TIME‐CHANGED MARKOV PROCESSES IN UNIFIED CREDIT‐EQUITY MODELING

This paper develops a novel class of hybrid credit‐equity models with state‐dependent jumps, local‐stochastic volatility, and default intensity based on time changes of Markov processes with killing. We model the defaultable stock price process as a time‐changed Markov diffusion process with state‐dependent local volatility and killing rate (default intensity). When the time change is a Lévy subordinator, the stock price process exhibits jumps with state‐dependent Lévy measure. When the time change is a time integral of an activity rate process, the stock price process has local‐stochastic volatility and default intensity. When the time change process is a Lévy subordinator in turn time changed with a time integral of an activity rate process, the stock price process has state‐dependent jumps, local‐stochastic volatility, and default intensity. We develop two analytical approaches to the pricing of credit and equity derivatives in this class of models. The two approaches are based on the Laplace transform inversion and the spectral expansion approach, respectively. If the resolvent (the Laplace transform of the transition semigroup) of the Markov process and the Laplace transform of the time change are both available in closed form, the expectation operator of the time‐changed process is expressed in closed form as a single integral in the complex plane. If the payoff is square integrable, the complex integral is further reduced to a spectral expansion. To illustrate our general framework, we time change the jump‐to‐default extended constant elasticity of variance model of Carr and Linetsky (2006) and obtain a rich class of analytically tractable models with jumps, local‐stochastic volatility, and default intensity. These models can be used to jointly price equity and credit derivatives.     

Organizing a precarious black box: An actor‐network account of the Atlantic Schools of Business, 1980–2006

There is a growing use of actor‐network theory (ANT) throughout management and organization studies. While earlier ANT research used ethnography to “follow the actors” in the production of organization/knowledge, more recent studies use archival sources to examine developments over time. We extend the latter approach using qualitative social network analysis (SNA) and apply this to a case study of the Atlantic Schools of Business (ASB). Our contribution is two‐fold: first, through an examination of actors in the ASB networking processes over 26 years, we demonstrate how the seemingly stable surface of an organization can hide the precariousness of organizing; second, we reveal the potential fusion of ANT with SNA as a method for dealing with large qualitative datasets over long periods of time. Copyright © 2015 ASAC. Published by John Wiley & Sons, Ltd.     

HIGH‐ORDER SHORT‐TIME EXPANSIONS FOR ATM OPTION PRICES OF EXPONENTIAL LÉVY MODELS

The short‐time asymptotic behavior of option prices for a variety of models with jumps has received much attention in recent years. In this work, a novel second‐order approximation for at‐the‐money (ATM) option prices is derived for a large class of exponential Lévy models with or without Brownian component. The results hereafter shed new light on the connection between both the volatility of the continuous component and the jump parameters and the behavior of ATM option prices near expiration. In the presence of a Brownian component, the second‐order term, in time‐t, is of the form , with d₂ only depending on Y, the degree of jump activity, on σ, the volatility of the continuous component, and on an additional parameter controlling the intensity of the “small” jumps (regardless of their signs). This extends the well‐known result that the leading first‐order term is . In contrast, under a pure‐jump model, the dependence on Y and on the separate intensities of negative and positive small jumps are already reflected in the leading term, which is of the form . The second‐order term is shown to be of the form and, therefore, its order of decay turns out to be independent of Y. The asymptotic behavior of the corresponding Black–Scholes implied volatilities is also addressed. Our method of proof is based on an integral representation of the option price involving the tail probability of the log‐return process under the share measure and a suitable change of probability measure under which the pure‐jump component of the log‐return process becomes a Y‐stable process. Our approach is sufficiently general to cover a wide class of Lévy processes, which satisfy the latter property and whose Lévy density can be closely approximated by a stable density near the origin. Our numerical results show that the first‐order term typically exhibits rather poor performance and that the second‐order term can significantly improve the approximation's accuracy, particularly in the absence of a Brownian component.     

NO‐ARBITRAGE IN A NUMÉRAIRE‐INDEPENDENT MODELING FRAMEWORK

The classic approach to modeling financial markets consists of four steps. First, one fixes a currency unit. Second, one describes in that unit the evolution of financial assets by a stochastic process. Third, one chooses in that unit a numéraire, usually the price process of a positive asset. Fourth, one divides the original price process by the numéraire and considers the class of admissible strategies for trading. This approach has one fundamental drawback: Almost all concepts, definitions, and results, including no‐arbitrage conditions like NA, NFLVR, and NUPBR depend by their very definition, at least formally, on initial choices of a currency unit and a numéraire. In this paper, we develop a new framework for modeling financial markets, which is not based on ex‐ante choices of a currency unit and a numéraire. In particular, we introduce a “numéraire‐independent” notion of no‐arbitrage and derive its dual characterization. This yields a numéraire‐independent version of the fundamental theorem of asset pricing (FTAP). We also explain how the classic approach and other recent approaches to modeling financial markets and studying no‐arbitrage can be embedded in our framework.     

Semi‐efficient valuations and put‐call parity

We propose an approach to the valuation of payoffs in general semimartingale models of financial markets where prices are nonnegative. Each asset price can hit 0; we only exclude that this ever happens simultaneously for all assets. We start from two simple, economically motivated axioms, namely, absence of arbitrage (in the sense of NUPBR) and absence of relative arbitrage among all buy‐and‐hold strategies (called static efficiency). A valuation process for a payoff is then called semi‐efficient consistent if the financial market enlarged by that process still satisfies this combination of properties. It turns out that this approach lies in the middle between the extremes of valuing by risk‐neutral expectation and valuing by absence of arbitrage alone. We show that this always yields put‐call parity, although put and call values themselves can be nonunique, even for complete markets. We provide general formulas for put and call values in complete markets and show that these are symmetric and that both contain three terms in general. We also show that our approach recovers all the put‐call parity respecting valuation formulas in the classic theory as special cases, and we explain when and how the different terms in the put and call valuation formulas disappear or simplify. Along the way, we also define and characterize completeness for general semimartingale financial markets and connect this to the classic theory.     

CONTINUOUSLY MONITORED BARRIER OPTIONS UNDER MARKOV PROCESSES

In this paper, we present an algorithm for pricing barrier options in one‐dimensional Markov models. The approach rests on the construction of an approximating continuous‐time Markov chain that closely follows the dynamics of the given Markov model. We illustrate the method by implementing it for a range of models, including a local Lévy process and a local volatility jump‐diffusion. We also provide a convergence proof and error estimates for this algorithm.     

The Direct and Indirect Effects of Self‐Efficacy on Salespeople's Emotional Exhaustion and Work‐Family Conflict: A Study Using the Job Demands‐Resources Model

This study integrates Social Cognitive Theory with the Job Demands‐Resources Model to examine self‐efficacy in relation to emotional exhaustion and work‐family conflict (WFC) in a sample of 192 employees. The results obtained through structural equation analysis show: a negative association between self‐efficacy and both work overload and emotional exhaustion; a positive relationship between work overload and both emotional exhaustion and WFC; that work overload mediates the relation between self‐efficacy and both emotional exhaustion and WFC; that role ambiguity moderates the relation of self‐efficacy with work overload; and that tenure in the sales territory moderates the relation of work overload with WFC. Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd.     

BOUNDING WRONG‐WAY RISK IN CVA CALCULATION

A credit valuation adjustment (CVA) is an adjustment applied to the value of a derivative contract or a portfolio of derivatives to account for counterparty credit risk. Measuring CVA requires combining models of market and credit risk to estimate a counterparty's risk of default together with the market value of exposure to the counterparty at default. Wrong‐way risk refers to the possibility that a counterparty's likelihood of default increases with the market value of the exposure. We develop a method for bounding wrong‐way risk, holding fixed marginal models for market and credit risk and varying the dependence between them. Given simulated paths of the two models, a linear program computes the worst‐case CVA. We analyze properties of the solution and prove convergence of the estimated bound as the number of paths increases. The worst case can be overly pessimistic, so we extend the procedure by constraining the deviation of the joint model from a baseline reference model. Measuring the deviation through relative entropy leads to a tractable convex optimization problem that can be solved through the iterative proportional fitting procedure. Here, too, we prove convergence of the resulting estimate of the penalized worst‐case CVA and the joint distribution that attains it. We consider extensions with additional constraints and illustrate the method with examples.     

Business‐to‐Business Branding: A Review and Assessment of the Impact of Non‐Attribute‐Based Brand Beliefs on Buyer's Attitudinal Loyalty

Business‐to‐business branding has received increasing attention from researchers in the last few years. Nonetheless, there is no agreement on the relative contribution of a brand versus an offering's functional attributes to the industrial buyer's preferences. Drawing on models from the business‐to‐consumer context, this paper demonstrates that non‐attribute‒based brand beliefs are predictors of hedonic outcomes as measured by industrial buyers' attitudinal loyalty, while attribute‐based brand beliefs are not. Moreover, the moderating role of the buyer's level of knowledge for the value‐generating process is identified, suggesting that the impact of non‐attribute‒based brand beliefs on attitudinal loyalty is greater for buyers with a low level of knowledge. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.     

Comparing financial and social costs for top‐down versus fixed‐band selection: A practical application with bus drivers

A number of solutions have been proposed to the diversity‐validity dilemma arising from the use of cognitive ability tests in employment selection. Cognitive ability tests predict training and job performance but also produce adverse impact against minority groups. Although banding reduces adverse impact, it has been criticized for also reducing the utility of the selection process. We assessed the social and financial impact of a fixed band approach with top‐down hiring across several hiring scenarios with a pool of bus driver applicants. Overall, the fixed band approach reduced adverse impact without substantially reducing the cost effectiveness of the hiring process. We discuss the implications of these two approaches in the context of the diversity‐validity dilemma. Copyright © 2016 ASAC. Published by John Wiley & Sons, Ltd.     

Financing constraints and US cross‐listing

This study investigates whether relaxation of firms' financial constraints is an important outcome of the US cross‐listing mechanism. We use the association between investment spending and cash flow to test for the presence and importance of firms' financing constraints. Consistent with the bonding hypothesis, the results suggest that US exchange and private placement cross‐listings significantly alleviate firms' financing constraints. In addition, the financial benefits associated with exchange listings are larger than those associated with private listings, while on the other hand, over‐the‐counter programs do not improve capital allocation. The study also shows that US exchange cross‐listing benefits have not been eroded by the enactment of the Sarbanes‐Oxley (SOX) Act in 2002. Copyright © 2014 ASAC. Published by John Wiley & Sons, Ltd.     

Top‐Down Versus Bottom‐Up Demand Forecasts: The Value of Shared Point‐of‐Sale Data in the Retail Supply Chain

Accurate demand forecasts are critical to maintaining customer service levels and minimizing total costs, yet increasingly difficult to achieve. Using weekly point‐of‐sale (POS) and order data for 10 ready‐to‐eat cereal stock‐keeping units from 18 regional U.S. grocery distribution centers, this research empirically investigates two demand forecasting issues: (1) the accuracy of top‐down versus bottom‐up demand forecasts; and (2) whether shared POS data improve demand forecast accuracy. The results reveal a previously unexplored relationship between demand forecast methodology and the use of shared POS data. We find that the superiority of the top‐down or bottom‐up forecasting as the more accurate demand forecast method depends on whether shared POS data are used.     

Do single‐stock circuit breakers provide a safety net for Canadian investors?

This study looks at the market impact of recent regulatory changes in Canada that provide for trading halts on individual stocks that experience large upside or downside movements. The focus is on all stocks traded on the Toronto Stock Exchange since the inception of the single‐stock circuit breaker rule (SSCB) in February 2012, to replace the short‐sale uptick rule. The results support pricing efficiency: material information that caused the circuit breaker is incorporated in stock prices on the day of the halt (neither overreaction nor underreaction), with no decline in market liquidity. Using trade‐by‐trade data constructed on five‐minute trading intervals, we refine the daily results, and show that shocks in realized volatility are focused in the 10‐minute trading interval surrounding the halts. While circuit breakers provide a limited safety net for investors when their stocks are subject to severe volatility, they do not allow for a quick turnaround for stocks experiencing severe price decline events.     

RATING BASED LÉVY LIBOR MODEL

In this paper, we consider modeling of credit risk within the Libor market models. We extend the classical definition of the default‐free forward Libor rate and develop the rating based Libor market model to cover defaultable bonds with credit ratings. As driving processes for the dynamics of the default‐free and the predefault term structure of Libor rates, time‐inhomogeneous Lévy processes are used. Credit migration is modeled by a conditional Markov chain, whose properties are preserved under different forward Libor measures. Conditions for absence of arbitrage in the model are derived and valuation formulae for some common credit derivatives in this setup are presented.     

Behaviour‐Based and Outcome‐Based Control Systems: A Meta‐Analytic Study

Sales control systems are instruments used by firms to improve performance and other organizational outcomes. To understand their antecedents and consequences, this paper conducts a meta‐analysis based on 104 studies. The results showed significant relationships between behaviour‐ and outcome‐based control systems and the complexity of the products, bonuses, financial performance, sales innovation, organizational support and satisfaction with supervisors. The outcomes revealed that behaviour‐based control systems were the most effective mechanism in turbulent markets and for determining financial performance. However, outcome‐based control systems were the most efficient instrument for complex products.     

The Role of Firms in Resilient Systems: A Multi‐Level Framework

In this paper, we articulate a multi‐level resilience‐based framework explaining how firms facilitate stronger system‐level resilience. The framework stresses the importance of firm interdependence, describing how pooled versus sequential/reciprocal patterns of interdependence influence the resilience antecedents of diversity, slack, and redundancy. We argue that the inter‐firm practices of self‐governance and supply chain collaboration function to maintain resilience antecedents at more moderate and effective levels. This work builds on prior resilience research that has remained focused on either firm or system levels of analysis by stressing the value of firm interdependence as an important contingency for effective system resilience. Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd.     

A NEW LOOK AT SHORT‐TERM IMPLIED VOLATILITY IN ASSET PRICE MODELS WITH JUMPS

We analyze the behavior of the implied volatility smile for options close to expiry in the exponential Lévy class of asset price models with jumps. We introduce a new renormalization of the strike variable with the property that the implied volatility converges to a nonconstant limiting shape, which is a function of both the diffusion component of the process and the jump activity (Blumenthal–Getoor) index of the jump component. Our limiting implied volatility formula relates the jump activity of the underlying asset price process to the short‐end of the implied volatility surface and sheds new light on the difference between finite and infinite variation jumps from the viewpoint of option prices: in the latter, the wings of the limiting smile are determined by the jump activity indices of the positive and negative jumps, whereas in the former, the wings have a constant model‐independent slope. This result gives a theoretical justification for the preference of the infinite variation Lévy models over the finite variation ones in the calibration based on short‐maturity option prices.     

Building a better literature review: Looking at the nomological network of the country‐of‐origin effect

Due to a rising pace of knowledge production, reviewing extant knowledge on mature topics has become increasingly challenging. Researchers often need to account for hundreds of references with little guidance on how to proceed. Taking the phenomenon of the country‐of‐origin effect (COE) as an example, this paper proposes a solution to tackle this challenge. By adopting the principles of integrative literature reviews and using online databases, bibliography management software, and literature‐mapping techniques, I organize 355 papers about the COE. As a result, the nomological network of the COE is drawn while establishing links between the phenomenon, its antecedents, and its outcomes. This methodological article contributes to building better literature reviews. Copyright © 2015 ASAC. Published by John Wiley & Sons, Ltd.     

How User‐Created‐Content (UCC) Service Quality Influences User Satisfaction and Behaviour

The Internet is undergoing a gradual shift from Web 1.0‐based user interaction to Web 2.0, which has a greater emphasis on user‐created content (UCC) and user collaboration (Hsu & Hsu, 2008). Since existing models of e‐service quality are likely deficient under Web 2.0, we build on them and test a new framework using 319 users who frequented UCC websites. Among other findings, three service elements together explained 44% of the variance in user satisfaction and 33% of the variance in website usage. These elements were: the provider‐user relationship (customization and participation), the relationship among users (e.g., user empowerment), and user compensation. Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.     

A CLOSED‐FORM EXACT SOLUTION FOR PRICING VARIANCE SWAPS WITH STOCHASTIC VOLATILITY

In this paper, we present a highly efficient approach to price variance swaps with discrete sampling times. We have found a closed‐form exact solution for the partial differential equation (PDE) system based on the Heston's two‐factor stochastic volatility model embedded in the framework proposed by Little and Pant. In comparison with the previous approximation models based on the assumption of continuous sampling time, the current research of working out a closed‐form exact solution for variance swaps with discrete sampling times at least serves for two major purposes: (i) to verify the degree of validity of using a continuous‐sampling‐time approximation for variance swaps of relatively short sampling period; (ii) to demonstrate that significant errors can result from still adopting such an assumption for a variance swap with small sampling frequencies or long tenor. Other key features of our new solution approach include the following: (1) with the newly found analytic solution, all the hedging ratios of a variance swap can also be analytically derived; (2) numerical values can be very efficiently computed from the newly found analytic formula.