REVISION: The Supply Chain Effect of Bankruptcy Reorganization
Date Posted: May 13, 2013
Bankruptcy reorganization is a costly legal process designed to relieve operationally viable companies from their financial obligations. It allows the bankrupt firm to avoid liquidation and to continue creating value through operations. Focusing on the interaction of supply chain structures and the cost of reorganization, this paper studies the influence of bankruptcy reorganization on both ex ante and ex post operations and performances of the financially distressed firm, its competitor, and it
REVISION: How Inventory is (Should Be) Financed: Trade Credit in Supply Chains with Demand Uncertainty and Cos
Date Posted: Feb 12, 2013
As an integrated part of a supply contract, trade credit has intrinsic connections with supply chain contracting and inventory management. Using a model that explicitly captures the interaction of firms’ operations decisions and financial risks, this paper attempts to develop a deeper understanding of trade credit from an operational perspective. Revolving around the question of what role trade credit plays in channel coordination and inventory financing, we demonstrate that with demand uncert
New: Fully Adaptive Designs for Clinical Trials: Simultaneous Learning from Multiple Patients
Date Posted: Aug 10, 2012
Clinical trials have traditionally followed a fixed design where allocation of patients to a given treatment is purely random. Such trials are static in the sense that a protocol is developed and executed with no modifications during the course of the trial. The primary goal of this traditional design is to maximize learning about the efficacy of treatments at the end of the trial. Adaptive designs, on the other hand, allow clinicians to learn about treatment effectiveness during the course of t
REVISION: Long-Term Bank Balance Sheet Management: Estimation and Simulation of Risk-Factors
Date Posted: Aug 01, 2012
We propose a dynamic framework which encompasses the main risks in balance sheets of banks in an integrated fashion. Our contributions are fourfold: 1) solving a simple one-period model that describes the optimal bank policy under credit risk; 2) estimating the long-term stochastic processes underlying the risk factors in the balance sheet, taking into account the credit and interest rate cycles; 3) simulating several scenarios for interest rates and charge-offs; and 4) describing the equations
REVISION: Trade Credit in Supply Chains: Multiple Creditors and Priority Rules
Date Posted: Jun 10, 2012
Priority rules determine the order of repayment when the debtor cannot repay all of his debt. In this paper, we study how different priority rules influence trade credit usage and supply chain efficiency when multiple creditors are present. We find that with only demand risk, when the wholesale price is exogenous, trade credit with high priority can lead to high chain efficiency, yet trade credit with low priority allows more retailers to obtain trade credit and suppliers to gain higher profits.
New: Firm Profitability, Inventory Volatility, and Capital Structure
Date Posted: Aug 23, 2011
Traditional theories of capital structure imply a consistent relationship between firm profitability and firm leverage. Empirical data, however, suggest that the relationship is not monotonic. In the cross-section of firms, non-profitable firms become significantly more leveraged as losses decrease; profitable firms become significantly less leveraged as profits increase until a point where the most profitable firms have again significantly greater leverage as profits increase. In this paper, w
REVISION: Index Tracking and Enhanced Indexation Using a Parametric Approach
Date Posted: Nov 03, 2009
Based on the work of Brandt, Santa-Clara and Valkanov (2009), we formulate an index tracking and enhanced indexation model using a parametric approach. The portfolio weights are modeled as functions of assets characteristics and similarity measures of the assets with the index to track. This approach permits to handle non-linear and non-convex objectives functions that are common in index tracking and enhanced indexation. An empirical implementation and analysis of the characteristics are presen
REVISION: Optimal Investment and Production Across Markets with Stochastic Exchange Rates
Date Posted: Jun 18, 2009
All multinational firms face foreign exchange fluctuations, which can create unstable cash flows and even bankruptcy. Managers of these firms face critical questions over how to reduce the risk due to income and expenses in multiple currencies. Traditional financial risk controls include futures and options, but firms also can use operational controls, such as foreign production capacity. In this paper, we study these alternatives for a simplified single-product firm operating in a home marke
New: Discrete-Time Optimization of Consumption and Investment Decisions Given Intolerance for a Decline i
Date Posted: Feb 19, 2008
We extend Samuelson's (1969) discrete-time dynamic consumption and investment optimization problem to the case where the investor is intolerant of any decline in her standard of living. This constraint represents a strong form of habit formation such that the consumption rate is non-decreasing over time. To achieve this objective, the investor first guarantees a consumption perpetuity at the current consumption rate and then allocates the remaining wealth under a state-dependent, adjusted coeffi
A Model for Tax Advantages of Portfolios with Many Assets
Date Posted: Sep 04, 2005
Taxable portfolios present challenges for optimization models with even a limited number of assets. Holding many assets, however, has a distinct tax advantage over holding few assets. In this paper, we develop a model that takes an extreme view of a portfolio as a continuum of assets to gain the broadest possible advantage from holding many assets. We find the optimal strategy for trading in this portfolio in the absence of transaction costs and develop bounding approximations on the optimal v
Equity Valuation, Production, and Financial Planning: A Stochastic Programming Approach
Date Posted: Jan 23, 2005
Most of the operations management literature assumes that the firm can always finance production decisions at an optimal level or borrow at a constant interest rate; however, operational decisions are constrained by limited capital and often critically depend on external financing. This paper proposes an integrated corporate planning model, which extends the forecasting-based discount dividend pricing method into an optimization-based valuation framework to make production and financial decision
Operational Decisions, Capital Structure, and Managerial Compensation: A News Vendor Perspective
Date Posted: Jan 23, 2005
While firm growth critically depends on financing ability and access to external capital, the operations management literature seldom considers the effects of financial constraints on the firms' operational decisions. Another critical assumption in traditional operations models is that corporate managers always act in the firm owners' best interests. Managers are, however, agents of the owners of the company, whose interests are often not aligned with those of equity-holders or debt-holders; h
Joint Production and Financing Decisions: Modeling and Analysis
Date Posted: Jan 23, 2005
This paper develops models to make production and financing decisions simultaneously in the presence of demand uncertainty and market imperfections. While the Modigliani and Miller propositions demonstrate that a firm's investment and financing decisions can be made independently in a perfect capital market, our models illustrate how a firm's production decisions are affected by the existence of financial constraints. We analyze the interactions between a firm's production and financing decision
Comparisons of Alternative Quasi-Monte Carlo Sequences for American Option Pricing
Date Posted: Dec 29, 2004
Quasi-Monte Carlo sequences have been shown to provide accurate option price approximations for a variety of options. In this paper, we apply quasi-Monte Carlo sequences in a duality approach to value American options. We compare the results using different low discrepancy sequences and estimate error bounds and computational effort. The results demonstrate the value of sequences using expansions of irrationals.
Error Bounds for Quasi-Monte Carlo Methods in Option Pricing
Date Posted: Dec 29, 2004
The classic error bounds for quasi-Monte Carlo approximation follow the Koksma-Hlawka inequality based on the assumption that the integrand has finite variation. Unfortunately, not all functions have this property. In particular, integrands for common applications in finance, such as option pricing, do not typically have bounded variation. In contrast to this lack of theoretical precision, quasi-Monte Carlo methods perform quite well empirically. This paper provides some theoretical justificati