estate finance context where most contracts are of definite tenure. Finally, we focus on random tenure mortgages, which arise in the context of default and pre-payment risk.
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This article analyzes present value costs under stochastic interest rates and investigates the ef... more This article analyzes present value costs under stochastic interest rates and investigates the effect of interest rate uncertainty on the replacement investment decision that a firm must make when a piece of equipment becomes obsolete and needs replacement with either short- or long-lived equipment. We consider the replacement problem under stochastic interest rates in a CIR economy (Cox, Ingersoll, and
Journal of Business Finance and Accounting Jbfa, Apr 1, 2002
We analyse the rate of return and expected exercise time of Merton-style options (1973) employed ... more We analyse the rate of return and expected exercise time of Merton-style options (1973) employed in many real option situations where the possibility of exercise is both perpetual and American in nature. Using risk-neutral and risk-adjusted pricing techniques, Merton-style options are shown to have an expected return that is a "constant percentage" of the option value and independent of the
Ssrn Electronic Journal, 2002
Http Dx Doi Org 10 1080 135048501750104079, Oct 6, 2010
The continuous-time formula for expected payoff to holding an option, which nests several major p... more The continuous-time formula for expected payoff to holding an option, which nests several major pricing tools, is derived. It is shown also that under current market conditions the true exercise probability, N (d4), lies halfway between the two more familiar terms: N (d1) and N (d2).
Abstract Despite many past papers concerning a …rm’s capital structure, the valuation of debt and... more Abstract Despite many past papers concerning a …rm’s capital structure, the valuation of debt and equity and cost of capital, there are few that explicitly codify contingent sharing rules for the …rm’s cash‡ow over time. We motivate equity and debt valuation by modeling,tax and distress costs using cap and ‡oor technology as well as a default option at maturity. This approach,sheds light on theoretical valuation issues, optimal capital structure choice as well as a …rm’s component costs of capital. JEL: G13, G33, G35. 1,Introduction The capital structure of …rms has been studied for at least …fty years (since
Reversible, Flow Options. In this paper we produce a formula for a Þnitely lived, perfectly rever... more Reversible, Flow Options. In this paper we produce a formula for a Þnitely lived, perfectly reversible option on a ßow. For this real option that allows frequent and costless switch-ing between the maximum of two asset ßows, we Þrst examine the perpetual and then the Þnite cases in terms of switching thresholds and values. The Þnite option value is inferred from the perpetual using an annuity argu-ment. Applications include energy and commodity consumption costs where switching between ßows can occur frequently and costlessly.
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Papers by Mark Shackleton