The Quarterly Journal of Finance

The purpose of this paper is to illustrate the pricing of options in an incomplete market using the new consistent uplifted martingale measure methodology introduced by Grigorian and Jarrow [2024, Filtration Reduction and Incomplete Markets, Frontiers of Mathematical Finance, 3(1), 78–105; 2023, Filtration Reduction and Completeness in Brownian Motion Models. Working Paper, Cornell University; 2024, Filtration Reduction and Completeness in Jump-Diffusion Models. Working Paper, Cornell University]. We apply it to an incomplete market where a stock has stochastic volatility. Two valuation formulas are generated, depending upon whether the trader is more concerned about volatility or price risk in the construction of a partial replicating portfolio for the option’s payoff.

Social network centrality of chief technology officers (CTOs) affects corporate innovation. Firms with CTOs who are well-connected within the network of all business professionals invest more in research and development (R&D), receive more patents, attract more patent citations, and create more patent value. Besides the effect of the general business network centrality, higher professional network centrality of CTOs (within the network of all other CTOs) also fosters corporate innovation. In addition, firms innovate more and better if CTOs are hired by the incumbent CEOs. Ultimately, R&D investment of companies with high-centrality CTOs enhances firm value.

A one-standard-deviation increase in passive ownership leads to a 25% increase in the compensation duration. I find proxy voting is the channel through which passive investors affect incentive horizons. Since the passage of the Dodd-Frank Act, passive funds tend to vote more against Say-on-Pay (SOP) proposals, and SOP proposals are less likely to pass with higher passive ownership. Moreover, passive ownership is associated with a greater number of shareholder-sponsored compensation proposals and an increased likelihood of these proposals passing. The overall findings indicate that passive institutions work to lengthen CEO compensation to align incentive horizons, and proxy voting is the mechanism through which they exert influence.

Does policy uncertainty affect productivity? Policy uncertainty creates delays on decision-making as firms await new information about prices, costs, and other market conditions before committing resources. Such delays can have real consequences on firms’ productivity and corporate decisions. We find that economic policy uncertainty has a negative impact on firm-level productivity. We further show that the negative impact is alleviated by firms’ high cash holdings or prior committed irreversible investments. These findings are robust to various specifications.

Microfinance institutions (MFIs) have been criticized for charging high interest rates on loans. Building on multiple-principal agency theory, we argue that when an MFI acquires proprietary information about its clients through monitoring, it gains an information advantage over other lenders enabling it to extract rents by charging higher interest rates. Using data from 712 MFIs across 62 countries from 2010 to 2018, we find this to be the case. Furthermore, we find that MFIs that make more relationship-based loans, operate in less competitive markets, and those driven by for-profit commercial banking logic are more likely to extract even greater rents.