Erik Stafford
There are 7 articles for this faculty member.
The Cost of Capital for Alternative Investments
| Authors: | Jakub W. Jurek and Erik Stafford |
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| Published: | October 14, 2011 |
| Paper Release Date: | September 2011 |
| Feature: | Working Papers |
An accurate assessment of the cost of capital is fundamental to the efficient allocation of capital throughout the economy. Alternative investments are investments made by sophisticated individual and institutional investors in private investment companies like hedge funds and private equity funds. These investments are frequently combined with financial leverage to bear risks that may be unappealing to the typical investor or that require flexibility that public investment funds may not provide. Often there is a real possibility of a complete loss of invested capital. For this paper, Jakub W. Jurek and Erik Stafford study the required rate of return for a risk-averse investor allocating capital to alternative investments. They argue that the risks borne by hedge fund investors are likely to be positive net supply risks that are unappealing to average investors, such that they may earn a premium relative to traditional assets.
Published in 2010
Crashes and Collateralized Lending
| Authors: | Jakub W. Jurek and Erik Stafford |
|---|---|
| Published: | October 12, 2010 |
| Paper Release Date: | April, 2010 |
| Feature: | Working Papers |
This paper presents a framework for understanding the contribution of systematic crash risk to the cost of capital for a variety of different types of securities. The framework isolates the systematic crash risk exposure of different collateral types (equities, corporate bonds, and CDO tranches), and provides a simple mechanism for allocating the cost of bearing this risk between a financing intermediary and investor. Research was conducted by Jakub W. Jurek (Bendheim Center for Finance, Princeton University) and Erik Stafford (Harvard Business School).
Published in 2009
The Economics of Structured Finance
| Authors: | Joshua D. Coval, Jakub Jurek, and Erik Stafford |
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| Published: | April 9, 2009 |
| Paper Release Date: | October 2008 |
| Feature: | Working Papers |
This paper investigates the spectacular rise and fall of structured finance. HBS professor Joshua Coval, Princeton professor Jakub Jurek, and HBS professor Erik Stafford begin by examining how the structured finance machinery works. They construct simple examples of collateralized debt obligations (CDOs) that show how pooling and tranching a collection of assets permits credit enhancement of the senior claims. They then explore the challenge faced by rating agencies, examining, in particular, the parameter and modeling assumptions that are required to arrive at accurate ratings of structured finance products. They conclude with an assessment of what went wrong and the relative importance of rating agency errors, investor credulity, and perverse incentives and suspect behavior on the part of issuers, rating agencies, and borrowers.
Risky Business with Structured Finance
| Published: | January 20, 2009 |
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| Feature: | Research & Ideas |
How did the process of securitization transform trillions of dollars of risky assets into securities that many considered to be a safe bet? HBS professors Joshua D. Coval and Erik Stafford, with Princeton colleague Jakub Jurek, authors of a new paper, have ideas.
Published in 2007
Economic Catastrophe Bonds
| Authors: | Joshua D. Coval, Jakub W. Jurek, and Erik Stafford |
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| Published: | July 13, 2007 |
| Paper Release Date: | June 2007 |
| Feature: | Working Papers |
Pooling economic assets into large portfolios and tranching them into sequential cash-flow claims has become a big business, generating record profits for both the Wall Street originators and the agencies that rate these securities. This paper by business economics doctoral student Jakub Jurek and HBS professors Joshua Coval and Erik Stafford investigates the pricing and risks of instruments created as a result of recent structured finance activities. It demonstrates that senior collateralized debt obligation (CDO) tranches have significantly different systematic risk exposures than their credit rating-matched, single-name counterparts, and should therefore command different risk premia.
"UpTick" Brings Wall Street Pressure to Students
| Published: | February 12, 2007 |
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| Feature: | Lessons from the Classroom |
Money managers work in a stressful, competitive pressure cooker that's hard to appreciate from the safety of a business management classroom. That's why HBS professors Joshua Coval and Erik Stafford invented upTick—a market simulation program that has students sweating and strategizing as they recreate classic market scenarios.
Published in 2006
Pricing Liquidity: The Quantity Structure of Immediacy Prices
| Authors: | George C. Chacko, Jakub W. Jurek, and Erik Stafford |
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| Published: | October 13, 2006 |
| Paper Release Date: | September 2006 |
| Feature: | Working Papers |
Researchers and participants in the market for securities have long been interested in the costs of transacting and the notion of liquidity as a performance measure of market structure. In real world capital markets, investors and corporations generally do not expect to transact at fundamental value. Rather, market participants face some degree of illiquidity, where they must sacrifice price, trade size, or speed of execution, forcing them to transact at prices away from fundamental value. The exact price of liquidity, however, is unknown. This paper develops an option-based model of the price of liquidity via the pricing of limit orders.
