An Asymptotic Expansion for Forward–Backward SDEs: A Malliavin Calculus Approach

This paper proposes a new analytical approximation scheme for the representation of the forward–backward stochastic differential equations (FBSDEs) of Ma and Zhang (Ann Appl Probab, 2002). In particular, we obtain an error estimate for the scheme applying Malliavin calculus method for the forward SDEs combined with the Picard iteration scheme for the BSDEs. We also show numerical examples for pricing option with counterparty risk under local and stochastic volatility models, where the credit value adjustment is taken into account.     

Directional imbalance in transport prices and economic geography

This paper examines how and why transport prices become imbalanced with respect to the direction of shipments and how this affects economic geography. It is shown that the equilibrium transport price of the shipment in a particular direction is a nondecreasing function of the relative size of the embarkation region. Furthermore, we show that the directional imbalance in transport prices increases the likelihood of the symmetric pattern being stable and decreases the likelihood of the core-periphery patterns being sustainable. In short, the imbalance acts as a dispersion force.     

Productivity growth,on-the-job search,and unemployment

The impact of long-run productivity growth on unemployment is studied. We incorporate disembodied technological progress and on-the-job search into the endogenous job separation model of Mortensen and Pissarides (1994). Because we include on-the-job search, faster growth reduces unemployment by decreasing job separation and inducing job creation. The incorporation of on-the-job search substantially improves the ability of the Mortensen and Pissarides model to explain the effect of growth on labor market variables. Specifically, our model generates not only an empirically consistent sign of the effect, but also a larger impact of growth on unemployment than the standard matching model.     

A new scheme for static hedging of European derivatives under stochastic volatility models

This study proposes a new scheme for static hedging of European path‐independent derivatives under stochastic volatility models. First, we show that pricing European path‐independent derivatives under stochastic volatility models is transformed to pricing those under one‐factor local volatility models. Next, applying an efficient static replication method for one‐dimensional price processes developed by Takahashi and Yamazaki (2008), we present a static hedging scheme for European path‐independent derivatives. Finally, a numerical example comparing our method with a dynamic hedging method under Heston's (1993) stochastic volatility model is used to demonstrate that our hedging scheme is effective in practice. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 29:397–413, 2009     

Market design for standardization problems with agent-based social simulation

This paper provides a computational market model with technological competitions among standards and presents simulations of various scenarios concerning standardization problems. The market model has three features: (1) economic entities such as consumers and firms are regarded as autonomous agents; (2) micro interactions among consumer agents or firm agents have essential mechanisms interpretable in real markets; and (3) consumers’ preferences and firms’ technologies co-affect their evolutionary behavior. In recent years, consumers have experienced various inconveniences from de facto competition based on a market mechanism. Standardization communities or committees such as the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) need to design a compatible standard or a de jure standard in a market. However, it is difficult for market designers to decide a method or timing for the standardization. Here, by introducing a novel technique used in agent-based social simulation (ABSS), which we call “scenario analysis,” we aim to support such decision making. Scenario analysis provides the possible market changes that can occur following implementation of a design policy under a specific market situation and the market mechanisms that generate these market changes.     

Comparing Open-loop With Markov Equilibria in a Class of Differential Games

We consider a class of differential games with transition equations that are homogeneous of degree one. For any game G with a discount rate r , consider a Markov-perfect equilibrium (MPE) with strategies that are linear in the state variables. We show that the time paths of the control variables of this equilibrium constitute an open-loop equilibrium of a corresponding game G , which differs from G only in that its rate of discount r is equal to r plus a suitably chosen constant. In the context of a resource depletion game, this implies that the open-loop solution is more conservationist.
JEL Classification Nos.: C72, C73, Q30.     

The impact of innovation on export behavior： An empirical analysis of Lao garment firms

Research on the role of innovation as important factor for creating and maintaining competitiveness of nations and firms has long been popularized among scholars and policy makers. The impact of innovation on exporting has been investigated in many countries. However, this issue has paucity of research in the Lao PDR. This study empirically investigates whether or not innovation performed by Lao garment firms determines their exporting behaviors. Utilizing the Probit and Tobit regression to analyze the data from the recent survey of industrial cluster development of Lao garment industry in 2007, the empirical results show that innovation as measured directly by “new product” and “new production process” have positive impact not only on export probability but also export intensity in the case of Lao garment firms. This implies that Lao garment finns who become the innovators have high probability to be exporters. Moreover, among exporters who are innovators outperform non-innovators in terms of export intensity. In addition, this study also finds that Lao garment exporters enjoy more competitive advantage due to lower labor cost. The findings from this study have important policy implications regarding how the government can support Lao garment firms to be innovators in order to sustain export performance.     

Equity and efficiency effects of redistributive policies

How do various forms of redistribution affect the distributions of earnings and consumption and their intergenerational mobility? Do redistributive policies enhance efficiency by mitigating market imperfections? Or do they create a trade-off between equity and efficiency? To address these issues, a dynamic general equilibrium model is constructed and solved numerically. The effects of the degrees of targeting of money transfers and educational transfers and the relative performance of the two types of transfers are examined.