Solvable local and stochastic volatility models: supersymmetric methods in option pricing

In this paper we provide an extensive classification of one- and two-dimensional diffusion processes which admit an exact solution to the Kolmogorov (and hence Black–Scholes) equation (in terms of hypergeometric functions). By identifying the one-dimensional solvable processes with the class of integrable superpotentials introduced recently in supersymmetric quantum mechanics, we obtain new analytical solutions. In particular, by applying supersymmetric transformations on a known solvable diffusion process (such as the Natanzon process for which the solution is given by a hypergeometric function), we obtain a hierarchy of new solutions. These solutions are given by a sum of hypergeometric functions, generalizing the results obtained in a paper by Albanese et al. (Albanese, C., Campolieti, G., Carr, P. and Lipton, A., Black–Scholes goes hypergeometric. Risk Mag., 2001, 14, 99–103). For two-dimensional processes, more precisely stochastic volatility models, the classification is achieved for a specific class called gauge-free models including the Heston model, the 3?/?2-model and the geometric Brownian model. We then present a new exact stochastic volatility model belonging to this class.     

Disability insurance and unemployment insurance as substitute pathways

In this article, we estimate the degree of substitution between enrolment into Disability Insurance (DI) and Unemployment Insurance (UI) in the Netherlands. Starting in the 1990s many policy measures aimed at reducing DI enrolment, and increase labour force participation. We quantify whether these policy measures have led to a reduction in hidden unemployment in DI. A side effect of the reforms may be increased pressure on UI. Therefore, we simultaneously estimate reverse substitution, that is, hidden disability in UI. To this end, we employ a sample of firms in the Dutch AVO database from the period 1993 to 2002. Using instrumental variables in a bivariate Tobit specification, we identify the hidden components in both respective schemes. The estimation results indicate that about 3% of all dismissals took place through DI, which implies that about one quarter of the DI enrolments observed in our sample in fact consists of hidden unemployment. We find no evidence for reverse substitution of disabled persons ending up in UI.     

How effective are level-based R&D tax credits? Evidence from the Netherlands

This article examines the impact of the R&D fiscal incentive programme on R&D by Dutch firms. Taking a factor demand approach, we measure the elasticity of firm R&D capital accumulation to its user cost. Econometric models are estimated using a rich unbalanced panel of firm data covering the period 1996 to 2004 with firm specific R&D user costs varying with tax incentives. Using the estimated user cost elasticity, we perform a cost–benefit analysis of the R&D incentive programme. We find some evidence of additionality suggesting that the level based programme of R&D incentives in the Netherlands is effective in stimulating firms’ investment in R&D. However, the hypothesis of crowding out can be rejected only for small firms. The analysis also indicates that the level based nature of the fiscal incentive scheme leads to a substantial social deadweight loss.     

International Executives,Identity Strategies and Mobility in France and China

The strategies of multinational firms increasingly rely in Asia Pacific Region on processes of socialising their employees, who are seeking to develop and reinforce a “global” company culture, without endangering the cultures of local subsidiaries. Specialists have coined the term “cross-cultural management”. A role of “company ambassador” is allocated to a new generation of international executives in Asia whose mission will be to play an effective role as interface between head office its the subsidiaries – and between the subsidiaries themselves – once they have been suitably “impregnated” with the company culture and the particular features of different markets.

The repeated experience of international mobility that executives live through means that the individual may well be living in conflict with previous identities. It is true to say that nobody stays long in an internationally mobile situation without running the risk of there being strong divergence between the domestic and residential worlds, the life of the community and the world of the company. This article has been written as a result of in-depth research into the way executives of a large French oil company built up their identities and as a result of a study examines intercultural learning based on French expatriates' experience in China. We consider how French expatriates experience China and what imaginary underlies their perception. Analysis of daily socialization and interaction processes shows intercultural competence develops along distinct immersion stages: immersion–adjustment, immersion–comprehension, and immersion–integration. Individually, adjustment and comprehension support intercultural practice. The ultimate immersion stage leads to enlightened pragmatism stemming from “nomadic intelligence”. Where a researcher in the social sciences or a business man might have expected to have found an homogenous international elite, international executives building an “international system”, the heterogeneous nature of the identity strategies of international executives give the lie to the myth of the large company as a space for the irreversible assimilation of its members. At an individual level, being an international executive is a unique way of living the experience abroad, or rather, several different ways of experiencing identity strategies linked to the manipulation of one's ethnicity in a context of significant geographical and functional mobility.     

Model-independent bounds for option prices—a mass transport approach

In this paper we investigate model-independent bounds for exotic options written on a risky asset using infinite-dimensional linear programming methods. Based on arguments from the theory of Monge–Kantorovich mass transport, we establish a dual version of the problem that has a natural financial interpretation in terms of semi-static hedging. In particular we prove that there is no duality gap.     

The Austrian roots of the economics of institutions

This paper presents an analysis of the way the Austrian theory of institutions evolved from Menger’s main works. It also tries to advance the idea that the economics of institutions, when it deals with the emergence and evolution of rules and norms from interacting individuals, is inspired by Menger’s work and more generally by the Austrian analysis of the emergence and evolution of institutions. Recent works in the economics of institutions build on this earlier Austrian work to make it more formalized and testable.

On monopolistic competition and optimal product diversity: workers' rents also matter

Abstract .  In the Dixit-Stiglitz model of monopolistic competition, entry of firms is socially too small. Other authors have shown that excess entry is also a possibility with other preferences for diversity. We show that workers' rents also contribute to explain excess entry through a general equilibrium mechanism. Larger wages indeed raises the aggregate earnings and firms sales and profits, which entices too many firms to enter. We discuss the possibility of over-provision of varieties by comparing the equilibrium to unconstrained and constrained social optima and to other regulatory frameworks where wages are not controlled.     

The economic analysis of social norms: A reappraisal of Hayek’s legacy

This paper is organized as follows: first, we show that the reference to the notion of group selection is coherent with the other parts of Hayek’s thought. Second, we develop the idea that recent works in terms of the emergence and evolution of social norms corroborate in part Hayek’s theses in this domain. Finally, we put to the fore some drawbacks in Hayek’s approach and propose means to solve them.