Brown bag seminar with Mads Vestergaard Jensen, CBS
We are happy to announce the upcoming Brown Bag Seminar with Mads Vestergaard Jensen.
Mads Vestergaard Jensen will be presenting: Early Option Exercise: Never Say Never
Abstract: "A classic no-arbitrage result by Merton (1973) is that, except before expiration or dividend payments, one should never exercise a call option and never convert a convertible bond. We show theoretically that this classic result is overturned when investors face financial frictions and early option exercise reduces 1) short-sale costs, 2) transaction costs, or 3) funding costs. We provide empirical evidence consistent with our theory, documenting friction-induced early exercise for equity call options and convertible bonds using unique data sets on actual exercise and conversion decisions and actual financial frictions."
Location: Augustinus Fondens Senate Meeting Room