Confined exponential approximations for the valuation of American options

We provide an alternative analytic approximation for the value of an American option using a confined exponential distribution with tight upper bounds. This is an extension of the Geske and Johnson compound option approach and the Ho et al. exponential extrapolation method. Use of a perpetual American put value, and then a European put with high input volatility is suggested in order to provide a tighter upper bound for an American put price than simply the exercise price. Numerical results show that the new method not only overcomes the deficiencies in existing two-point extrapolation methods for long-term options but also further improves pricing accuracy for short-term options, which may substitute adequately for numerical solutions. As an extension, an analytic approximation is presented for a two-factor American call option.     

Investigating the stationarity of insurance premiums: international evidence

This article explores whether there is support for the stationarity hypotheses of life and non-life insurance premiums during the period 1979–2007 for 40 heterogeneous countries. The stationarity of insurance premiums affects insurance companies’ prediction on their future inflow of premium income, which affects the liquidity of insurance companies and their investment plans and thus is relevant to the insurers’ operation. This article employs the advanced nonlinear panel unit-root test with a sequential panel selection method to classify the entire panel into two groups: stationary countries and non-stationary countries. We apply Monte Carlo simulations to derive empirical distributions of the test, which allows us to correct for the finite-sample bias and to consider the cross-country effects. We find relatively stationary life insurance premiums in countries from the following groups: high-income, Europe, and common law origin; relatively stationary non-life insurance premiums exist in the following groups: low-income, Middle East and Africa, and common law origin. Evidence herein shows that different classifications, including income levels, geographic regions, regionally or economically integrated blocs, and legal system, affect the stationarity of life and non-life insurance premiums.     

Communication and knowledge as motivators: understanding Singaporean women’s perceived risks of breast cancer and intentions to engage in preventive measures

As breast cancer is the most prevalent cancer among women in Singapore, encouraging them to engage in preventive measures becomes increasingly important. This study aims to take a closer look at the influence of attention to media, interpersonal communication, news elaboration, and knowledge on women’s (aged between 30 and 70) perceived risks of breast cancer and their intentions to engage in preventive measures in Singapore. Attention to media, frequency of interpersonal communication, fatalistic belief, and knowledge structure density were found to be associated with risk perception of breast cancer among Singaporean women. Findings also showed that frequency of interpersonal communication, risk perception, elaboration, and factual knowledge were positively associated with women’s intentions to take up preventive measures such as breast self-examination, clinical breast examination, and mammography. Implications for theory and practice were discussed.     

Organizational Structure,Board Composition,and Risk Taking in the U.S. Property Casualty Insurance Industry

This study examines the impact of organizational structure and board composition on risk taking in the U.S. property casualty insurance industry, addressing different risk‐taking behaviors from different perspectives. The risk‐taking measures include total risk, underwriting risk, investment risk, and leverage risk. The evidence shows that mutual insurers have lower total risk, underwriting risk, and investment risk than stock insurers. In terms of board composition variables, we find that some board composition variables not only have impact on risk‐taking behaviors but also affect different risk measures differently. Thus, using different risk measures is better than using one risk measure to assess risk‐taking behavior. Finally, we conclude that an insurer can control its total risk through management of underwriting, investment, and leverage risks that determine an insurer's risk profile.     

Convergence and catching up in ASEAN: a comparative analysis

The increasing diversity of average growth rates and income levels across countries has generated a large literature on testing the income convergence hypothesis. Most countries in South-East Asia, particularly the five founding ASEAN member countries (ASEAN-5), have experienced substantial economic growth, with the pace of growth having varied substantially across countries. Recent empirical studies have found evidence of several convergence clubs, in which per capita incomes have converged for selected groupings of countries and regions. This paper applies different time series tests of convergence to determine if there is a convergence club for ASEAN-5, as well as ASEAN-5 and the USA. The catching up hypothesis states that the lagging country, with low initial income and productivity levels, will tend to grow more rapidly by copying the technology of the leader country, without having to bear the associated costs of research and development. Given the important effects of technological change on growth, this paper also examines whether ASEAN-5 is catching up technologically with the USA.     

Stability of money demand function revisited in China

As China's economic reforms have undergone significant structural changes after 1979, it has been rather difficult to formulate a stable money demand function over the period following that year. While previous literature on the long-run relationship of money demand in China shows the existence of stable money demand, this article revisits the stability of the China money demand function over the period after 1979. To employ the unit root tests and the cointegration tests with structural break, the empirical evidence demonstrates that economic and financial deregulation did affect the stability of demand for money in China over the period 1977 to 2002. Moreover, the estimated long-run income and interest elasticity are respectively 1.01 (1.11) and ?0.14 (?0.08) using the real M1 (M2) equation. In addition, real income and the interest rate are found to be weakly exogenous. We overall do find structural breakpoints mainly in 1980 and 1993, and they look to match clearly with corresponding critical financial and economic incidents.