The Journal of Finance

The Pricing of Options with Default Risk

Published: 6/1987,  Volume: 42,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1987.tb02567.x  |  Cited by: 271

HERB JOHNSON, RENÉ STULZ

This paper considers the pricing of options with default risk. The comparative statics of such options can differ from those of ordinary options, and early exercise of such American call options can be optimal. Several examples of options with default risk are considered.

The Effect of Dividend Changes on Stock and Bond Prices

Published: 3/1994,  Volume: 49,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1994.tb04430.x  |  Cited by: 106

UPINDER S. DHILLON, HERB JOHNSON

This study examines stock and bond price reactions to dividend changes. The positive stock market response to dividend increases has several potential explanations, two of the more commonly discussed being information content and wealth redistribution between stockholders and bondholders. The evidence presented supports the wealth redistribution hypothesis but does not rule out the information content hypothesis. Typically we find that the bond price reaction to announcements of large dividend changes is opposite to the stock price reaction. Our results differ from those of Handjinicolaou and Kalay.

The American Put Option and Its Critical Stock Price

Published: 10/2000,  Volume: 55,  Issue: 5  |  DOI: 10.1111/0022-1082.00289  |  Cited by: 84

David S. Bunch, Herb Johnson

We derive an expression for the critical stock price for the American put. We start by expressing the put price as an integral involving first‐passage probabilities. This approach yields intuition for Merton's result for the perpetual put. We then consider the finite‐lived case. Using (1) the fact that the put value ceases to depend on time when the critical stock price is reached and (2) the result that an American put equals a European put plus an early‐exercise premium, we derive the critical stock price. We approximate the critical‐stock‐price function to compute accurate put prices.

A Simple and Numerically Efficient Valuation Method for American Puts Using a Modified Geske‐Johnson Approach

Published: 6/1992,  Volume: 47,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1992.tb04412.x  |  Cited by: 60

DAVID S. BUNCH, HERB JOHNSON

Geske and Johnson (1984) develop an equation for the American put price and obtain accurate prices using a method requiring quadrivariate normal integrals evaluated over an interval containing four equally spaced exercise points. We show that a modification of their method which uses optimal placement of exercise points yields in most cases accurate values using nothing more than bivariate normals. In the more difficult (deep‐in‐the‐money) cases, trivariate normals suffice.

Why Option Prices Lag Stock Prices: A Trading‐based Explanation

Published: 12/1993,  Volume: 48,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1993.tb05136.x  |  Cited by: 121

KALOK CHAN, Y. PETER CHUNG, HERB JOHNSON

While many studies find that option prices lead stock prices, Stephan and Whaley (1990) find that stocks lead options. We find no evidence that options, even deep out‐of‐the‐money options, lead stocks. After confirming Stephan and Whaley's results, we show their results can be explained as spurious leads induced by infrequent trading of options. We show that the stock lead disappears when the average of the bid and ask prices is used instead of transaction prices. Hence, we find no evidence of arbitrage opportunities associated with the stock lead.

THE INCOME ELASTICITY OF CORPORATE PHILANTHROPY: COMMENT

Published: 3/1970,  Volume: 25,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1970.tb00421.x  |  Cited by: 1

Orace Johnson, Walter L. Johnson

THE EXPECTED HOLDING PERIOD RETURN, UNCERTAINTY AND THE TERM STRUCTURE OF INTEREST RATES

Published: 5/1975,  Volume: 30,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1975.tb01813.x  |  Cited by: 0

Ramon Johnson Johnson, John S. McCallum

THE MONEY=BLOOD METAPHOR, 1300–1800

Published: 3/1966,  Volume: 21,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1966.tb02961.x  |  Cited by: 8

Jerah Johnson

THE EXTINGUISHMENT OF CONVERTIBLE BONDS: A THEORETICAL AND EMPIRICAL ANALYSIS*

Published: 3/1971,  Volume: 26,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1971.tb00609.x  |  Cited by: 1

Rodney D. Johnson

SUBORDINATED DEBENTURES: DEBT THAT SERVES AS EQUITY

Published: 3/1955,  Volume: 10,  Issue: 1  |  DOI: 10.1111/j.1540-6261.1955.tb01557.x  |  Cited by: 3

Robert W. Johnson

FINANCING INDUSTRIAL GROWTH*

Published: 5/1957,  Volume: 12,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1957.tb04135.x  |  Cited by: 0

Norris O. Johnson

RATIO ANALYSIS AND THE PREDICTION OF FIRM FAILURE

Published: 12/1970,  Volume: 25,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1970.tb00879.x  |  Cited by: 24

Craig G. Johnson

Rational Momentum Effects

Published: 4/2002,  Volume: 57,  Issue: 2  |  DOI: 10.1111/1540-6261.00435  |  Cited by: 404

Timothy C. Johnson

Momentum effects in stock returns need not imply investor irrationality, heterogeneous information, or market frictions. A simple, single‐firm model with a standard pricing kernel can produce such effects when expected dividend growth rates vary over time. An enhanced model, under which persistent growth rate shocks occur episodically, can match many of the features documented by the empirical research. The same basic mechanism could potentially account for underreaction anomalies in general.

RELATIONSHIPS OF FINANCIAL RISK TO THE TERM STRUCTURES OF CORPORATE BOND YIELDS*

Published: 9/1966,  Volume: 21,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1966.tb00261.x  |  Cited by: 0

Ramon Eskel Johnson

STOCK SPLITS AND PRICE CHANGE

Published: 12/1966,  Volume: 21,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1966.tb00273.x  |  Cited by: 11

Keith B. Johnson

IMPACT OF RECENT CREDIT AND DEBT MANAGEMENT POLICIES UPON THE COMMERCIAL BANKS*

Published: 5/1952,  Volume: 7,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1952.tb01537.x  |  Cited by: 0

Norris O. Johnson

OUTLOOK FOR THE SHORT‐TERM MONEY MARKET

Published: 5/1960,  Volume: 15,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1960.tb00171.x  |  Cited by: 0

Norris O. Johnson

IS THERE AN OPTIMAL MONEY SUPPLY?

Published: 5/1970,  Volume: 25,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1970.tb00666.x  |  Cited by: 4

Harry G. Johnson

FURTHER EVIDENCE AS TO THE RELATIVE EFFECTS OF MONETARY VERSUS FISCAL POLICY*

Published: 9/1973,  Volume: 28,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1973.tb01436.x  |  Cited by: 0

Jerry W. Johnson

AN ANALYSIS OF THE PERMANENT PRICE CHANGE ASSOCIATED WITH COMMON STOCK SPLITS*

Published: 9/1965,  Volume: 20,  Issue: 3  |  DOI: 10.1111/j.1540-6261.1965.tb02920.x  |  Cited by: 1

Keith B. Johnson

TERM STRUCTURES OF CORPORATE BOND YIELDS AS A FUNCTION OF RISK OF DEFAULT

Published: 5/1967,  Volume: 22,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1967.tb00016.x  |  Cited by: 49

Ramon E. Johnson

ECONOMIC RATIONALE OF THE UNIFORM CONSUMER CREDIT CODE

Published: 5/1968,  Volume: 23,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1968.tb00805.x  |  Cited by: 1

Robert W. Johnson

Predictable Investment Horizons and Wealth Transfers among Mutual Fund Shareholders

Published: 10/2004,  Volume: 59,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2004.00689.x  |  Cited by: 61

WOODROW T. JOHNSON

This study analyzes the distribution of investment horizons in a large, proprietary panel of all shareholders in one no‐load mutual fund family. A proportional hazards model shows that there are observable shareholder characteristics that enable the fund to predict reliably on the day each account is opened whether the account will be short term or long term. Simulations show that the liquidity costs imposed on the fund by the expected short‐term shareholders are significantly greater than those imposed by the expected long‐term shareholders. Combining these results, the analysis argues that mutual funds do not provide equitable liquidity‐risk insurance.

Forecast Dispersion and the Cross Section of Expected Returns

Published: 10/2004,  Volume: 59,  Issue: 5  |  DOI: 10.1111/j.1540-6261.2004.00688.x  |  Cited by: 450

TIMOTHY C. JOHNSON

Recent work by Diether, Malloy, and Scherbina (2002) has established a negative relationship between stock returns and the dispersion of analysts' earnings forecasts. I offer a simple explanation for this phenomenon based on the interpretation of dispersion as a proxy for unpriced information risk arising when asset values are unobservable. The relationship then follows from a general options‐pricing result: For a levered firm, expected returns should always decrease with the level of idiosyncratic asset risk. This story is formalized with a straightforward model. Reasonable parameter values produce large effects, and the theory's main empirical prediction is supported in cross‐sectional tests.

The American Put Option Valued Analytically

Published: 12/1984,  Volume: 39,  Issue: 5  |  DOI: 10.1111/j.1540-6261.1984.tb04921.x  |  Cited by: 450

ROBERT GESKE, H. E. JOHNSON

An analytic solution to the American put problem is derived herein. The hedge ratio and other derivatives of the solution are presented. The formula derived implies an exact duplicating portfolio for the American put consisting of discount bonds and stock sold short. The formula is extended to consider put options on stocks paying cash dividends. A polynomial expression is developed for evaluating these formulae. Values and hedge ratios for puts on both dividend and nondividend paying stocks are calculated, tabulated, and compared with values derived by numerical integration and binomial approximation. As with European options, evaluating an analytic formula is more efficient than approximating the stock price process or the partial differential equation by binomial or finite difference methods. Finally, applications of this American put solution are discussed.

DISCUSSION

Published: 5/1964,  Volume: 19,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1964.tb00766.x  |  Cited by: 0

Tynan Smith, Robert W. Johnson

REPLY

Published: 9/1973,  Volume: 28,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1973.tb01428.x  |  Cited by: 1

Robert W. Johnson, Wilbur G. Lewellen

ANALYSIS OF THE LEASE‐OR‐BUY DECISION

Published: 9/1972,  Volume: 27,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1972.tb01313.x  |  Cited by: 39

Robert W. Johnson, Wilbur G. Lewellen

FACTORS AFFECTING PRICE, VOLUME AND CREDIT RISK IN THE CONSUMER FINANCE INDUSTRY

Published: 5/1970,  Volume: 25,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1970.tb00676.x  |  Cited by: 5

Robert W. Johnson, Robert P. Shay

DISCUSSION

Published: 5/1965,  Volume: 20,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1965.tb00205.x  |  Cited by: 0

JOHN H. AUTEN, NORRIS O. JOHNSON

Determinants of Vertical Integration: Financial Development and Contracting Costs

Published: 5/20/2009,  Volume: 64,  Issue: 3  |  DOI: 10.1111/j.1540-6261.2009.01464.x  |  Cited by: 228

DARON ACEMOGLU, SIMON JOHNSON, TODD MITTON

We study the determinants of vertical integration in a new data set of over 750,000 firms from 93 countries. We present a number of theoretical predictions on the interactions between financial development, contracting costs, and the extent of vertical integration. Consistent with these predictions, contracting costs and financial development by themselves appear to have no effect on vertical integration. However, we find greater vertical integration in countries that have both greater contracting costs and greater financial development. We also show that countries with greater contracting costs are more vertically integrated in more capital‐intensive industries.

RISK ON CONSUMER FINANCE COMPANY PERSONAL LOANS

Published: 5/1977,  Volume: 32,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1977.tb03297.x  |  Cited by: 1

Robert W. Johnson, George J. Benston

Institutional Trading and Soft Dollars

Published: 2/2001,  Volume: 56,  Issue: 1  |  DOI: 10.1111/0022-1082.00331  |  Cited by: 118

Jennifer S. Conrad, Kevin M. Johnson, Sunil Wahal

Proprietary data allow us to distinguish between institutional investors' orders directed to soft‐dollar brokers and those directed to other types of brokers. We find that soft‐dollar brokers execute smaller orders in larger market value stocks. Allowing for differences in order characteristics, we estimate the incremental implicit cost of soft‐dollar execution at 29 (24) basis points for buyer‐ (seller‐) initiated orders. For large orders, incremental implicit costs are 41 (30) basis points for buys (sells). However, we document substantial variability in these estimates, and research services provided by soft‐dollar brokers may at least partially offset these costs.

Session Topic: International Trade and Finance: Balance of Payments And International Investment

Published: 5/1974,  Volume: 29,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1974.tb03075.x  |  Cited by: 0

LAWRENCE B. KRAUSE, KEITH JOHNSON, LAWRENCE R. KLEIN

The Impact of In‐Substance Defeasance on Bondholder and Shareholder Wealth

Published: 9/1989,  Volume: 44,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1989.tb02638.x  |  Cited by: 4

JAMES M. JOHNSON, ROBERT A. PARI, LEONARD ROSENTHAL

This paper hypothesizes and tests the argument that a defeasance transaction initiates a wealth transfer from stockholders to bondholders. Our empirical tests provide compelling evidence of bondholder gains, but no support for shareholder losses when a firm defeases debt. We speculate that the insignificance of the loss to shareholders is primarily due to the size disparity between the value of defeased debt and the market value of outstanding equity, since the suggested economic merits of defeasance appear unfounded. Although we cannot prove an agency motivation for defeasance, we find a very high correlation between compensation tied to earnings and defeasing debt at a book gain.

AN EMPIRICAL ANALYSIS OF THE FLOTATION COST OF CORPORATE SECURITIES, 1971–1972

Published: 9/1975,  Volume: 30,  Issue: 4  |  DOI: 10.1111/j.1540-6261.1975.tb01028.x  |  Cited by: 1

Keith B. Johnson, T. Gregory Morton, M. Chapman Findlay

The Effect of Executive Stock Option Plans on Stockholders and Bondholders

Published: 6/1990,  Volume: 45,  Issue: 2  |  DOI: 10.1111/j.1540-6261.1990.tb03707.x  |  Cited by: 315

RICHARD A. DeFUSCO, ROBERT R. JOHNSON, THOMAS S. ZORN

Executive stock option plans have asymmetric payoffs that could induce managers to take on more risk. Evidence from traded call options and stock return data supports this notion. Implicit share price variance, computed from the Black‐Scholes option pricing model, and stock return variance increase after the approval of an executive stock option plan. The event is accompanied by a significant positive stock and a negative bond market reaction. This evidence is consistent with the notion that executive stock options may induce a wealth transfer from bondholders to stockholders.