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The Valuation of Complex Derivatives by Major Investment Firms: Empirical Evidence

Authors

  • ANTONIO E. BERNARDO,

  • BRADFORD CORNELL

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    • Anderson Graduate School of Management at U.C.L.A. We thank Sushil Bikhchandani, Olivier Ledoit, Richard Roll, Richard Stanton, René Stulz, and two anonymous referees for valuable comments.

ABSTRACT

This article examines the auction of a portfolio of collateralized mortgage obligations (CMOs) to major broker dealers and institutional investors. The unique data set allows us to analyze a number of important empirical questions related to the valuation of CMOs by the bidders and the elasticity of demand for the securities. The results reveal that the valuations differ substantially implying a significant elasticity of demand.

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