On American VIX options under the generalized 3/2 and 1/2 models

In this paper, we extend the 3/2 model for VIX studied by Goard and Mazur and introduce the generalized 3/2 and 1/2 classes of volatility processes. Under these models, we study the pricing of European and American VIX options, and for the latter, we obtain an early exercise premium representation using a free‐boundary approach and local time‐space calculus. The optimal exercise boundary for the volatility is obtained as the unique solution to an integral equation of Volterra type. We also consider a model mixing these two classes and formulate the corresponding optimal stopping problem in terms of the observed factor process. The price of an American VIX call is then represented by an early exercise premium formula. We show the existence of a pair of optimal exercise boundaries for the factor process and characterize them as the unique solution to a system of integral equations.     

Employee stock options with performance conditions: do commonly used valuation heuristics work?

Valuation heuristics are widely used to value traditional time vesting option plans. This study analyses if these heuristics also qualify for valuing performance vesting plans. We examine performance conditions tied to the underlying stock, the stock's performance relative to a stock index, and an earnings measure. The differences between the approximated option values and the values assuming optimal exercise are overall smaller with the performance conditions than without them. In particular, this result holds when the heuristic exercise assumptions are based on the case without performance conditions, which is a considerable simplification in practice.     

Indian equity options: Smile,risk premiums,and efficiency

We study the pricing of equity options in India which is one of the world's largest options markets. Our findings are supportive of market efficiency: A parsimonious smile-adjusted Black model fits option prices well, and the implied volatility (IV) has incremental predictive power for future volatility. However, the risk premium embedded in IV for Single Stock Options appears to be higher than in other markets. The study suggests that even a very liquid market with substantial participation of global institutional investors can have structural features that lead to systematic departures from the behavior of a fully rational market while being “microefficient.”     

Optimising adaptation decisions in macadamia production using contingent claim valuation

Altering production systems and land management of tree crops is a costly, disruptive and ultimately irreversible decision. Using traditional valuation methods to appraise long‐term land management outcomes ignores the full impact of irreversible or delayed decisions. We employ a variant of the real options decision process to examine uncertainties around climatic effects on macadamia growers and the explicit decision to adapt via cultivar replacement. We examine the trade‐offs between the timing of the decision to replace macadamia cultivars by considering both the value of flexibility as well as the value of new information that can be used to resolve uncertainty. We compare the relative responses that generate the most value for growers across four geographical locations. We show that simple switching decisions using traditional valuation methods are found to be suboptimal and initiate poor decisions, potentially undermining adaptation efforts. As the rate of orchard degradation increases, the need to transition to higher‐yielding cultivars becomes greater, especially for Hawaii, California and Australia where gross margins are leaner. Investment decisions are thus highly dependent on both local conditions and the economic structure of existing production systems.     

Is the nonlinear hedge of options more effective?—Evidence from the SSE 50 ETF options in China

The linear hedging of the options ignores the characteristic of the nonlinear change of option prices with the underlying asset. This paper establishes the nonlinear hedging strategy followed the study by Hull and White (2017) to investigate the effectiveness on the Shanghai Stock Exchange (SSE) 50 ETF options. The results show that the nonlinear hedge of the Chinese option market is less effective than the U.S option market because of the short history and the lower activity of the Chinese option market. The effect of nonlinear hedging strategy is better than the linear hedging strategy for calls in China. But for puts, the effect of the nonlinear hedging strategy is not as significant as it for calls. The difference in the trading volume between calls and puts and the high short-selling cost in the Chinese market are the main factors leading to the difference in hedge effectiveness. This paper suggests that the stock exchange could reduce margin standard of 50 ETF securities lending, promote a more flexible shorting mechanism, and accelerate the process of index options listed, so as to achieve hedging the risk of options more directly and efficiently.     

Financial Shocks and Corporate Investment in Emerging Markets

We examine how cross-firm and cross-country heterogeneity shapes the responses of corporate investment in emerging markets to changes in U.S. monetary policy and financial-market volatility, the latter proxying for uncertainty. We find that in response to increases in U.S monetary policy rates or financial-market volatility, financially weaker firms reduce investment by more than financially strong firms. We also show that firms with stronger balance sheets delay investment voluntarily when faced with higher uncertainty. Finally, we find that stronger macroeconomic fundamentals (lower public debt or higher international reserves) help to buffer corporate investment from increases in U.S. monetary policy rates.     

融资租赁对中国技术引进的影响分析——以高新技术产业发展为例

在对前人研究成果总结评价的基础上，本文选取1981～2013年共33个样本数据，通过建立一阶误差修正模型，以高新技术产业的发展为例，实证分析了融资租赁对中国技术引进的影响，实证结果表明与高新技术产业相关的融资租赁业务对该国技术引进具有显著的促进作用。最后，根据研究结论提出不但要大力发展融资租赁业、推动融资租赁与高新技术产业的融合，还应削弱或取消租赁设备附带性的技术等无形资产的限制性数量标准，将融资租赁的标的物范围扩充至独立性的无形资产，在更高水平上促进中国的技术引进。     

How do firms finance their exports? – evidence from China

Using a firm-level production data over the period of 2005–2009 from China, this paper provides a new empirical evidence on how firms finance their exports when they have several financial options. The main results of the paper can be summarized as follows. First, firms who have better access to any finance are more likely to export and export more. More financial options lead to a higher export probability and capacity due to the complementary relation between financial options. Second, of all financial options, the internal finance captured by cash holdings or profit plays the most important role on firms’ export likelihood and volume. Firms rely more on the external finance through borrowing to start exporting, but depend more on issuing stocks to their shareholders to expand their exports. Third, subsample results suggest that the financial option of issuing stocks is generally more important for firms who have worse access to external finance in determining export propensity and quantity, such as private-owned firms, small-scale firms, young firms, and non-eastern firms.     

Oil price volatility and real options: 35 years of evidence

There has been a surge in interest in the effects of uncertainty on investment decisions, motivated at least in part by the theory of real options. For example, Bloom (2009, Econometrica, 77, 623–685) shows that higher uncertainty causes firms to temporarily pause investment and hiring, generating sharp economic downturns. This paper investigates these effects by examining the response of disaggregated measures of production to volatility in oil prices. We find that increased oil price volatility has strong negative effects on the production of durable goods, such as transportation equipment, and oil exploration, such as the drilling of oil and gas wells.     

A new integral equation formulation for American put options

In this paper, a completely new integral equation for the price of an American put option as well as its optimal exercise price is successfully derived. Compared to existing integral equations for pricing American options, the new integral formulation has two distinguishable advantages: (i) it is in a form of one-dimensional integral, and (ii) it is in a form that is free from any discontinuity and singularities associated with the optimal exercise boundary at the expiry time. These rather unique features have led to a significant enhancement of the computational accuracy and efficiency as shown in the examples.