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In this paper we analyse security loan guarantees in the light of the option pricing theory. We interpret them as put options on the cash flows of a secured debt. We highlight that the value of the guarantee is always positive before a loan’s maturity and it depends on the same factors that determine the value of a financial option. We also analyse their value in the condition of market efficiency and we conclude that the inefficiencies of the financial markets justify their existence. Finally, we focus our attention on public agencies’ intervention by offering credit guarantees to private firms.

We investigated the profitability of a simple and easily implementable pairs trading strategy that included trading costs and restrictions to short selling so as to replicate an effective strategy exploitable by an individual investor. Notwithstanding the limitations embodied in our model, pairs trading still works. However, the constraints significantly affect the profitability of the strategy. We found evidence that restrictions to the number of shares that are allowed to be shorted have a relevant impact on the risk profile of the pairs portfolios. Our results support the hypothesis that pairs trading is an equity market neutral investment strategy.

In this paper we analyse security loan guarantees in the light of the option pricing theory. We interpret them as put options on the cash flows of a secured debt. We highlight that the value of the guarantee is always positive before a loan's maturity and it depends on the same factors that determine the value of a financial option. We also analyse their value in the condition of market efficiency and we conclude that the inefficiencies of the financial markets justify their existence. Finally, we focus our attention on public agencies' intervention by offering credit guarantees to private firms. Keywords: Loan guarantee; option pricing theory; public guarantee; guarantee value JEL Classifications: H81

In this paper we analyse security loan guarantees in the light of the option pricing theory. We interpret them as put options on the cash flows of a secured debt. We highlight that the value of the guarantee is always positive before a loan's maturity and it depends on the same factors that determine the value of a financial option. We also analyse their value in the condition of market efficiency and we conclude that the inefficiencies of the financial markets justify their existence. Finally, we focus our attention on public agencies' intervention by offering credit guarantees to private firms. Keywords: Loan guarantee; option pricing theory; public guarantee; guarantee value JEL Classifications: H81

In this paper we analyse security loan guarantees in the light of the option pricing theory. We interpret them as put options on the cash flows of a secured debt. We highlight that the value of the guarantee is always positive before a loan's maturity and it depends on the same factors that determine the value of a financial option. We also analyse their value in the condition of market efficiency and we conclude that the inefficiencies of the financial markets justify their existence. Finally, we focus our attention on public agencies' intervention by offering credit guarantees to private firms. Keywords: Loan guarantee; option pricing theory; public guarantee; guarantee value JEL Classifications: H81

We investigated the profitability of a simple and easily implementable pairs trading strategy that included trading costs and restrictions to short selling so as to replicate an effective strategy exploitable by an individual investor. Notwithstanding the limitations embodied in our model, pairs trading still works. However, the constraints significantly affect the profitability of the strategy. We found evidence that restrictions to the number of shares that are allowed to be shorted have a relevant impact on the risk profile of the pairs portfolios. Our results support the hypothesis that pairs trading is an equity market neutral investment strategy. Keywords: Pairs trading; market neutral; Italian stock market; trading strategy; statistical arbitrage; short selling; personal finance JEL Classifications: G11

We investigated the profitability of a simple and easily implementable pairs trading strategy that included trading costs and restrictions to short selling so as to replicate an effective strategy exploitable by an individual investor. Notwithstanding the limitations embodied in our model, pairs trading still works. However, the constraints significantly affect the profitability of the strategy. We found evidence that restrictions to the number of shares that are allowed to be shorted have a relevant impact on the risk profile of the pairs portfolios. Our results support the hypothesis that pairs trading is an equity market neutral investment strategy. Keywords: Pairs trading; market neutral; Italian stock market; trading strategy; statistical arbitrage; short selling; personal finance JEL Classifications: G11

We investigated the profitability of a simple and easily implementable pairs trading strategy that included trading costs and restrictions to short selling so as to replicate an effective strategy exploitable by an individual investor. Notwithstanding the limitations embodied in our model, pairs trading still works. However, the constraints significantly affect the profitability of the strategy. We found evidence that restrictions to the number of shares that are allowed to be shorted have a relevant impact on the risk profile of the pairs portfolios. Our results support the hypothesis that pairs trading is an equity market neutral investment strategy. Keywords: Pairs trading; market neutral; Italian stock market; trading strategy; statistical arbitrage; short selling; personal finance JEL Classifications: G11