A game theoretic approach for analyzing the competition between national and store brands by considering store loyalty

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Bold actions needed to improve civil registration data for road traffic deaths

Abstract

Persisting problems of underreporting and poor quality of road traffic mortality data exist. Bold and sustained actions need to be undertaken by countries to improve civil registration data collection and reporting. Countries need to implement three specific actions to improve civil registration and vital statistics data systems and/or road traffic injury data collection:

• Ensure that civil registration and vital statistics systems produce high-quality cause of death data by working with the health sector to improve medical certification of cause of death and statistical coding in line with the International Classification of Diseases.

• Adopt a consistent definition of a road traffic death for use in police databases, particularly in countries with incomplete civil registration and vital statistics data, where police data are the most reliable source of information

• Link data sources – including civil registration records, police data, health records, insurance data – to improve official road traffic fatality estimates while ensuring the privacy of individual identification.

     

Cover Image,Volume 30, Issue 2

The cover image is based on the Original Article Semistatic and Sparse Variance‐Optimal Hedging by Di Tella et al., https://doi.org/10.1111/mafi.12235 .

     

Small‐time,large‐time,and asymptotics for the Rough Heston model

We characterize the behavior of the Rough Heston model introduced by Jaisson and Rosenbaum (2016, Ann. Appl. Probab., 26, 2860–2882) in the small‐time, large‐time, and (i.e., ) limits. We show that the short‐maturity smile scales in qualitatively the same way as a general rough stochastic volatility model , and the rate function is equal to the Fenchel–Legendre transform of a simple transformation of the solution to the same Volterra integral equation (VIE) that appears in El Euch and Rosenbaum (2019, Math. Financ., 29, 3–38), but with the drift and mean reversion terms removed. The solution to this VIE satisfies a space–time scaling property which means we only need to solve this equation for the moment values of and so the rate function can be efficiently computed using an Adams scheme or a power series, and we compute a power series in the log‐moneyness variable for the asymptotic implied volatility which yields tractable expressions for the implied vol skew and convexity which is useful for calibration purposes. We later derive a formal saddle point approximation for call options in the Forde and Zhang (2017) large deviations regime which goes to higher order than previous works for rough models. Our higher‐order expansion captures the effect of both drift terms, and at leading order is of qualitatively the same form as the higher‐order expansion for a general model which appears in Friz et al. (2018, Math. Financ., 28, 962–988). The limiting asymptotic smile in the large‐maturity regime is obtained via a stability analysis of the fixed points of the VIE, and is the same as for the standard Heston model in Forde and Jacquier (2011, Finance Stoch., 15, 755–780). Finally, using Lévy's convergence theorem, we show that the log stock price tends weakly to a nonsymmetric random variable as (i.e., ) whose moment generating function (MGF) is also the solution to the Rough Heston VIE with , and we show that tends weakly to a nonsymmetric random variable as , which leads to a nonflat nonsymmetric asymptotic smile in the Edgeworth regime, where the log‐moneyness as , and we compute this asymptotic smile numerically. We also show that the third moment of the log stock price tends to a finite constant as (in contrast to the Rough Bergomi model discussed in Forde et al. (2020, Preprint) where the skew flattens or blows up) and the process converges on pathspace to a random tempered distribution which has the same law as the hyper‐rough Heston model, discussed in Jusselin and Rosenbaum (2020, Math. Finance, 30, 1309–1336) and Abi Jaber (2019, Ann. Appl. Probab., 29, 3155–3200).     

Consumer stockpiling behavior in the retail gasoline market

ABSTRACT

I examine consumer stockpiling behavior in the retail gasoline market and factors that affect consumer stockpiling. Past research such as Hendel and Nevo (2006b Hendel, I. , and A.Nevo . 2006b. “Sales and Consumer Inventory.” The Rand Journal of Economics 37 (3): 543–561. doi:10.1111/(ISSN)1756-2171.[Crossref], [Web of Science ®] , [Google Scholar]) found evidence that implies stockpiling behavior. However, they did not observe actual inventory or consumption and have to rely on simplifying assumptions about these quantities. I collected a novel data set of gasoline purchase history of consumers with actual inventory and consumption to test several hypotheses that relate consumer stockpiling to price, duration between purchases, and consumption. I found that consumers purchase more gasoline when their inventory is low and those holding high inventory are more price sensitive. Consumption habits after a purchase may change due to two forces: previous consumption habit and purchase price. The exact change in consumption and duration between purchases depends on which force is stronger.     

Analysis of the effects of visibility and warning devices on driver injury severity at highway-rail grade crossings considering temporal transferability of data

Abstract

This study explores the joint effect of visibility and warning devices on driver injury severity at the highway-rail grade crossings (HRGCs), while also considering other contributing factors. For this purpose, four mixed logit models are developed to estimate the determinants of driver injury severity considering the combinations of visibility conditions (daylight vs. no daylight) and type of warning devices (active vs. passive warning). The models were calibrated using the data obtained from the USDOT Federal Railroad Administration for HRGC crashes that occurred over a ten-year period 2008–2017 Federal Railroad Administration (FRA) Office of Safety Analysis. (2017). Accident data as reported by railroads. Retrieved July, 2018, from https://safetydata.fra.dot.gov/OfficeofSafety/publicsite/on_the_fly_download.aspx [Google Scholar] across the United States. A temporal transferability test was conducted and confirmed the stability of model specifications considering a ten-year span of collected data. The pseudo-elasticity analysis was conducted to ascertain marginal impact of the contributing factors on driver injury severity in each model. While the vehicle speed, train speed, time of day and driver age are found to be common significant factors among the four models, there are marked differences between parameters associated with various crash factors. The study provides new insight into the driver injury severity in train-vehicle collisions considering visibility and type of warning devices, which can help in setting up proper policies to improve safety at HRGCs.     

Customer equity: a creative tool for SMEs in the services industry

The creative use of “Customer Equity” (CE) can be of interest to SMEs in the services industry.CE concerns:

• “Customer Acquisition”: Which customer or prospect should be acquired for present profit and future retention?
• “Customer Retention”: How can customers be made customers for life?
• “Add-on Selling”: Why selling more to existing customers is more profitable than the quest for new business.

The SME can furthermore apply two boosters to its CE policy:

• “Strategic Alliances”: When interdependence is smarter than independence.
• “External Economy of Scale”: Competition: if you cannot beat them, join them.

     

The Individual Aspect of Interorganizational Cooperation: Favor-Based Cooperation

ABSTRACT

Purpose

Interorganizational (IO) cooperation has been examined primarily as a role-based concept. This research seeks to extend this concept by examining a distinct mode of IO cooperation: favor-based cooperation. This concept refers to voluntary exchanges of preferential treatments between boundary personnel across organizations that are perceived as going beyond the requirements of their role relationships.     

How market oriented are business studies degrees?

When business courses are being reviewed and validated, academics will often claim that the course prepares students for their future careers in business and management. However, contacting graduates of long standing (who are well established in their profession and who would arguably be the best judges of the course's value) does not always happen.

The objective of the research was to make contact with ex‐students, who graduated some time ago, with the aim of obtaining useful information on the following inter‐related topics:

1. Their post‐university career pathway;

2. The vocational relevance of their course;

3. Their attitudes to and take‐up of postgraduate and professional qualifications;

4. Their opinions of course structure and content; and

5. An assessment of market needs in the development/ modification of courses.

Graduates of the BA (HONS) Business Studies degree were contacted and the above objectives were achieved. The methodology used should be transferable to other institutions and disciplines.     

Hyperbolic normal stochastic volatility model

For option pricing models and heavy-tailed distributions, this study proposes a continuous-time stochastic volatility model based on an arithmetic Brownian motion: a one-parameter extension of the normal stochastic alpha-beta-rho (SABR) model. Using two generalized Bougerol's identities in the literature, the study shows that our model has a closed-form Monte Carlo simulation scheme and that the transition probability for one special case follows Johnson's distribution—a popular heavy-tailed distribution originally proposed without stochastic process. It is argued that the distribution serves as an analytically superior alternative to the normal SABR model because the two distributions are empirically similar.     

Hedging nontradable risks with transaction costs and price impact

A risk‐averse agent hedges her exposure to a nontradable risk factor U using a correlated traded asset S and accounts for the impact of her trades on both factors. The effect of the agent's trades on U is referred to as cross‐impact. By solving the agent's stochastic control problem, we obtain a closed‐form expression for the optimal strategy when the agent holds a linear position in U. When the exposure to the nontradable risk factor is nonlinear, we provide an approximation to the optimal strategy in closed‐form, and prove that the value function is correctly approximated by this strategy when cross‐impact and risk‐aversion are small. We further prove that when is nonlinear, the approximate optimal strategy can be written in terms of the optimal strategy for a linear exposure with the size of the position changing dynamically according to the exposure's “Delta” under a particular probability measure.     

Ultimate Broadening of the Concept of Marketing: B-to-O-to-C Training Service Professionals Not to Inadvertently Kill Their Clients

ABSTRACT

Purpose

This précis on recent service breakdown prevention (SBP) theory and research advocates innovation organizational leadership and actions via business-to-organization (B-to-O) training focusing on how to manage face-to-face server-client encounters by designing/engaging in effective processes to achieve highly desirable outcomes. This research note advocates the use of role-playing training in experiencing simulated disastrous processes and how-to-avoid such outcomes.     

Economic and Non-economic Satisfaction as Outcomes of Micro-enterprises’ Perceived Value from Banking Relationships

ABSTRACT

Purpose

The purpose of this paper is to position economic and non-economic satisfaction as outcomes of micro-enterprises’ perception of value, and to determine the antecedents of perceived value within the business banking industry.     

Semitractability of optimal stopping problems via a weighted stochastic mesh algorithm

In this paper, we propose a Weighted Stochastic Mesh (WSM) algorithm for approximating the value of discrete‐ and continuous‐time optimal stopping problems. In this context, we consider tractability of such problems via a useful notion of semitractability and the introduction of a tractability index for a particular numerical solution algorithm. It is shown that in the discrete‐time case the WSM algorithm leads to semitractability of the corresponding optimal stopping problem in the sense that its complexity is bounded in order by with being the dimension of the underlying Markov chain. Furthermore, we study the WSM approach in the context of continuous‐time optimal stopping problems and derive the corresponding complexity bounds. Although we cannot prove semitractability in this case, our bounds turn out to be the tightest ones among the complexity bounds known in the literature. We illustrate our theoretical findings by a numerical example.     

Promotion and Prevention Contracts in Industry Level Firm to Firm Dyad

ABSTRACT

Purpose

This article aims to introduce and distinguish two features of contract design – prevention and promotion contracts – and compares their effects on opportunism within the distributor–supplier relationship. It also examines the moderating role of ex post contract enforcement strategies.     

Local volatility under rough volatility

Several asymptotic results for the implied volatility generated by a rough volatility model have been obtained in recent years (notably in the small-maturity regime), providing a better understanding of the shapes of the volatility surface induced by rough volatility models, supporting their calibration power to SP500 option data. Rough volatility models also generate a local volatility surface, via the so-called Markovian projection of the stochastic volatility. We complement the existing results on implied volatility by studying the asymptotic behavior of the local volatility surface generated by a class of rough stochastic volatility models, encompassing the rough Bergomi model. Notably, we observe that the celebrated “1/2 skew rule” linking the short-term at-the-money skew of the implied volatility to the short-term at-the-money skew of the local volatility, a consequence of the celebrated “harmonic mean formula” of [Berestycki et al. (2002). Quantitative Finance, 2, 61–69], is replaced by a new rule: the ratio of the at-the-money implied and local volatility skews tends to the constant $1/(H+3/2)$ (as opposed to the constant 1/2), where H is the regularity index of the underlying instantaneous volatility process.     

Convergence of optimal expected utility for a sequence of discrete‐time markets

We examine Kreps' conjecture that optimal expected utility in the classic Black–Scholes–Merton (BSM) economy is the limit of optimal expected utility for a sequence of discrete‐time economies that “approach” the BSM economy in a natural sense: The nth discrete‐time economy is generated by a scaled n‐step random walk, based on an unscaled random variable ζ with mean 0, variance 1, and bounded support. We confirm Kreps' conjecture if the consumer's utility function U has asymptotic elasticity strictly less than one, and we provide a counterexample to the conjecture for a utility function U with asymptotic elasticity equal to 1, for ζ such that .