Option Valuation with Information Costs: Theory and Tests

In this paper, the valuation of stock and index options is analyzed in the context of Merton's model of capital market equilibrium with incomplete information. It is possible to derive a partial differential equation for options in such a context. The derivation gives more understanding of the way an option's future payoff is discounted to the present. In order to estimate some of its parameters, the model is calibrated to market prices. It is tested using market prices and the authors' valuation formula. It is found that model prices are not significantly different from market prices, especially when out-of-the-money and deep-in-the-money options are considered. The model gives an explanation to the “strike bias” and the “smile effect.” Simulations of models based respectively on stochastic volatilities and gamma processes, are in accordance with the findings in this paper concerning biases in the Black and Scholes model, especially for pricing deep-in-the-money and out-of-the-money options. Even if the estimation method has its drawbacks, the costs of gathering and processing information regarding the option and its underlying asset play a central role in explaining the biases observed in the Black and Scholes model and help also the understanding of the U-shaped curve known as the smile of volatilities.     

Valuation of futures and commodity options with information costs

In this article, futures and commodity options are analyzed in the context of Merton's (1987) model of capital market equilibrium with incomplete information. First, following Dusak (1973) and Black (1976), the conditions under which Merton's model can be applied to the valuation of forward and futures contracts are proposed. Then an application to futures markets is given. We provide a partial differential equation and the formulas for European commodity options, futures contracts, and American options in the same context. The models are simulated and compared to standard models with no information costs. We find that model prices are not significantly different from standard model prices. However, our models correct for some pricing biases in standard models. In particular, they reduce the overvaluation bias for European and American commodity options. It seems that the costs of gathering and processing information regarding the option and its underlying asset play a role in explaining the biases observed in standard models. This work can be applied to other futures markets. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 645–664, 1999     

Clinical and economic benefits of extended treatment with apixaban for the treatment and prevention of recurrent venous thromboembolism in Canada

Background and objective Venous thromboembolism (VTE) is associated with long-term clinical and economic burden. Clinical guidelines generally recommend at least 3 months of anticoagulation, but, in clinical practice, concerns over bleeding risk often limit extended treatment. Apixaban was studied for extended VTE treatment in the AMPLIFY-EXT trial, demonstrating superiority to placebo in VTE reduction without increasing risk of major bleeding. This study assessed the long-term clinical and economic benefits of extending treatment with apixaban when clinical equipoise exists compared to standard of care with enoxaparin/warfarin and other novel oral anti-coagulants (NOACs) for the treatment and prevention of recurrent VTE in Canada.

Methods A Markov model was developed to follow patients with VTE over their lifetimes. Efficacy and safety for apixaban and enoxaparin/warfarin were based on AMPLIFY and AMPLIFY-EXT, while relative efficacy to other NOACs was synthesized by network meta-analysis (NMA). Dosages for NOACs and enoxaparin/warfarin were based on their respective trials and were given up to 18 months and up to 6 months, followed by no treatment, respectively. Patient quality adjusted life years (QALYs) were based on published studies, and costs for resource utilization were from a Ministry of Health perspective, expressed as 2014 CAD ($).

Results Extended treatment with apixaban compared to enoxaparin/warfarin resulted in fewer recurrent VTEs, VTE-related deaths, and bleeding events, but at slightly increased cost. The incremental cost-effectiveness ratio was $4828 per QALY gained. Compared to other NOACs, apixaban had the fewest bleeding events, similar recurrent VTE events, and the lowest overall cost, which was driven by the strong bleeding profile. In scenario analyses of acute and lifetime treatments, apixaban was cost-effective against all strategies.

Conclusions Extended treatment with apixaban can offer substantial clinical benefits and is a cost-effective alternative to enoxaparin/warfarin and other NOACs.     

Number needed to treat based on real-world evidence for non-vitamin K antagonist oral anticoagulants versus vitamin K antagonist oral anticoagulants in stroke prevention in patients with non-valvular atrial fibrillation

Aims: Non-vitamin K antagonist oral anticoagulants (NOACs) and vitamin K antagonists (VKAs) are used to prevent stroke in patients with atrial fibrillation (AF). This paper aimed to evaluate the clinical efficacy and safety of NOACs when compared to VKAs by calculating the number needed to treat (NNT) at 2 years using incidence rates and hazard ratios (HRs) derived from a meta-analysis of studies conducted in real-world settings.

Materials and methods: HRs were sourced from a published systematic literature review and a meta-analysis of real-world evidence on the use of NOACs vs VKAs. Rivaroxaban, dabigatran, and apixaban vs VKAs were investigated. The efficacy outcomes included: a composite of ischaemic stroke and systemic embolism (IS/SE), ischaemic stroke (IS), and all-cause mortality. The safety analysis assessed major bleeding and intracranial haemorrhage (ICH).

Results: Superiority of NOACs vs VKAs was observed in 10/15 comparisons. Treating patients with rivaroxaban and dabigatran was associated with a reduced risk of IS and all-cause mortality compared to VKAs, with one death prevented every 22 and 32 patients, respectively, and one IS prevented every 206 and 166 patients, respectively. Rivaroxaban was significantly associated with a reduced risk of IS/SE compared to VKA (NNT: 107). No significant differences were observed between apixaban and VKAs. Dabigatran and apixaban were associated with a reduced risk of major bleeding compared to VKA (NNT: 59 and 38, respectively). No significant difference was observed between rivaroxaban and VKAs regarding major bleeding. Rivaroxaban, dabigatran, and apixaban were significantly associated with a reduced risk of ICH (NNT: 205, 115, and 108, respectively).

Limitations: Heterogeneity in definitions of major bleeding across studies.

Conclusions: The NNT calculation, when approached and interpreted properly, is a practical measure of the effectiveness of a treatment. The calculation based on HRs showed that NOACs are safe and effective alternatives to VKAs in real life.     

Capital City Museums and Tourism Flows: an Empirical Study of the Museum of New Zealand Te Papa Tongarewa

This study uses time series analysis to explore the extent to which the opening of the Museum of New Zealand in 1998 contributed to tourism growth in the nation's capital, Wellington. With the use of a series of different measures for tourism and major events in the city, econometric regressions are undertaken to better understand the relationship between visitors to the museum and tourism growth in the city's short‐term commercial accommodation sector. The findings are consistent with the museum having a positive impact on tourist arrivals and overnight stays. These results contribute valuable empirical evidence of the positive role of museums in attracting tourists to urban centres. Copyright © 2012 John Wiley & Sons, Ltd.     

Tariff Liberalization and Trade Integration of Emerging Countries

This paper investigates how tariff liberalization has affected exporting at the product‐destination level in emerging countries. We use a highly disaggregated (six‐digit level of the harmonized system—HS—classification) bilateral measure of market access to compare tariffs applied in 1996 and 2006, which includes the timing of the Uruguay Round and episodes of bilateral liberalization. Our econometric estimations consider impacts of tariff cuts on three components of the trade margins: extensive margin of entry (new trade relationships at the product‐destination level), extensive margin of exit (disappearance of existing relationships) and intensive margin of trade (deepening existing relationships). Our main estimates indicate that a reduction of bilateral applied tariffs of 1 percentage point increases the extensive margin of entry by 0.1% and the intensive one by 2.09%, while it reduces the extensive margin of exit by 0.25%.     

The Impact of Regulations on Agricultural Trade: Evidence from the SPS and TBT Agreements

According to World Trade Organization rules, countries may adopt regulations under the Agreements on Sanitary and Phyto-Sanitary (SPS) and Technical Barriers to Trade (TBT). We analyze the structure of these measures in agricultural trade. The inventory approach suggests that European countries have among the lowest coverage ratios of all OECD countries. Using a gravity equation, we also estimate their stringency. Our results suggest that they significantly reduce developing countries' exports to OECD countries, but do not affect trade between OECD members. Furthermore, European imports are more negatively influenced by SPS and TBTs than imports of other OECD countries.     

An Assessment of Environmentally‐ related Non‐tariff Measures

International trade can affect the environment in different ways. This may justify the introduction of border measures by the importing countries. In addition to various dispositions in the GATT, GATS, TRIPs agreements, as well as in the Agreement on Agriculture, this issue is regulated by the agreements on Technical Barriers to Trade (TBT) and on the application of Sanitary and Phyto‐sanitary standards (SPS). Despite these rules, abuse of environmental arguments for protectionist reasons remains an open issue. In order to disentangle protectionism from dispositions justified on the grounds of true environmental concerns, we systematically review notifications of SPS and TBTs by importing countries at the tariff line level. Trade is considered as being potentially affected when an environmental SPS/TBT is notified on grounds of environmental concerns. Affected trade is defined as imports by countries notifying such barriers. Protectionist use of environmental barriers is likely when only a limited number of countries impose an environmental obstacle on the imports of a given product. Considering data for 2001, we find that 88 per cent of the value of world trade is in products potentially affected by such measures, while 39 per cent of the value of world imports is potentially subject to a protectionist use of such measures. Agriculture, the automobile industry, the pharmaceutical industry and many other sectors are concerned.     

Threshold Effects in the Capital Account Liberalization and Foreign Direct Investment Relationship

This paper examines how capital account liberalization （CAL） affects foreign direct investment （FDI） inflows. Authors use a dynamic panel model encompassing 14 Middle East countries over the period from 1985 to 2009. The findings suggest that countries that are able to reap the benefits of the capital openness policy satisfy certain threshold conditions regarding the level of financial development and institutional quality. Thus to promote FDI, governments in this region should develop a set of policies that not only focus on financial openness, but also on the improvement of the financial system and legal institutions.     

Cost-effectiveness analyses using real-world data: an overview of the literature

Abstract

Objectives: Real-world evidence (RWE) may provide good estimates of absolute event probabilities and costs in patients in actual clinical practice, but their use in decision-analytic models poses many challenges. A literature review based on a systematic search was conducted to summarize the limitations of using RWE in decision-analytic modeling reported in the literature, but also to identify existing recommendations about real-world modeling.

Methods: A literature search was performed on Medline and Embase databases, as well as relevant websites. No restrictions in language or geographical scope were imposed.

Results: A total of 14 references were included. RWE is recognized as a valuable source of data for market access and reimbursement, and as a complement to clinical trial evidence for treatment pathways, resource use, long-term natural history, and effectiveness. The main limitations identified in the literature were: confounding bias, missing data, lack of accurate data related to drug exposure and outcomes, errors during the record-keeping process, protection of private data, and insufficient numbers of patients. Although most submission guidelines recognized the potential biases associated with RWE, guidance on the appropriate methods to deal with these biases, and approaches to review different relevant evidence to inform model development, were scarce. Several initiatives have attempted to provide guidance on the use of RWE in decision-modeling.

Conclusions: RWE is likely to be particularly valuable for informing healthcare policy-makers when formulating appropriate treatment pathways, encouraging the optimal allocation of scarce resources, and improving aggregate patient outcomes. However, little guidance is available on the relative merits of using efficacy and/or effectiveness evidence in Health Technology Appraisal submissions. Further research is needed to better understand these methods and their potential applications in a broader range of scenarios and simulation studies, and their impact on economic modeling.