Good jump,bad jump,and option valuation

I develop a new class of closed‐form option pricing models that incorporate variance risk premium and symmetric or asymmetric double exponential jump diffusion. These models decompose the jump component into upward and downward jumps using two independent exponential distributions and thus capture the impact of good and bad news on asset returns and option prices. The empirical results show that the model with an asymmetric double exponential jump diffusion improves the fit on Shanghai Stock Exchange 50ETF returns and options and provides relatively better in‐ and out‐of‐sample pricing performance.     

On approximating deep in‐the‐money Asian options under exponential Lévy processes

This note proposes a new approach of valuing deep in‐the‐money fixed strike and discretely monitoring arithmetic Asian options. This new approach prices Asian options whose underlying asset price evolves according to the exponential of a Lévy process as a weighted sum of European options. Numerical results from experimenting on three different types of Lévy processes—a diffusion process, a jump diffusion process, and a pure jump process—illustrate the accuracy of the approach. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark     

PRICING FOR LARGE POSITIONS IN CONTINGENT CLAIMS

Approximations to utility indifference prices are provided for a contingent claim in the large position size limit. Results are valid for general utility functions on the real line and semi‐martingale models. It is shown that as the position size approaches infinity, the utility function's decay rate for large negative wealths is the primary driver of prices. For utilities with exponential decay, one may price like an exponential investor. For utilities with a power decay, one may price like a power investor after a suitable adjustment to the rate at which the position size becomes large. In a sizable class of diffusion models, limiting indifference prices are explicitly computed for an exponential investor. Furthermore, the large claim limit arises endogenously as the hedging error for the claim vanishes.     

MOMENT EXPLOSIONS AND STATIONARY DISTRIBUTIONS IN AFFINE DIFFUSION MODELS

Many of the most widely used models in finance fall within the affine family of diffusion processes. The affine family combines modeling flexibility with substantial tractability, particularly through transform analysis; these models are used both for econometric modeling and for pricing and hedging of derivative securities. We analyze the tail behavior, the range of finite exponential moments, and the convergence to stationarity in affine models, focusing on the class of canonical models defined by Dai and Singleton (2000) . We show that these models have limiting stationary distributions and characterize these limits. We show that the tails of both the transient and stationary distributions of these models are necessarily exponential or Gaussian; in the non-Gaussian case, we characterize the tail decay rate for any linear combination of factors. We also give necessary and sufficient conditions for a linear combination of factors to be Gaussian. Our results follow from an investigation into the stability properties of the systems of ordinary differential equations associated with affine diffusions.     

Double continuation regions for American and Swing options with negative discount rate in Lévy models

In this paper, we study perpetual American call and put options in an exponential Lévy model. We consider a negative effective discount rate that arises in a number of financial applications including stock loans and real options, where the strike price can potentially grow at a higher rate than the original discount factor. We show that in this case a double continuation region arises and we identify the two critical prices. We also generalize this result to multiple stopping problems of Swing type, that is, when successive exercise opportunities are separated by i.i.d. random refraction times. We conduct an extensive numerical analysis for the Black–Scholes model and the jump‐diffusion model with exponentially distributed jumps.     

PRICE‐ADMISSIBILITY CONDITIONS FOR ARBITRAGE‐FREE LINEAR PRICE FUNCTION MODELS FOR THE TERM STRUCTURE OF INTEREST RATES

To assure price admissibility—that all bond prices, yields, and forward rates remain positive—we show how to control the state variables within the class of arbitrage‐free linear price function models for the evolution of interest rate yield curves over time. Price admissibility is necessary to preclude cash‐and‐carry arbitrage, a market imperfection that can happen even with a risk‐neutral diffusion process and positive bond prices. We assure price admissibility by (i) defining the state variables to be scaled partial sums of weighted coefficients of the exponential terms in the bond pricing function, (ii) identifying a simplex within which these state variables remain price admissible, and (iii) choosing a general functional form for the diffusion that selectively diminishes near the simplex boundary. By assuring that prices, yields, and forward rates remain positive with tractable diffusions for the physical and risk‐neutral measures, an obstacle is removed from the wider acceptance of interest rate methods that are linear in prices.     

The Exponential Age Distribution and the Pareto Firm Size Distribution

Recent work drawing on data for large and small firms has shown a Pareto distribution of firm size. We begin by showing that the firm age distribution is well approximated by an exponential distribution. We then mix a Gibrat-type growth process among incumbents with an exponential distribution of firm’s age, to obtain the empirically-observed Pareto distribution.     

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.     

Small and Medium-Sized Enterprises and IT Diffusion Policies in Europe

The main argument to justify an information technology (IT) diffusion policy for small and medium-sized enterprises (SMEs) is that IT could act as a catalyzer to the SMEs' growth, which is important because of the role played by these firms in innovation and regional development. However, due to the heterogeneity of SMEs, present IT diffusion policies in Europe are reaching only a limited number of these firms. The aim of this paper is to discuss the obstacles to the implementation of an IT diffusion policy for SMEs. The main arguments that justify a policy for IT diffusion in SMEs, and the main initiatives taken for IT diffusion in these firms in European countries are summarized. The shortcomings of present policies will be discussed, together with possibilities to increase IT diffusion in SMEs.     

PRICING IN AN INCOMPLETE MARKET WITH AN AFFINE TERM STRUCTURE

We apply the principle of equivalent utility to calculate the indifference price of the writer of a contingent claim in an incomplete market. To recognize the long-term nature of many such claims, we allow the short rate to be random in such a way that the term structure is affine. We also consider a general diffusion process for the risky stock (index) in our market. In a complete market setting, the resulting indifference price is the same as the one obtained by no-arbitrage arguments. We also show how to compute indifference prices for two types of contingent claims in an incomplete market, in the case for which the utility function is exponential. The first is a catastrophe risk bond that pays a fixed amount at a given time if a catastrophe does not occur before that time. The second is equity-indexed term life insurance which pays a death benefit that is a function of the short rate and stock price at the random time of the death of the insured. Because we assume that the occurrence of the catastrophe or the death of the insured is independent of the financial market, the markets for the catastrophe risk bond and the equity-indexed life insurance are incomplete.     

Estimating diffusion and price elasticity with application to telecommunications

This paper aims to propose a new framework for estimating and forecasting diffusion of high technology products, along with the construction of a price index. Into that context, the “diffusion–price” model is presented, as an innovative concept providing a long term estimation of both price and diffusion elasticity. This corresponds to the bidirectional estimation of the mutual influence of the product’s price over its expected diffusion and vice versa. The discrete parts of the methodology are the use of a diffusion model for the initial estimation of diffusion, the construction of a price index function for estimating the pricing mechanism and, finally, the construction of the “diffusion–price” model for estimating and adjusting the diffusion level and price quantities. The case studies examined, whose solution was based on genetic algorithms, revealed remarkable results which can be used for business strategies development, as the pricing policy is able to make diffusion diverge substantially from the initial estimates. The case studies considered correspond to the ADSL technology diffusion in the wider European area.     

Characteristics of adopters and organizational changes

Adopting Rogers's (1995) diffusion model and the modified diffusion model presented by Askarany (2003), this article explores the impact of characteristics of adopters on the diffusion of administrative innovations in general and then examines their associations with the diffusion of balanced scorecard (as a proxy of administrative changes) in particular. Findings suggest that attributes of adopters significantly influence decision(s) to adopt (or not) administrative innovations. However, with particular reference to balanced scorecard, the findings indicate that attributes of adopters do not appear to remain as significant as before the decision was made. © 2006 Wiley Periodicals, Inc.     

Long-term view of the diffusion of durables A study of the role of price and adoption influence processes via tests of nested models

This paper extends past research on new product diffusion by taking a long-term view of the diffusion process for several consumer durables.Specifically, we investigate the role of price and adoption influence processes within the product diffusion framework by assessing the relative superiority of competing model specifications belonging to a nested family. Results indicate that price affects the diffusion process only for relatively high-priced goods; further, our analysis suggests that this is achieved through impact on the probability of adoption.It is also shown that the traditional diffusion model specification (incorporating both external and internal influence) is not always the most adequate representation of the product adoption process.     

替代品性能与价格竞争的市场扩散模型

根据消费者的需求层次划分商品的档次,建立替代商品性能与价格竞争的市场扩散模型,分析商品展开性能和价格竞争时需求的扩散规律,发现商品的性能和价格之比决定同档次商品的市场份额,商品的扩散系数决定厂商对潜在需求的占有份额。通过讨论厂商性能与价格竞争策略,在理论上丰富了市场扩散模型的内容。     

流动人口对城乡移动通信扩散的影响机制研究

本文从微观个体的角度,证实网络效应在我国城乡移动通信扩散过程中的作用,揭示流动人口在城乡之间发挥传导作用并影响城乡移动通信扩散差距的内在机制.研究结果发现,网络效应对城乡移动通信扩散均发挥显著的正向作用,且城市地区的网络效应大于农村地区;城市强网络效应促使移动电话在流动人口群体内加速扩散,使流动人口的网络效应增强;移动电话在流动人口群体内的扩散对农村移动通信扩散具有促进作用,表现为与亲人之间联络产生的直接效应和通过增加农村安装基础产生的间接效应.流动人口在城乡群体之间发挥传导作用,最终使城乡移动通信扩散的差距得以缩小.     

Policy Instruments,Patents, and International Technology Diffusion in a North-South Duopoly

This article analyzes the relationship between policy instruments and technology diffusion in a North-South duopoly within an inter-temporal model. The North benefits from a monopoly period with a new technology. At the end, there is then technology diffusion from the North to the South. The Northern firm files a patent in order to slow down the diffusion. This article studies the impact of several policy instruments. The results show that the Northern government’s policy instruments slow down technology diffusion, except for an import quota. The Southern government’s policy instruments accelerate the new technology diffusion.     

国际技术扩散的理论与实证:一个文献综述

在日益开放的全球经济体系下,国际技术扩散已成为发展中国家和地区获取技术进步和经济增长的主要途径,国际技术扩散正逐渐成为影响区域经济竞争力的关键因素。本文试图对有关外贸经济与技术扩散的众多理论和实证文献进行系统梳理和评述,以期进一步认识外贸经济对技术扩散的作用以及为如何促进其发展提供一些帮助。     

Optimal futures heading: Quadratic versus exponential utility functions

Although quadratic and exponential utility functions both lead to mean‐variance expected utility analysis, this study demonstrates that the two approaches produce different optimal futures hedging decisions. Specifically, the deviation between the optimal production level and the optimal futures position is always smaller under the exponential utility framework. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28: 208–211, 2008     

Technological opportunism effects on IT adoption,intra-firm diffusion and performance: Evidence from the U.S. and Spain

The paper pursues a joint analysis of the direct influence of the level of a firm's technology opportunism capability on performance and on the adoption and intra-firm diffusion of Internet-based technologies. The study here examines the mediating effect that intra-firm diffusion exerts on the relationship between capabilities and performance. This study uses the results from a survey of 100 Spanish and 109 American franchise firms. Results indicate that the firm's level technological opportunism influences the adoption and intra-firm diffusion of technology and also has a positive impact on performance. While intra-firm diffusion is a driver of performance, adoption has no influence. Finally the indirect impact of technological opportunism on performance differs across countries. While for American firms, the integration of technologies into activities that related to communication with partners has a positive impact on performance; Spanish managers should focus on the integration of these technologies into back-end functionalities.