What is Organizational Knowledge?

Organizational knowledge is much talked about but little understood. In this paper we set out to conceptualize organizational knowledge and explore its implications for knowledge management. We take on board Polanyi’s insight concerning the personal character of knowledge and fuse it with Wittgenstein’s insight that all knowledge is, in a fundamental way, collective. We do this in order to show, on the one hand, how individuals appropriate knowledge and expand their knowledge repertoires, and, on the other hand, how knowledge, in organized contexts, becomes organizational. Our claim is that knowledge is the individual capability to draw distinctions, within a domain of action, based on an appreciation of context or theory, or both. Organizational knowledge is the capability members of an organization have developed to draw distinctions in the process of carrying out their work, in particular concrete contexts, by enacting sets of generalizations whose application depends on historically evolved collective understandings. Following our theoretical exploration of organizational knowledge, we report the findings of a case study carried out at a call centre in Panafon, in Greece. Finally, we explore the implications of our argument by focusing on the links between knowledge and action on the one hand, and the management of organizational knowledge on the other. We argue that practical mastery needs to be supplemented by a quasi‐theoretical understanding of what individuals are doing when they exercise that mastery, and this is what knowledge management should be aiming at. Knowledge management, we suggest, is the dynamic process of turning an unreflective practice into a reflective one by elucidating the rules guiding the activities of the practice, by helping give a particular shape to collective understandings, and by facilitating the emergence of heuristic knowledge.     

Optimizing international portfolios with options and forwards

We develop a stochastic programming model to address in a unified manner a number of interrelated decisions in international portfolio management: optimal portfolio diversification and mitigation of market and currency risks. The goal is to control the portfolio’s total risk exposure and attain an effective balance between risk and expected return. By incorporating options and forward contracts in the portfolio optimization model we are able to numerically assess the performance of alternative tactics for mitigating exposure to the primary risks. We find that control of market risk with options has more significant impact on portfolio performance than currency hedging. We demonstrate through extensive empirical tests that incremental benefits, in terms of reducing risk and generating profits, are gained when both the market and currency risks are jointly controlled through appropriate means.     

Pricing options on scenario trees

We examine valuation procedures that can be applied to incorporate options in scenario-based portfolio optimization models. Stochastic programming models use discrete scenarios to represent the stochastic evolution of asset prices. At issue is the adoption of suitable procedures to price options on the basis of the postulated discrete distributions of asset prices so as to ensure internally consistent portfolio optimization models. We adapt and implement two methods to price European options in accordance with discrete distributions represented by scenario trees and assess their performance with numerical tests. We consider features of option prices that are observed in practice. We find that asymmetries and/or leptokurtic features in the distribution of the underlying materially affect option prices; we quantify the impact of higher moments (skewness and excess kurtosis) on option prices. We demonstrate through empirical tests using market prices of the S&P500 stock index and options on the index that the proposed procedures consistently approximate the observed prices of options under different market regimes, especially for deep out-of-the-money options.