An appropriate model for joint regional action in southern Africa after apartheid

Market‐based integration is not appropriate to the joint development of the southern African region; the region's political, technical and institutional immaturity requires instead loose, function‐based economic cooperation. This will also facilitate intraregional trade. Subregions in the meantime could progress to higher levels of integration: international experience has shown that successful integration is most likely when it takes place on the basis of ‘regions within regions’. Cooperative development of the subcontinent is likely to be best achieved through the ‘concentric circles’ approach to regional cooperation, in which a revised Southern African Customs Union‐Common Monetary Area forms the highly integrated core of a loose, function‐based cooperative arrangement covering the whole of southern Africa.     

Interpreting IS alignment: A multiple case study in professional organizations

This paper centers on the interpretation attributed by organizational members to the information systems (IS) alignment concept. Its objective is to study IS alignment in professional organizations. Specifically, it reports on an interpretive study conducted in five Chilean organizations; four professional and one entrepreneurial, of which two are private and three are public. The theoretical background of our study is derived from three IS strategic alignment conceptualizations: managerial, emergent and critical. These concepts formed our theoretical framework that guided data collection and analysis. The study centers on the meanings organizational members assigned to IS strategic alignment, as well as their views on the barriers that hinder achieving this level of organizational integration. The analysis results are summarized in seven hermeneutic themes that point out the different connotations the organizations assigned to IS alignment. The significance of the findings are summarized in four insights that formulate theoretical and practical implications. These insights refer to: (1) the difficulties of achieving alignment for professional organizations, particularly public ones, (2) the limitations these organizations have in being agile, (3) the rationale for acquiring technology and determining IT skills, and (4) the imperative meaning that CIOs attribute to IS alignment. The paper concludes with a reflection on the limitations and relevance of the research.     

Using proxies for the short rate: when are three months like an instant?

The dynamics of the unobservable short rate are frequently estimateddirectly using a proxy. We examine the biases resulting fromthis practice (the 'proxy problem'). Analytic results show thatthe proxy problem is not economically significant for single-factoraffine models. In the two-factor affine model of Longstaff andSchwartz (1992), the proxy problem is only economically significantfor pricing discount bonds with maturities of more than fiveyears. We also describe two different numerical procedures forassessing the magnitude of the proxy problem in a general interestrate model. When applied to a nonlinear single-factor model,they suggest that the proxy problem can be economically significant.     

HIGH‐ORDER SHORT‐TIME EXPANSIONS FOR ATM OPTION PRICES OF EXPONENTIAL LÉVY MODELS

The short‐time asymptotic behavior of option prices for a variety of models with jumps has received much attention in recent years. In this work, a novel second‐order approximation for at‐the‐money (ATM) option prices is derived for a large class of exponential Lévy models with or without Brownian component. The results hereafter shed new light on the connection between both the volatility of the continuous component and the jump parameters and the behavior of ATM option prices near expiration. In the presence of a Brownian component, the second‐order term, in time‐t, is of the form , with d₂ only depending on Y, the degree of jump activity, on σ, the volatility of the continuous component, and on an additional parameter controlling the intensity of the “small” jumps (regardless of their signs). This extends the well‐known result that the leading first‐order term is . In contrast, under a pure‐jump model, the dependence on Y and on the separate intensities of negative and positive small jumps are already reflected in the leading term, which is of the form . The second‐order term is shown to be of the form and, therefore, its order of decay turns out to be independent of Y. The asymptotic behavior of the corresponding Black–Scholes implied volatilities is also addressed. Our method of proof is based on an integral representation of the option price involving the tail probability of the log‐return process under the share measure and a suitable change of probability measure under which the pure‐jump component of the log‐return process becomes a Y‐stable process. Our approach is sufficiently general to cover a wide class of Lévy processes, which satisfy the latter property and whose Lévy density can be closely approximated by a stable density near the origin. Our numerical results show that the first‐order term typically exhibits rather poor performance and that the second‐order term can significantly improve the approximation's accuracy, particularly in the absence of a Brownian component.     

The Chilean Anti-cartel Experience: Accomplishments and Challenges

Review of Industrial Organization - We evaluate the Chilean law and enforcement record in the area of cartels. We identify the high probability of cartel detection, severe sanctions for detected...     

Asymmetric partnerships

We study asymmetric partnerships and show that efficient dissolution is possible if critical types (where participation constraints bind) are equal. Ownership structures guaranteeing equal critical types always exist, but can be extremely unequal.     

Private information, trading volume, and stock-return variances

New evidence is provided on the determinants of stock-returnvariances. First, when the Tokyo Stock Exchange is open on Saturday,the weekend variance increases; weekly variance is unaffected,however, despite an increase in weekly volume. Second, the listingof U.S. stocks in Tokyo substantially increases the number oftrading hours, but Tokyo volume is negligible for these U.S.stocks and their 24-hour variance is unaffected. The overallresults are consistent with the predictions of private-information-basedrational trading models, but inconsistent with both the irrationaltrading noise and public-information hypotheses.     

DYNAMIC PORTFOLIO OPTIMIZATION WITH A DEFAULTABLE SECURITY AND REGIME‐SWITCHING

We consider a portfolio optimization problem in a defaultable market with finitely‐many economical regimes, where the investor can dynamically allocate her wealth among a defaultable bond, a stock, and a money market account. The market coefficients are assumed to depend on the market regime in place, which is modeled by a finite state continuous time Markov process. By separating the utility maximization problem into a predefault and postdefault component, we deduce two coupled Hamilton–Jacobi–Bellman equations for the post‐ and predefault optimal value functions, and show a novel verification theorem for their solutions. We obtain explicit constructions of value functions and investment strategies for investors with logarithmic and Constant Relative Risk Aversion utilities, and provide a precise characterization of the directionality of the bond investment strategies in terms of corporate returns, forward rates, and expected recovery at default. We illustrate the dependence of the optimal strategies on time, losses given default, and risk aversion level of the investor through a detailed economic and numerical analysis.     

PRICING AND SEMIMARTINGALE REPRESENTATIONS OF VULNERABLE CONTINGENT CLAIMS IN REGIME‐SWITCHING MARKETS

Using a suitable change of probability measure, we obtain a Poisson series representation for the arbitrage‐free price process of vulnerable contingent claims in a regime‐switching market driven by an underlying continuous‐time Markov process. As a result of this representation, along with a short‐time asymptotic expansion of the claim's price process, we develop an efficient novel method for pricing claims whose payoffs may depend on the full path of the underlying Markov chain. The proposed approach is applied to price not only simple European claims such as defaultable bonds, but also a new type of path‐dependent claims that we term self‐decomposable, as well as the important class of vulnerable call and put options on a stock. We provide a detailed error analysis and illustrate the accuracy and computational complexity of our method on several market traded instruments, such as defaultable bond prices, barrier options, and vulnerable call options. Using again our Poisson series representation, we show differentiability in time of the predefault price function of European vulnerable claims, which enables us to rigorously deduce Feynman‐Ka? representations for the predefault pricing function and new semimartingale representations for the price process of the vulnerable claim under both risk‐neutral and objective probability measures.