Environmental Economics and Modeling Marketable Permits

This paper reviews fundamental concepts in environmental economics and explores theoretical results regarding the choice of the key policy instruments for the control of externalities: taxes, subsidies and marketable permits. The paper explains why today market mechanisms are increasingly being used as a tool for allocating unpriced rights and scarce resources. We survey how significant market imperfections, a pre-existing regulatory environment and concentration in both permit and output markets can impede the proper functioning of a permit system. The main factors that affect the effectiveness of marketable permits are then discussed. Given the importance of understanding the emission permit price formation, we overview recent attempts at developing valid price models for emission permits, taking into account banking and borrowing opportunities, pollution abatement measures, strategic trading interactions and the presence of asymmetric information in the permit market.     

我国证券市场行政许可制度之重构

本文阐述了我国证券市场行政许可的设立和实施应遵循的基本原则和价值理念,在分析证券市场行政许可制度现况和存在问题的基础上,对<公司法>、<证券法>修订时行政许可制度的重构提出了相关建议.     

Additive Hedonic Regression Models with Spatial Scaling Factors: An Application for Rents in Vienna

This paper is motivated by two common challenges in hedonic price modeling: nonlinear price functions, which require flexible modeling approaches, and the inherent spatial heterogeneity in real estate markets. We apply additive mixed regression models (AMM) to estimate hedonic price equations for rents in Vienna. Non-linear effects of continuous covariates as well as a smooth time trend are modeled non-parametrically through P-splines. Unobserved district-specific heterogeneity is modeled in two ways: First, by location specific intercepts with the postal code serving as a location variable. Second, in order to permit spatial variation in the nonlinear price gradients, we introduce multiplicative scaling factors for nonlinear covariates. This allows highly nonlinear implicit price functions to vary within a regularized framework, accounting for district-specific spatial heterogeneity, which leads to a considerable improvement of model quality and predictive power. Our findings provide insight into the spatially heterogeneous structure of price gradients in Vienna, showing substantial spatial variation. Accounting for spatial heterogeneity in a very general way, this approach permits higher accuracy in prediction and allows for location-specific nonlinear rent index construction.     

The rise and fall of technical trading rule success

The purpose of this paper is to examine the performance of an important set of momentum-based technical trading rules (TTRs) applied to all members of the Dow Jones Industrial Average (DJIA) stock index over the period 1928–2012. Using a set of econometric models that permit time-variation in risk-adjusted returns to TTR portfolios, the results reveal that profits evolve slowly over time, are confined to particular episodes primarily from the mid-1960s to mid-1980s, and rely on the ability of investors to short-sell stocks. These findings are demonstrated to be consistent with theoretical models that predict a relationship between TTR performance and market conditions.     

The UK Landfill Tax: Financial Implications for Local Authorities

Local authorities in the UK are responsible for waste management. Since the introduction of the landfill tax in 1996, the costs of disposing of municipal solid waste in landfill has increased markedly. The money collected is being paid to central government, through Customs and Excise. Some remission of landfill tax money can be claimed by commercial organizations to develop sustainable waste management, but local authorities, which also have an important role in this, cannot do so. The authors explain why the hypothecation of landfill tax revenue would be helpful and why local authorities need additional funds to develop sustainable waste management projects.     

Machine‐independent audit trail analysis—a tool for continuous audit assurance

This paper reports the results of a research project which examines the feasibility of developing a machine‐independent audit trail analyser (MIATA). MIATA is a knowledge‐based system which performs intelligent analysis of operating system audit trails. Such a system is proposed as a decision support tool for auditors when assessing the risk of unauthorized user activity in multi‐user computer systems. It is also relevant to the provision of a continuous assurance service to clients by internal and external auditors. Monitoring user activity in system audit trails manually is impractical because of the vast quantity of events recorded in those audit trails. However, if done manually, an expert security auditor would be needed to look for two main types of events—user activity rejected by the system's security settings (failed actions) and users behaving abnormally (e.g. unexpected changes in activity such as the purchasing clerk attempting to modify payroll data). A knowledge‐based system is suited to applications that require expertise to perform well‐de?ned, yet complex, monitoring activities (e.g. controlling nuclear reactors and detecting intrusions in computer systems). To permit machine‐independent intelligent audit trail analysis, an anomaly‐detection approach is adopted. Time series forecasting methods are used to develop and maintain the user pro?le database (knowledge base) that allows identi?cation of users with rejected behaviour as well as abnormal behaviour. The knowledge‐based system maintains this knowledge base and permits reporting on the potential intruder threats (summarized in Table I). The intelligence of the MIATA system is its ability to handle audit trails from any system, its knowledge base capturing rejected user activity and detecting anomalous activity, and its reporting capabilities focusing on known methods of intrusion. MIATA also updates user pro?les and forecasts of behaviour on a daily basis. As such, it also ‘learns’ from changes in user behaviour. The feasibility of generating machine‐independent audit trail records, and the applicability of the anomaly‐detection approach and time series forecasting methods, are demonstrated using three case studies. These results support the proposal that developing a machine‐independent audit trail analyser is feasible. Such a system will be an invaluable aid to an auditor in detecting potential computer intrusions and monitoring user activity. Copyright © 2004 John Wiley & Sons, Ltd.     

Markov models for commodity futures: theory and practice

The objective of this paper is to develop a generic, yet practical, framework for the construction of Markov models for commodity derivatives. We aim for sufficient richness to permit applications to a broad variety of commodity markets, including those that are characterized by seasonality and by spikes in the spot process. In the first, largely theoretical, part of the paper we derive a series of useful results concerning the low-dimensional Markov representation of the dynamics of an entire term structure of futures prices. Extending previous results in the literature, we cover jump-diffusive models with stochastic volatility as well as several classes of regime-switching models. To demonstrate the process of building models for a specific commodity market, the second part of the paper applies a selection of our theoretical results to the exercise of constructing and calibrating derivatives trading models for USD natural gas. Special attention is paid to the incorporation of empirical seasonality effects in futures prices, in implied volatilities and their ‘smile’, and in correlations between futures contracts of different maturities. European option pricing in our proposed gas model is closed form and of the same complexity as the Black–Scholes formula.     

碳排放权交易市场体系研究述评

随着“低碳”成为经济发展的新趋势,碳减排、碳排放权交易也成为了研究的热点。然而碳排放权交易市场是一个复杂的体系,涵盖了碳排放权的初始分配、碳定价、政府监管、信息技术、法律完善等诸多环节,同时还要考虑它与经济发展的内在关系,对相关研究的梳理,有助于为我国碳排放权交易市场体系理论研究的发展和国内碳排放权交易市场的建立、完善提供参考。     

Creating institutional meaning: Accounting and taxation law perspectives of carbon permits

Emissions trading schemes based on the idea that markets are an efficient means to allocate resources have created the need for a tradeable right, the carbon permit. The measurement and recognition of this right has the potential to significantly affect the financial reports and cash flows of entities and is therefore of interest to market participants. The purpose of this paper is to analyse the different meanings attached to the term, carbon permit, from two institutional frameworks, accounting and taxation, using discourse analysis of identified key documents available during the design and public discussion of the proposed Carbon Pollution Reduction Scheme in Australia.     

Environmental Policy and Public Revenue with International Capital Mobility

In the presence of preexisting distortionary taxes, it is often argued that auctioned emission permits are preferable to non-auctioned permits, because the former generate revenues that may be used to reduce other taxes. This paper shows that when capital is internationally mobile, it may be optimal to use a combination of non-auctioned and auctioned emission permits, for both environmental and fiscal reasons. By letting the number of non-auctioned permits be a positive function of the amount of capital used domestically, they will attract capital to the home country. This may create environmental benefits in terms of reduced transboundary pollution and may lead to increased public revenue because the price of emission permits may increase and because the tax base may be enhanced. It is also shown that the optimal number of non-auctioned permits may increase as the marginal costs of public funds increase. JEL Code: D62, F21, Q28     

Environmental Finance: Innovating to Save the Planet*

This article demonstrates that it is not only possible, but urgently necessary, to apply principles of finance and economics—efficient use of scarce capital, price transparency, and lowered transaction costs—to environmental issues. From limiting acid rain with the sulfur dioxide‐allowance market to the implementation of the Clean Water Act, market‐based solutions have proven consistently more effective in protecting the environment than government regulation alone. Project financing, public‐private partnerships, and tradable permits have come to supplement or replace conventional command‐and‐control regulation and purely tax‐based instruments. Tradable permit systems have been deployed to phase down use of leaded gasoline, end the use of ozone‐depleting chloro‐fluorocarbons, and even reduce air pollution in the smoggy skies above Los Angeles. And the United Nations Environment Program has launched a Finance Initiative as a formal means of mobilizing the financial sector to take a more active role in protecting the environment. Such an approach can minimize the aggregate costs of achieving environmental targets while providing dynamic incentives for the adoption and diffusion of greener technologies.     

Trade in Services and the Multilateral Trade Negotiations

The dispute between developed and developing countries overthe inclusion of services in the Uruguay Round of trade negotiationsreflects critical differences in perspective on substantiveissues. In particular, these substantive divisions arise fromthe differences between services and goods in matters such asregulation and the requirement in many instances of freedomto move productive factors across national boundaries—forexample, the "right to establish" that would permit the providerof services to get to the user. In addition, developing countriessee the developed countries as seeking concessions on servicetrade in exchange for removal of the latter's existing and potentialbarriers on trade in goods, rather than establishing quid proquos within the service compact itself. Developing countrieshave possible export advantages in the service sector and havemuch to gain by joining actively in negotiating a services compactthat permits them to exploit these advantages.     

Asymptotics of bond yields and volatilities for extended CIR models under the real-world measure

ABSTRACT

The Cox–Ingersoll–Ross CIR short rate model is a mean-reverting model of the short rate which, for suitably chosen parameters, permits closed-form valuation formulae of zero-coupon bonds and options on zero-coupon bonds. This article supplies proofs of the formulae for the expected present value of payoffs under the real-world probability measure, known as actuarial valuation. Importantly, we give formulae for asymptotic levels of bond yields and volatilities for extended CIR models when suitable conditions are imposed on the model parameters.     

Modeling the relationship between European carbon permits and certified emission reductions

Recent years have seen an expansion of carbon markets around the world as various policymakers attempt to reduce CO2 emissions. This paper considers two of the major types of carbon permits: European Union Allowances (EUAs, arising from the European Union Emissions Trading Scheme, EU ETS) and certified emissions reductions (CERs, arising from agreements made under the Kyoto Protocol). The rules of the EU ETS allow for some use of CERs in place of EUAs by EU firms, but this substitutability is only partial. Allowing for carbon permits from different sources to substitute for one another should help achieve CO2 emissions reductions at least cost. Understanding the degree and nature of linkages (if any) between the markets for EUAs and CER is, thus, an important policy issue. In this paper, we jointly model the spot and future prices of an EUA along with the price of a CER using flexible multivariate time series methods which allow for time-variation in parameters. We find evidence of contemporaneous causality between these three variables with the EUA futures price playing the dominant role in driving this relationship. We also document time-variation in this relationship which is associated with macroeconomic events such as the financial crisis of late 2008 and early 2009. We find very little evidence of volatility spillovers or of Granger causality among any of the variables. We discuss how these empirical findings are consistent with markets which are loosely linked, but are not tightly linked as would be found for perfectly substitutable assets in efficient financial markets.     

A prototype system for temporal reconstruction of financial accounting standards

This paper presents a prototype system to support the temporal reconstruction of financial accounting standards (FASs). The FASs have been subject to rapid expansion, increased complexity and frequent changes (amendments), which in combination make it difficult to determine the accurate rendering of FASs at specific points in time. The prototype allows a user to specify an FAS (e.g., SFAS 35) along with a date. In return, the system presents the user with an FAS that has been reconstructed to incorporate all amendments subsequent to the issuance of the original FAS, but as of the user specified date. The prototype, in effect, permits the dynamic and continuing codification of a particular FAS. Accounting principles must be applied to specific accounting problems that exist at specific points in time. This prototype enables the user to quickly determine the complete status of an FAS as of a user determined date.     

Medicare--substitute HMOs--reimbursement from other insurance. Care Choices HMO v. Engstrom

The federal statute that permits Medicare-substitute HMOs to seek reimbursement from other insurers does not provide the HMOs with a private federal remedy for reimbursement. It permits Medicare-substitute HMOs to provide in their policies that they are entitled to reimbursement in cases where other insurance, such as the third-party liability insurance of a party responsible for causing an injury, is available. The HMO must sue in state court for its contractual right to reimbursement. It may not sue in federal court under the federal statute that merely allows it to provide for reimbursement in their policies.     

Business to business: Lessons on segmentation and other issues from financial services markets

The aim of this paper is to provide business-to-customer financial services companies with an insight into the relevance of business-to-business segmentation for their companies. The whole area of understanding customers is being turned upside down by rapidly developing new patterns of intermediation, so almost paradoxically there is a much stronger focus today on ‘doing what works’ and ‘doing what is profitable’, rather than trying to optimise. Customers, whether final or intermediary, are simply changing too rapidly to permit the old stable analyses.     

Capital taxation,investment, growth,and welfare

This paper formulates a model of economic growth to study the effects of broad capital taxation (of profits, dividends, and capital gains) on macroeconomic outcomes in small open economies. A framework of exogenous growth permits modeling countries in transition to a country-specific steady state and to discern steady-state and transitory effects of shocks on economic outcomes. The chosen framework is amenable to structural estimation and, in view of the parsimony of the model, fits data on 79 countries over the period 1996–2011 well. The counterfactual analysis based on the estimated model suggests that capital-tax reductions induce positive effects on output and the capital stock (per unit of effective labor) that are economically significant and are accommodated within time windows of 5 years without much further economic response after that. The responses of economic aggregates are found to be relatively strongest to changes in corporate-profit-tax rates and weaker for dividend and capital-gains taxes.     

ACCOUNTING REFORMS: DETERMINANTS OF LOCAL GOVERNMENTS' CHOICES

The introduction of accrual accounting in Italian Local Governments has been mandated in a way that permits, and in fact encourages, a merely formal compliance. Local Governments must produce accrual‐based financial statements, but double‐entry bookkeeping is not mandatory, nor may traditional budgetary accounting be abandoned. Why, then, should they bother to introduce an integrated system of budgetary and accrual accounting? In this paper, we empirically investigate the determinants of Local Government's choices of accounting innovation. According to our results, ‘rational’ elements such as complexity, types of activities performed, presence of surpluses, and access to capital markets are seemingly unhelpful in explaining why a Local Government decides to introduce accrual accounting. What counts are ‘institutional’ and cultural explanations, such as the perceptions of CFOs and the North‐South divide.     

Option pricing under regime switching

Abstract

This paper develops a family of option pricing models when the underlying stock price dynamic is modelled by a regime switching process in which prices remain in one volatility regime for a random amount of time before switching over into a new regime. Our family includes the regime switching models of Hamilton (Hamilton J 1989 Econometrica 57 357–84), in which volatility influences returns. In addition, our models allow for feedback effects from returns to volatilities. Our family also includes GARCH option models as a special limiting case. Our models are more general than GARCH models in that our variance updating schemes do not only depend on levels of volatility and asset innovations, but also allow for a second factor that is orthogonal to asset innovations. The underlying processes in our family capture the asymmetric response of volatility to good and bad news and thus permit negative (or positive) correlation between returns and volatility. We provide the theory for pricing options under such processes, present an analytical solution for the special case where returns provide no feedback to volatility levels, and develop an efficient algorithm for the computation of American option prices for the general case.