Duality for pathwise superhedging in continuous time

Finance and Stochastics - We provide a model-free pricing–hedging duality in continuous time. For a frictionless market consisting of $d$  risky assets with continuous price...     

Duality theory for robust utility maximisation

In this paper, we present a duality theory for the robust utility maximisation problem in continuous time for utility functions defined on the positive real line. Our results are inspired by – and can be seen as the robust analogues of – the seminal work of Kramkov and Schachermayer (Ann. Appl. Probab. 9:904–950, 1999). Namely, we show that if the set of attainable trading outcomes and the set of pricing measures satisfy a bipolar relation, then the utility maximisation problem is in duality with a conjugate problem. We further discuss the existence of optimal trading strategies. In particular, our general results include the case of logarithmic and power utility, and they apply to drift and volatility uncertainty.

     

The Affordability of Energy: How Much Protection for the Vulnerable Consumers?

Affordability is a new “alien” concept penetrating the field of contract and consumer law as one of the obligations related to the provision of “universal services” or “public service” in the context of services of general economic interest. Affordability becomes an important element of the European social model (using Scharf’s terminology; Scharf, J Common Mark Stud 40:645–670, 2002) and its constitutional dimension will be confirmed by the Treaty of Lisbon and the Charter of Fundamental Rights of the European Union (EU). The major European Commission policy tool for ensuring the Affordability of Energy Supply is, on the one hand, functioning competition, which should bring about reasonable prices in general, and on the other hand, regulation targeted at so-called vulnerable consumers. First tested in the UK, it was later spread mainly by the requirements of the Second Energy Package in other Member States (MS). The Third Energy Package (to be implemented by March 2011) further develops this idea and clarifies the set of obligations that the protection of consumers and ensuring the Affordability of Energy Supply require in the understanding of the EU legislator. One could speculate to what extent this is a reaction to the fact that some MS and, in particular, the new MS did not implement the consumer protection requirements of the Second Energy Package, but rather opted for very different regulatory strategies. This paper will examine different regulatory strategies employed in four MS (the UK, France, the Czech Republic, and Slovakia), with special focus on the situation in the two new MS, in order to respond to the question as to whether these different regulatory strategies provide what is promised, i.e., affordable energy for all.     

A Manager's Perspective on Virtual Customer Integration for New Product Development

Despite the high potential of virtual customer integration (VCI) methods for new product development (NPD) mentioned in the literature, practical use is still limited. This paper aims to provide a deeper understanding of managers’ perspectives on VCI and their intentions to use these methods for NPD. The theory of planned behavior (TPB) served as basis for developing a research model, which considers managers’ cognition, attitude, subjective norms, and perceived behavioral control as important factors affecting their intention to apply VCI. Because more recent literature has expressed doubts about the explanatory potential of the rather simple TPB model, a more complex alternative model was proposed for comparison. The alternative model included the market orientation of the company, the hierarchical position of the innovation manager as well as the manager's level of innovativeness as additional explanatory variables. An empirical online study was conducted in the field of consumer goods and services. Based on a sample of 216 German‐speaking innovation managers, the results show that the model derived from the TPB explains 68% of the variance in the managers’ intention to apply VCI compared with 69% of variance explained by the model containing additional explanatory variables. An extension of the model does not significantly improve its explanatory power. Managers show high interest in virtually integrating customers in NPD processes. Managers consider identification of future customer needs, a broader decision basis, increased efficiency in gathering and use of customer information, and increased customer retention as major advantages of VCI. Disadvantages considered by managers in making their overall judgment are the lack of secrecy and only incremental innovations. The perceived potential contribution of VCI to NPD, the assessment of its general acceptance within the company, and the perceived ability of innovation managers to successfully implement VCI mainly influence the adoption decision. Managers’ attitudes toward VCI have no significant influence on their intention to use VCI. The results suggest that strong promotion of VCI through senior management would enforce the positive effect of subjective norms on applying VCI. Measures such as including VCI on innovation managers’ personal scorecard, trainings offered, and cross‐functional meetings could help speed up VCI in NPD processes by increasing innovation managers’ perceived behavioral control toward VCI.     

Getting Closer to the Consumer – How Nivea Co-Creates New Products

Co-creation has become a prevalent approach taken by innovation leaders to excel in innovation management and complement internal R & D activities. In this article the authors will introduce the cocreation process at Nivea and describe how Nivea co-developed a new deodorant with consumers. The focus will be on two different co-creation tools — the netnography method geared to gain consumer insights from social media and an online co-creation session to evaluate and further enrich ideas.     

Computational aspects of robust optimized certainty equivalents and option pricing

Accounting for model uncertainty in risk management and option pricing leads to infinite‐dimensional optimization problems that are both analytically and numerically intractable. In this article, we study when this hurdle can be overcome for the so‐called optimized certainty equivalent (OCE) risk measure—including the average value‐at‐risk as a special case. First, we focus on the case where the uncertainty is modeled by a nonlinear expectation that penalizes distributions that are “far” in terms of optimal‐transport distance (e.g. Wasserstein distance) from a given baseline distribution. It turns out that the computation of the robust OCE reduces to a finite‐dimensional problem, which in some cases can even be solved explicitly. This principle also applies to the shortfall risk measure as well as for the pricing of European options. Further, we derive convex dual representations of the robust OCE for measurable claims without any assumptions on the set of distributions. Finally, we give conditions on the latter set under which the robust average value‐at‐risk is a tail risk measure.