The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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The Effects of Inflation and Taxes on Growth Investments and Replacement Policies
Published: 12/01/1983 | DOI: 10.1111/j.1540-6261.1983.tb03838.x
MENACHEM BRENNER, ITZHAK VENEZIA
This paper investigates the effect of inflation and taxes on the optimal duration of investments. The main conclusion is that inflation does not always increase the duration of investments. For example, in the case of equipment with a short replacement cycle, increased inflation tends to decrease the duration of the cycle. Contrary to the common theoretical analysis, these results imply that inflation may increase some forms of capital investments.
Options on the Spot and Options on Futures
Published: 12/01/1985 | DOI: 10.1111/j.1540-6261.1985.tb02384.x
MENACHEM BRENNER, GEORGES COURTADON, MARTI SUBRAHMANYAM
This paper analyzes and compares the valuation of two types of options that relate to the same asset: options on the asset itself and options on the futures on the asset. The early exercise privilege plays a central role in explaining the differences between the values of the two options. It is shown that in the case of a cash instrument that does not make interim payments, such as gold, the value of a call option on the spot is smaller than the call option on the futures contract; the opposite is true for put options. The early exercise boundaries, which characterize when it pays to exercise, are also compared and analyzed.
The Price of Options Illiquidity
Published: 12/17/2002 | DOI: 10.1111/0022-1082.00346
Menachem Brenner, Rafi Eldor, Shmuel Hauser
The purpose of this paper is to examine the effect of illiquidity on the value of currency options. We use a unique dataset that allows us to explore this issue in special circumstances where options are issued by a central bank and are not traded prior to maturity. The value of these options is compared to similar options traded on the exchange. We find that the nontradable options are priced about 21 percent less than the exchange‐traded options. This gap cannot be arbitraged away due to transactions costs and the risk that the exchange rate will change during the bidding process.