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The Valuation of Complex Derivatives by Major Investment Firms: Empirical Evidence

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  • Bernardo, Antonio E
  • Cornell, Bradford

Abstract

This article examines the auction of a portfolio of collateralized mortgage obligations to major broker dealers and institutional investors. The unique data set allows the authors to analyze a number of important empirical questions related to the valuation of collateralized mortgage obligations by the bidders and the elasticity of demand for the securities. The results reveal that the valuations differ substantially, implying a significant elasticity of demand. Copyright 1997 by American Finance Association.

Suggested Citation

  • Bernardo, Antonio E & Cornell, Bradford, 1997. " The Valuation of Complex Derivatives by Major Investment Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 52(2), pages 785-798, June.
  • Handle: RePEc:bla:jfinan:v:52:y:1997:i:2:p:785-98
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    Cited by:

    1. Chen, An-Sing & Liaw, Gwohorng & Leung, Mark T., 2003. "Stock auction bidding behavior and information asymmetries: An empirical analysis using the discriminatory auction model framework," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 867-889, May.
    2. Gunther Capelle-Blancard, 2010. "Are derivatives dangerous?," Post-Print halshs-00605908, HAL.
    3. René M. Stulz, 2004. "Should We Fear Derivatives?," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 173-192, Summer.
    4. Michael S. Gibson, 1997. "Information systems for risk management," International Finance Discussion Papers 585, Board of Governors of the Federal Reserve System (U.S.).
    5. Guillaume Plantin, "undated". "Tranching," GSIA Working Papers 2005-E2, Carnegie Mellon University, Tepper School of Business.
    6. Brent Ambrose & Michael LaCour-Little & Anthony Sanders, 2005. "Does Regulatory Capital Arbitrage, Reputation, or Asymmetric Information Drive Securitization?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 28(1), pages 113-133, October.
    7. repec:eee:jfinec:v:127:y:2018:i:3:p:505-518 is not listed on IDEAS
    8. Ulrike Malmendier & Young Han Lee, 2011. "The Bidder's Curse," American Economic Review, American Economic Association, vol. 101(2), pages 749-787, April.
    9. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    10. Gunther Capelle-Blancard, 2010. "Are derivatives dangerous?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00605908, HAL.

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