Essays on Banking and Option Pricing

This thesis contains three papers. The first paper examines how the level of legal protection to creditors may affect the degree of credit market development, measured by the cost, the level, and the variability of credit in the market. The model predicts that high legal protection tends to increase the cost and decrease the level of credit in the economy. The relevance of these effects may vary according to whether the economy is in a recession or a boom. The effect on credit volatility is ambiguous and depends on parametric assumptions. In the second paper, we test the predictions of the model. We take different regions in the U.S., each with its own level of exemption in case of bankruptcy, in two different points in time: 1993, when the U.S. was still facing mild economic conditions, and 1998, a year of the golden era of economic boom. The empirical evidence confirms the predictions of the model. The third paper introduces a nonparametric procedure to estimate state-price densities from option prices. The existing nonparametric kernel regression estimator in Ait-Sahalia and Lo (1998) does not satisfy a requirement of a probability density function: that it be non-negative on its domain. In this paper, we implement a one-step estimation and smoothing procedure based on constrained quantile smoothing splines. It is inherently robust to extreme observations and the structure of the minimization problem makes it quite simple to add shape restrictions. Monte Carlo simulations show that this estimator performs well in small samples and satisfies the required constraints.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Economics

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2015

Author dc:creator

• Toros, Fernanda

Contributors dc:contributor

• Villamil, Anne P.

• Business Administration, Banking

Language dc:language

eng

Identifier

(MiAaPQ)AAI3101982

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/85539