MEAN–VARIANCE HEDGING AND OPTIMAL INVESTMENT IN HESTON'S MODEL WITH CORRELATION

This paper solves the mean–variance hedging problem in Heston's model with a stochastic opportunity set moving systematically with the volatility of stock returns. We allow for correlation between stock returns and their volatility (so-called leverage effect). Our contribution is threefold: using a new concept of opportunity-neutral measure we present a simplified strategy for computing a candidate solution in the correlated case. We then go on to show that this candidate generates the true variance-optimal martingale measure; this step seems to be partially missing in the literature. Finally, we derive formulas for the hedging strategy and the hedging error.     

An Extended PROMETHE II Multi-Criteria Group Decision Making Technique Based on Intuitionistic Fuzzy Logic for Sustainable Energy Planning

The implementations of Preference Ranking Organization Method for Enrichment Evaluation (PROMETHEE) category to complex multi-criteria group decision making (MCGDM) scenarios have been included in thousands areas. Outranking methods such as PROMETHEE II are also greatly employed in energy planning application. In MCGDM methods if decision makers (DMs) are not able to treat precise data in order to define their preferences, the intuitionistic fuzzy set (IFS) theory enables them. IFS attributes are connected with the degree of membership and non-membership, and can be used to draw uncertainty in group decision-making situations. In this paper, a new version of the PROMETHEE II method is proposed, aiming at solving MCGDM problems. Linguistic variables are expressed in the membership function and non-membership function of IFS which are used to assess the weights of all criteria and the ratings of each alternative with respect to each criteria. Conditional normalized Euclidean distance measure is adopted to measure deviations between alternatives on intuitionistic fuzzy set. Then, a ranking algorithm is applied to indicate the order of superiority of alternatives. Finally, a practical example is given to an application of sustainable energy planning to verify our proposed method. Additionally, a comparative analysis is done among the proposed PROMETHEE II method and the intuitionistic fuzzy technique for order preference by similarity to ideal solution (IF-TOPSIS) method and elimination and choice translating reality method (IF-ELECTRE).     

Interorganizational processes in buyer–supplier dyads: An information intensity perspective

In an increasingly global business environment, organizations interact with partners, suppliers and customers who are geographically spread and exchange information regularly. Without a robust information technology infrastructure, the speed and effectiveness of this information exchange is limited. Business-to-business (B2B) electronic business applications are a class of interorganizational information systems (IOIS) that facilitate such information exchange arising out of interorganizational processes (IOPs). The success of any e-business initiative depends on the successful implementation and the actual use of such IOIS. This study uses the concept of information intensity (II) to identify the information sharing requirements arising from IOPs, thus presenting opportunities for B2B Web site use, with specific reference to organization-specific customer-facing and supplier-facing IOIS. We use data from four buyer–supplier dyads, eight medium- to large-scale organizations in the Indian context and identify a generic set of dominant IOPs in buyer–supplier interactions. Through these we present the sources of II in IOPs along three dimensions – complexity, uncertainty and ambiguity which influence the feature set in the IOISs. We conclude with implications for IOIS design, implementation and use.     

OPTIMAL CONSUMPTION AND PORTFOLIO SELECTION WITH INCOMPLETE MARKETS AND UPPER AND LOWER BOUND CONSTRAINTS

We study an optimal consumption and portfolio selection problem for an investor by a martingale approach. We assume that time is a discrete and finite horizon, the sample space is finite and the number of securities is smaller than that of the possible securities price vector transitions. the investor is prohibited from investing stocks more (less, respectively) than given upper (lower) bounds at any time, and he maximizes an expected time additive utility function for the consumption process. First we give a set of budget feasibility conditions so that a consumption process is attainable by an admissible portfolio process. Also we state the existence of the unique primal optimal solutions. Next we formulate a dual control problem and establish the duality between primal and dual control problems. Also we show the existence of dual optimal solutions. Finally we consider the computational aspect of dual approach through a simple numerical example.     

Development credit corporations: Not-for-profit development finance institutions in the postwar United States

Development credit corporations (DCCs) were innovative not-for-profit organisations first set up in the United States in the years after World War II. DCCs borrowed from financial institutions and lent on a long-term basis to small companies that needed funds to expand or maintain their operations but did not qualify for long-term credit from conventional lenders. DCCs were private-sector bodies created at the state level under charters issued by state governments. The organisations were established in more than half the American states. DCCs continue to function in the contemporary era, and have thus proved to be a permanent fixture in the landscape of development entities and not-for-profit financial institutions.     

MISUSE AND OPTIMUM INSPECTING STRATEGY IN AGENCY PROBLEMS

Assets misuse by an agent and the optimal audit inspecting strategy are analyzed in this paper. The agent and the principal are acting to maximize their expected utility and both are characterized by risk aversion. The agent's decision about a theft takes into account the probability of benefiting from the stolen assets but also the probability of being penalized if caught. The principal's decision about the optimal number of audit teams, hence, the probability of uncovering the theft, takes into account the cost involved, the probability of one team of auditors uncovering the theft and the agent's decision about the theft. We get two response curves which describe the optimal behavior of both the agent and the principal and show that there may be a Nash solution to the problem. Since in real life there are often many principals (shareholders) with different utility functions, a set of efficient strategies is offered using the First and Second degree Stochastic Dominance rules. A numerical illustration which clarifies the methodology and displays the applicability of the model is also provided.     

Viability and Equilibrium in Securities Markets with Frictions

In this paper we study some foundational issues in the theory of asset pricing with market frictions. We model market frictions by letting the set of marketed contingent claims (the opportunity set) be a convex set, and the pricing rule at which these claims are available be convex. This is the reduced form of multiperiod securities price models incorporating a large class of market frictions. It is said to be viable as a model of economic equilibrium if there exist price-taking maximizing agents who are happy with their initial endowment, given the opportunity set, and hence for whom supply equals demand. This is equivalent to the existence of a positive lineaar pricing rule on the entirespace of contingent claims—an underlying frictionless linear pricing rule—that lies below the convex pricing rule on the set of marketed claims. This is also equivalent to the absence of asymptotic free lunches—a generalization of opportunities of arbitrage. When a market for a nonmarketed contingent claim opens, a bid-ask price pair for this claim is said to be consistent if it is a bid-ask price pair in at least a viable economy with this extended opportunity set. If the set of marketed contingent claims is a convex cone and the pricing rule is convex and sublinear, we show that the set of consistent prices of a claim is a closed interval and is equal (up to its boundary) to the set of its prices for all the underlying frictionless pricing rules. We also show that there exists a unique extended consistent sublinear pricing rule—the supremum of the underlying frictionless linear pricing rules—for which the original equilibrium does not collapse when a new market opens, regardless of preferences and endowments. If the opportunity set is the reduced form of a multiperiod securities market model, we study the closedness of the interval of prices of a contingent claim for the underlying frictionless pricing rules.     

A UNIFIED FRAMEWORK FOR PRICING CREDIT AND EQUITY DERIVATIVES

We propose a model which can be jointly calibrated to the corporate bond term structure and equity option volatility surface of the same company. Our purpose is to obtain explicit bond and equity option pricing formulas that can be calibrated to find a risk neutral model that matches a set of observed market prices. This risk neutral model can then be used to price more exotic, illiquid, or over‐the‐counter derivatives. We observe that our model matches the equity option implied volatility surface well since we properly account for the default risk in the implied volatility surface. We demonstrate the importance of accounting for the default risk and stochastic interest rate in equity option pricing by comparing our results to Fouque et al., which only accounts for stochastic volatility.     

OPTIMAL PORTFOLIOS WITH LOWER PARTIAL MOMENT CONSTRAINTS AND LPM-RISK-OPTIMAL MARTINGALE MEASURES

We optimize the ratio     over an (arbitrage-free) linear sub-space     of attainable returns in an incomplete market model. If a solution exists for  1 < r < ∞  , then the 1st order optimality condition allows to construct an equivalent martingale measure for     , which is shown to be the solution of an appropriate dual minimization problem over the set of all equivalent martingale measures for     . The dual minimization problem admits a solution iff there exists an equivalent martingale measure for     and its optimal value     equals the lowest upper bound     of all α-ratios over     . This new type of non-concave duality also provides an indifference pricing method. The duality result can be extended to the case     and leads to a new no (approximate) arbitrage condition: "no great expectations with vanishing risk."     

Optimal Rules of Origin with Asymmetric Compliance Costs under International Duopoly

We examine the optimal rules of origin (ROO) in a free trade area/agreement (FTA) by employing a stylized three-country partial equilibrium model of an international duopoly. We incorporate compliance costs of the ROO into the model. In particular, compliance costs are higher for a firm located in a non-member country of the FTA than for a firm (an internal firm) located in an FTA member country, whereas marginal production costs are lower for the former. The FTA member countries set the optimal level of ROO to maximize their joint welfare. An importing country within the FTA imposes tariffs on imports that do not comply with the ROO. We show that the optimal ROO may have a protectionist bias in the sense that they are set for only the internal firm to comply. ROO may also cause low utilization of FTAs when they are set such that even the internal firm does not comply with them. These cases arise depending on parameter values.     

SUPPLY CHAIN CAPITAL: THE IMPACT OF STRUCTURAL AND RELATIONAL LINKAGES ON FIRM EXECUTION AND INNOVATION

Firms invest millions of dollars annually in developing their supply chains, with the broad goal of increasing their own performance. However, despite the significant resources deployed for supply chain development, the extent to which initiating, maintaining, and managing supply chain relationships contributes to firm success remains unclear. The current article provides conceptual development supporting the valuation of firm‐to‐firm supply chain connections from the perspective of the focal firm. Based on the social network and economics literatures, the article introduces the concept of supply chain capital, which comprises the value of both the structural configuration and relationship content of the firm's supply chain network. Following theoretical development, a non‐exhaustive set of propositions are constructed illustrating multiple ways that supply chain capital can be accrued and exploited for firm‐level benefit. Managerial recommendations for investment in supply chain capital are included, as are future directions for research in the area of supply chain networks.     

Credit Risk Assessment and Relationship Lending: An Empirical Analysis of German Small and Medium‐Sized Enterprises*

We estimate a logit scoring model for the prediction of the probability of default by German small and medium‐sized enterprises (SMEs) using a unique data set on SME loans in Germany. Our scoring model helps SMEs to gain knowledge about their default risk, which can be used to approximate their risk adequate cost of debt. This knowledge is likely to lead to a detection of hold‐up problems that German SMEs might be confronted with in their bank relationships. Furthermore, it allows them to monitor their bank’s pricing behavior and it reduces information asymmetries between lenders and borrowers. Finally, it can influence their future financing decisions toward capital market‐based financing.     

PRICING AND HEDGING OF DERIVATIVES BASED ON NONTRADABLE UNDERLYINGS

This paper is concerned with the study of insurance related derivatives on financial markets that are based on nontradable underlyings, but are correlated with tradable assets. We calculate exponential utility‐based indifference prices, and corresponding derivative hedges. We use the fact that they can be represented in terms of solutions of forward‐backward stochastic differential equations (FBSDE) with quadratic growth generators. We derive the Markov property of such FBSDE and generalize results on the differentiability relative to the initial value of their forward components. In this case the optimal hedge can be represented by the price gradient multiplied with the correlation coefficient. This way we obtain a generalization of the classical “delta hedge” in complete markets.     

THEORY AND CALIBRATION OF SWAP MARKET MODELS

This paper introduces a general framework for market models, named Market Model Approach, through the concept of admissible sets of forward swap rates spanning a given tenor structure. We relate this concept to results in graph theory by showing that a set is admissible if and only if the associated graph is a tree. This connection enables us to enumerate all admissible models for a given tenor structure. Three main classes are identified within this framework and correspond to the co-terminal, co-initial, and co-sliding model. We prove that the LIBOR market model is the only admissible model of a co-sliding type. By focusing on the co-terminal model in a lognormal setting, we develop and compare several approximating analytical formulae for caplets, while swaptions can be priced by a simple Black-type formula. A novel calibration technique is introduced to allow simultaneous calibration to caplet and swaption prices. Empirical calibration of the co-terminal model is shown to be faster, more robust, and more efficient than the same procedure applied to the LIBOR market model. We then argue that the co-terminal approach is the simplest and most convenient market model for pricing and hedging a large variety of exotic interest-rate derivatives.     

The Effect of Truckload Driver Turnover on Truckload Freight Pricing

High rates of truck driver turnover have long plagued the full truckload (TL) sector. While greater driver turnover raises TL carriers’ costs, no research has examined how changes in industry-wide TL driver turnover rates affect industry-wide prices shippers pay for TL transportation. Drawing on economic theory regarding firms’ asymmetric adjustment of prices in response to changing costs, we explain why increases in driver turnover are expected to increase the prices carriers charge for their services, whereas decreases in driver turnover are expected to have limited effect on the prices carriers charge for their services. We further explain why the positive impact of increases in industry-wide TL driver turnover rates on prices will be more pronounced when industry employment is rising more rapidly. To test our theory, we assemble a time series data set combining proprietary driver turnover data with publicly available data regarding TL pricing, trucking employment, diesel prices, and aggregate industry activity. Results from fitting a set of time series econometric models corroborate our theorized predictions. We explain the implications of these findings for theory and practice.     

Advancing transcendent development: An in-depth review of developmental corporate social responsibility’s value proposition,inhibitions, and inclusive sustainable development prospects

This article offers a methodologically innovative Representative Literature Review of 260 Development-Oriented Corporate Social Responsibility publications explicating why the nascent domain’s early momentum has seemingly stagnated. Using mixed-methodological citation network analysis informed by Applied Thematic Analysis research design principles, this in-depth literature review unearths a causal set of Impediments, leading to Inhibitors restraining Developmental Corporate Social Responsibility’s inclusive sustainable developmental potential. The Seven Impediments and their Seven Inhibitors are ultimately meta-thematically synthesized into the following Three Inhibitions presently stifling the field: “(I) Ignorance,” “(II) Isomorphism,” and “(III) Inharmony.” Resultantly, this article offers three contributions for addressing these Inhibitions. First, academic scholarship is offered knowledge of how “(I) Ignorance” may be curbed by producing research that retains and builds upon knowledge cumulatively, instead of losing it to fragmentary dissipation born of scholarly incoherence. Second, institutional policymakers are offered pathways for transcending superficial “(II) Isomorphism” by enforcing regulation that engenders ethical business conduct by filling critical institutional voids in developing context jurisdictions. Finally, this review outlines how the Inhibition of “(III) Inharmony” may be pragmatically transcended by harmonizing unconscious ontological dissonance through self-awareness and reflexive virtue development by synergistically enacting individual Moral Courage, Moral Tact, and Moral Imagination tempered by African Vhuthu/Ubuntu.     

Tone at the Top: An Ethics Code for Directors?

Recent corporate scandals have focused the attention of a broad set of constituencies on reforming corporate governance. Boards of directors play a leading role in corporate governance and any significant reforms must encompass their role. To date, most reform proposals have targeted the legal, rather than the ethical obligations of directors. Legal reforms without proper attention to ethical obligations will likely prove ineffectual. The ethical role of directors is critical. Directors have overall responsibility for the ethics and compliance programs of the corporation. The tone at the top that they set by example and action is central to the overall ethical environment of their firms. This role is reinforced by their legal responsibilities to provide oversight of the financial performance of the firm. Underlying this analysis is the critical assumption that ethical behavior, especially on the part of corporate leaders, leads to the best long-term interests of the corporation. We describe key components of a framework for a code of ethics for corporate boards and individual directors. The proposed code framework is based on six universal core ethical values: (1) honesty; (2) integrity; (3) loyalty; (4) responsibility; (5) fairness; and (6) citizenship. The paper concludes by suggesting critical issues that need to be dealt with in firm-based codes of ethics for directors.     

The relationship between training and innovation activities in enterprises

We examine the relationship between enterprises’ use of employee training (or education) as a method to stimulate new ideas or creativity among their staff and enterprises’ innovation activities. A data set of 5204 Norwegian enterprises is used. Based on correlation coefficients, we find a positive relationship between enterprises’ use of employee training and their innovation activities. This relationship is not found significant for innovative enterprises that developed the innovations mainly by themselves or together with external partners if we control for enterprises’ use of brainstorming sessions and/or work teams to stimulate new ideas or creativity among their staff. Training can, however, be argued to be indirectly related to innovation strategies, as it is combined with other human resource practices.     

A Model for Partnering with Not-for-Profits to Develop Socially Responsible Businesses in a Global Environment

Responsible risk management is central to banking ethics. With the 1999 publication of the Basel Committee’s proposal, Basel II, for a New Capital Accord to replace the 1988 agreement, Basel I, an attempt has been made to address the problem of correlating banks’ risk management with their capital requirements. The Basel II framework, finalised in June 2004, is designed to improve risk management by using models based on past performance to help set the amount of capital banks are required to hold by regulators, with the purpose of improving the efficiency of capital allocation. The objectives of this study are to investigate how banks generally, but particularly those located in China, could improve their risk management systems and what the implications of these new regulations are for them. Three relevant propositions were formulated, namely, Basel II will improve risk management; Basel II will improve capital allocation efficiency; and compliance with advanced risk management systems is biased in favour of the large banks. Evidence was assembled with which to evaluate these three propositions by gathering relevant primary data by means of a representative survey of Chinese banking executives involved in risk management. The findings strongly support the first two of the above propositions and partly support the third proposition.     

卫星导航系统上行注入的研究现状与发展趋势

上行注入系统是卫星导航系统的生命线,是卫星导航系统不可或缺的一部分。详细研究了国外全球卫星导航系统和区域卫星导航系统的上行注入方案：全球定位系统（GPS）正由GPS II阶段过渡到GPS III阶段,上行注入也从全球布站的单星直接注入方案转变为本土布站的基于星间链路转发的注入方案,“伽利略”（Galileo）采取了全球布站的单星直接注入方案,而俄罗斯全球导航卫星系统（GLONASS）、准天顶卫星导航系统(QZSS)和印度区域导航卫星系统(IRNSS)采取了本土布站的单星直接注入方案。随着各大全球系统逐步研究、规划和开发星间链路,基于星间链路转发的上行注入方案势必成为全球系统的上行注入方案发展趋势,链路协同注入和高速传输也必然成为该方案的关键技术。