Options and efficiency in spaces of bounded claims

In a seminal contribution, Ross (1976) showed that a static finite state-space market can be completed by supplementing the primitive securities with ordinary call and put options. Galvani (2009) extends this result to norm separable _Lp$L_p$-spaces, with 1≤p<∞$1\le p<\infty$. This study concludes that options maintain the same spanning power in the space of bounded payoffs topologized by the duality with the space of the state price densities. In particular, under mild assumptions on the probability space, options written on a claim that is a.s. equal to an injective function complete the market.     

Contracts,incentives and organizations: Hart and Holmström Nobel Laureates

This article reviews the contribution of Hart and Holmström, the 2016 Nobel Laureates in economics. Holmström's work on the principal-agent problem answered questions as to what should (and should not) be included in an incentive contract. His work helped explain the simple structure of incentive contracts we typically observe in the real world. The models he developed have been used to address questions of CEO compensation, organizational design and optimal regulation. A key element of Hart's research focused on the question of what are the optimal boundaries of a firm (and indeed, what a firm actually is). In doing so he developed the incomplete-contracts framework, which has subsequently been used to explain many economic phenomena whenever renegotiation is important, including authority and decision-making structures in firms, why financial contracts look the way they do, and various questions in international trade and public policy.     

Can Russia Resettle the Far East?

Russian scholars, politicians and media have been alarmed by the declining population of the Far East, seeing it as a step towards eventual takeover of the region by China. This article shows that the progressive depopulation of the Far East is a reality and will continue in the coming decades. In addition to natural decline, the Far Eastern population will shrink faster than that of Russia because of net outmigration. Economic stagnation will keep migration from the South of the region at its present low rates. Recovery will increase mobility and allow the present deferred migrants to leave for European Russia. In the unlikely event that the Far East outperforms the rest of the country economically, it will attract migrants. However, any inflow is likely to be small because of the shrinking populations in European Russia and other ex-Soviet republics, and the competition for migrants from other parts of the world.     

On the Sensitivity of Premiums and Reserves to Changes in Valuation Elements

Upon differentiating the Thiele differential equations and the equivalence condition with respect to some parameter appearing in the equations, one obtains differential equations for the derivatives of the state-wise reserves and the premium level with respect to the parameter. The solution to these equations measures the impact on premiums and reserves of a change in the parameter. Typically only numerical results can be obtained, but the method applies quite generally to multi-state policies and to virtually any parameter, and so represents a panacea in (the vast majority of) situations where analytical results are out of reach. Extensions to higher order derivatives and higher order conditional moments are straightforward. A difference method for computation is devised, and numerical results are reported for some practical cases.     

The maximum entropy mortality model: forecasting mortality using statistical moments

ABSTRACT

The age-at-death distribution is a representation of the mortality experience in a population. Although it proves to be highly informative, it is often neglected when it comes to the practice of past or future mortality assessment. We propose an innovative method to mortality modeling and forecasting by making use of the location and shape measures of a density function, i.e. statistical moments. Time series methods for extrapolating a limited number of moments are used and then the reconstruction of the future age-at-death distribution is performed. The predictive power of the method seems to be net superior when compared to the results obtained using classical approaches to extrapolating age-specific-death rates, and the accuracy of the point forecast (MASE) is improved on average by 33% respective to the state-of-the-art, the Lee–Carter model. The method is tested using data from the Human Mortality Database and implemented in a publicly available R package.     

Equilibrium prices in a random exchange economy with dependent agents

Summary. This paper presents a model of a Walrasian exchange economy in which the preferences and endowments of the agents are random. Stochastic interaction among the agents is formally described in terms of dependency neighborhoods. The main result is a characterization of the distribution of market-clearing prices in a large economy. Received: April 23, 1999; revised version: May 6, 1999     

Has new business creation in russia come to a halt?

Successful transformation of centrally planned economies requires not just the privatization of the existing firms, but also the formation of new ones. New entrants serve to correct for the central planners' neglect of such sectors as services and consumer goods, and their bias in favor of large firms. Indeed, Central European economies have been experiencing a rapid rate of new business creation, as measured by the change in the number of small firms. Russia also experienced a short period of explosive growth in the number of new business. However, since 1994 net new business formation has stagnated. This paper looks into the possible causes of this phenomenon.Official data on the change in the number of small businesses, which serve as a proxy for net new business formation, arouse justified suspicion because of the frequent changes in the definition of “small enterprise.” Like everywhere in the world, some Russian registered firms do not become operational, and some firms that have ceased operations do not legally disband. If the share of these “dead souls” in the total count of small firms changes over time and official statistics does not adjust its count accordingly, the data may show the opposite of the actual processes. This paper analyzes Russian data collection procedures and other evidence, and concludes that stagnation in the new business formation is a real phenomenon, rather than a statistical artifact.The difficulty in finding out the causes of stagnation is that empirical studies focus on the existing businesses and miss those that should have been born but were not. The problems faced by the incumbents and frustrated entrants may well be different. The likely causes of the end of new business creation are the increased tax and regulatory burden, combined with plunder by the numerous tax and regulatory authorities. Other possible explanations involve the incumbents' use of the authorities and/or racketeers to erect barriers against new entrants.     

Collusion with intertemporal price dispersion

We develop a theory of optimal collusive intertemporal price dispersion. Dispersion clouds consumer price awareness, encouraging firms to coordinate on dispersed prices. Our theory generates a collusive rationale for price cycles and sales. Patient firms can support optimal collusion at the monopoly price. For less patient firms, monopoly prices must be punctuated with fleeting sales. The most robust structure involves price cycles that resemble Edgeworth cycles. Low consumer attentiveness enhances the effectiveness of price dispersion by reducing the payoff to deviations involving price reductions. However, for sufficiently low attentiveness, price rises are also a concern.