ON THE ERROR IN THE MONTE CARLO PRICING OF SOME FAMILIAR EUROPEAN PATH-DEPENDENT OPTIONS

This paper studies the relative error in the crude Monte Carlo pricing of some familiar European path-dependent multiasset options. For the crude Monte Carlo method it is well known that the convergence rate   O ( n ^−1/2)  , where n is the number of simulations, is independent of the dimension of the integral. This paper also shows that for a large class of pricing problems in the multiasset Black-Scholes market the constant in   O ( n ^−1/2)  is independent of the dimension. To be more specific, the constant is only dependent on the highest volatility among the underlying assets, time to maturity, and degree of confidence interval.     

Examining Polish Market Mavens and Their Attitudes Toward Advertising

Abstract

In this paper, we offer some insights about Polish consumers with varying levels of general marketplace expertise, their role in diffusing product information, and their views of advertising. Market mavens are consumers who exhibit heightened interestin and knowledge about the marketplace. Because of their interest in communicating with others about the many aspects of the marketplace, these consumers can play an integral role for companies interested in diffusing marketing information. Our study results indicate that market mavens do indeed exist in Poland and they exhibit similar characteristics to market mavens identified in the U.S. They have more favorable attitudes toward advertising than other consumers. Additionally, they consider advertising as an important source of product and social image information. Although Polish mavens are less critical of advertising being misleading and confusing, they are concerned about advertising promoting materialistic values. Our findings imply that firms doing business in Poland would be well advised to target market mavens because they pay attention to advertising, have favorable attitudes toward advertising, and like to talk about marketplace phenomena with others.     

MARKOWITZ'S PORTFOLIO OPTIMIZATION IN AN INCOMPLETE MARKET

In this paper, for a process S , we establish a duality relation between K_p , the     - closure of the space of claims in     , which are attainable by "simple" strategies, and     , all signed martingale measures     with     , where   p ≥ 1, q ≥ 1  and     . If there exists a     with     a.s., then K_p consists precisely of the random variables     such that ϑ is predictable S -integrable and     for all     . The duality relation corresponding to the case   p = q = 2  is used to investigate the Markowitz's problem of mean–variance portfolio optimization in an incomplete market of semimartingale model via martingale/convex duality method. The duality relationship between the mean–variance efficient portfolios and the variance-optimal signed martingale measure (VSMM) is established. It turns out that the so-called market price of risk is just the standard deviation of the VSMM. An illustrative example of application to a geometric Lévy processes model is also given.     

BIVARIATE SUPPORT OF FORWARD LIBOR AND SWAP RATES

Based on a certain notion of "prolific process," we find an explicit expression for the bivariate (topological) support of the solution to a particular class of 2 × 2 stochastic differential equations that includes those of the three-period "lognormal" Libor and swap market models. This yields that in the lognormal swap market model (SMM), the support of the 1 × 1 forward Libor   L * _t   equals  [ l * _t , ∞)  for some semi-explicit  −1 ≤ l * _t ≤ 0  , sharpening a result of Davis and Mataix-Pastor (2007) that forward Libor rates (eventually) become negative with positive probability in the lognormal SMM. We classify the instances   l * _t < 0  , and explicitly calculate the threshold time at or before which   L * _t   remains positive a.s.     

Market Reactions to Increased Reliability of Sustainability Information

This article investigates whether investors consider the reliability of companies’ sustainability information when determining the companies’ market value. Specifically, we examine market reactions (in terms of abnormal returns) to events that increase the reliability of companies’ sustainability information but do not provide markets with additional sustainability information. Controlling for competing effects, we regard companies’ additions to an internationally important sustainability index as such events and consider possible determinants for market reactions. Our results suggest that first, investors take into account the reliability of sustainability information when determining the market value of a company and second, the benefits of increased reliability of sustainability information vary cross-sectionally. More specifically, companies that carry higher risks for investors (e.g., higher systematic investment risk, higher financial leverage, and higher levels of opportunistic management behavior) react more strongly to an increase in the reliability of sustainability information. Finally, we show that the benefits of an increase in the reliability of sustainability information are higher in times of economic uncertainty (e.g., during economic downturns and generally high stock price volatilities).     

Do market information processes improve new venture performance?

Does market information improve new venture performance? While some researchers argue that entrepreneurs do not need formal processes to collect and use market information, others suggest that the use of formal market information processes is positively related to firm performance. In this paper, we hypothesize that new venture performance is an increasing function of (1) the firm's level of customer interaction and (2) the use of formal processes for collecting and utilizing market information. We also hypothesize that these linkages will be stronger among new ventures serving emerging markets (i.e., markets in which customer needs and segments are evolving). We test these hypotheses using data collected from 224 new ventures located in the United States. Our findings indicate that, regardless of market condition, formal processes for the collection of market information are positively associated with the use of formal processes for market information utilization and this relationship is stronger among firms serving established markets. In addition, new venture performance is positively associated with the use of formal processes for utilizing market information and this relationship is also stronger in established markets. We also find that, in emerging markets, new venture performance is a positive function of the use of formal processes for collecting market information. Contrary to expectations, we find that, regardless of market condition, the level of customer interaction has a negative relationship with the use of formal processes for market information utilization and no significant relationship with performance.     

PORTFOLIO OPTIMIZATION WITH DOWNSIDE CONSTRAINTS

We consider the portfolio optimization problem for an investor whose consumption rate process and terminal wealth are subject to downside constraints. In the standard financial market model that consists of d risky assets and one riskless asset, we assume that the riskless asset earns a constant instantaneous rate of interest,   r > 0  , and that the risky assets are geometric Brownian motions. The optimal portfolio policy for a wide scale of utility functions is derived explicitly. The gradient operator and the Clark–Ocone formula in Malliavin calculus are used in the derivation of this policy. We show how Malliavin calculus approach can help us get around certain difficulties that arise in using the classical "delta hedging" approach.     

The capital market spillover effect of product market advertising: Evidence from stock price synchronicity

We analyze whether product market advertising has a spillover effect on stock price synchronicity by transmitting firm-specific information to the capital market and attracting more investor attention. Using a sample of Chinese listed firms from 2009 to 2017, we find that firms with greater advertising expenditures have lower stock price synchronicity. The results are robust after we address endogeneity concerns. In accord with our hypothesis that product market advertising increases the amount of firm-level information capitalized into stock prices through the information channel, we find that the impact of advertising on synchronicity is more pronounced for firms with a higher degree of information asymmetry and firms in the consumer-product industry. Further tests show that product market advertising enhances the ability of current period returns to reflect future earnings, and thus rules out that the negative relationship between advertising and synchronicity is driven by noise trading. Our results imply that product market advertising plays an informative role and improves information efficiency in a capital market.     

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."     

Forecast information and traditional retailer performance in a dual-channel competitive market

Independent firms in a dual-channel competitive market are expected to have their own information about the nature of the market. In this research, we develop a game-theoretic model to examine the value of forecast information about consumers' willingness to pay. The model is based on a simultaneously played Bertrand game. Our results indicate that the profits of online as well as traditional retailers always increase with forecast accuracy, and that forecast accuracy has a greater effect on the performance of the traditional retailer than on that of the online retailer. Our results also show that the difference in profit between that of the traditional retailer and the online retailer increases with forecast accuracy. In addition we find that forecast accuracy is much more valuable to the traditional retailer when there is an increasing volatility in the market, an increasing level of consumer valuation of the product, and an increasing intensity in market competition. Based on our results, we derive optimal market strategies and identify directions of future research.     

HEDGING BY SEQUENTIAL REGRESSIONS REVISITED

Almost 20 years ago Föllmer and Schweizer (1989) suggested a simple and influential scheme for the computation of hedging strategies in an incomplete market. Their approach of  local  risk minimization results in a sequence of one-period least squares regressions running recursively backward in time. In the meantime, there have been significant developments in the  global  risk minimization theory for semimartingale price processes. In this paper we revisit hedging by sequential regression in the context of global risk minimization, in the light of recent results obtained by Černý and Kallsen (2007) . A number of illustrative numerical examples are given.     

Trading Mechanisms and Market Quality: Call Markets versus Continuous Auction Markets

On July 29, 2002, the trading mechanism in the Taiwan Futures Exchange (TAIFEX) was switched from an exclusive call market to a continuous auction market. Based upon several proxies of market quality, in the present study, we set out to empirically examine whether this switch has resulted in any significant improvement in market quality within the TAIFEX. We find that while the quoted spreads, effective spreads, and price volatility are all smaller in the continuous auction market, the call auction market exhibits greater market depth and smaller pricing errors; the latter is also found to be more effective in resolving the problem of information asymmetry. Overall, the results of the present study suggest that the choice between call and continuous auction trading mechanisms essentially involves trade‐offs between the bid‐ask spread, market depth, price volatility, information asymmetry costs, and price efficiency.     

Intraday price formation and bid–ask spread components: A new approach using a cross‐market model

This study examines the intraday formation process of transaction prices and bid–ask spreads in the KOSPI 200 futures market. By extending the structural model of Madhavan, A., Richardson, M., and Roomans, M. ( 1997 ), we develop a unique cross‐market model that can decompose spread components and explain intraday price formation for the futures market by using the order flow information from the KOSPI 200 options market, which is a market that is closely related to the futures market as well as considered to be one of the most remarkable options markets in the world. The empirical results indicate that the model‐implied spread and the permanent component of the spread that results from informed trading tend to be underestimated without the inclusion of options market information. Further, the results imply that trades of in‐the‐money options, which have high delta values, generally incur a more adverse information cost component (the permanent spread component) of the futures market than those of out‐of‐the‐money options, which have relatively low delta values. Finally, we find that the adverse information cost component that is estimated from the cross‐market model exhibits a nearly U‐shaped intraday pattern; however, it sharply decreases at the end of the trading day. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark     

市场销售信息共享一定有利吗？——基于牛鞭效应视角的分析

信息共享经常被认为是消除牛鞭效应的有效途径,但也有人对此持相反观点。信息化至当前阶段,海量的市场销售信息能够更容易地被收集、处理,而共享这类关键和常见的信息究竟能否减弱牛鞭效应尚未得到专门验证,文章对此进行理论分析和实验研究。研究结果显示,供应链内市场销售信息共享将使供应链整体层面减少订单波动,也能减少部分相邻层级间订单波动增加的幅度,并且相比下游企业,供应链内市场销售信息的共享将能更多地减少上游企业订单的波动。另外,文章对市场销售信息的利用过程展开了探讨,发现了一些有趣的规律。研究结果说明共享市场销售信息对于供应链牛鞭效应的减弱是有显著作用的,且对于不同层级企业的作用效果有所差异,这是对理论研究的推进,同时又有着直接的实践借鉴意义。     

The impact of formal processes for market information acquisition and utilization on the performance of Chinese new ventures

The authors examine the performance impact of formal market information processes. Specifically, a theoretical model is developed that hypothesizes that formal processes for market information acquisition and utilization have direct and positive main effects on new venture success and is then tested using a sample of 222 new ventures located in China. Findings indicate that new venture success is positively correlated with the use of formal processes for market information acquisition and use. Moreover, the relative importance of formal processes to the acquisition and use of market information depends on whether the new venture serves an emerging or established market. In particular, the impact of formal processes for information acquisition is higher among new ventures that serve emerging markets. In contrast, the impact of formal processes for information use is higher among new ventures that serve established markets. We present managerial implications of our results. For example, a new venture with a strong market orientation can respond quickly to emerging marketplace needs, and can even seize the advantage from incumbents. If it is in an emerging market, however, the new venture management team should strive to excel at information acquisition; in an established market, it is important for the management team to excel at information utilization.     

论超强有效市场

考虑到信息不对称、信息尤其是前瞻性信息的获得需要花费较高成本等因素,本文认为即使市场实现了强式有效,也不意味着经济效率就必然会实现.鉴于此,文中放松了有效市场理论的假设,考虑了前瞻性信息生产的不确定性,提出了超强有效市场的概念,并构造了一个超强有效均衡的模型.本文指出只有存在充分有效的激励和约束机制,使得投资者和经理都能努力生产关于公司潜在投资项目的前瞻性信息,并且经理会对股价传递的信息做出积极的反应时,股票市场才会真正在实现信息效率的同时充分发挥优化资源配置的功能.     

Optimal Consumption-Portfolio Policies With Habit Formation1

This is a companion paper to the authors ‘Asset Prices in an Exchange Economy with Habit Formation” in Econometrica which focuses on consumption demand and asset pricing when preferences are habit forming. Here we prove existence of optimal consumption-portfolio policies for (i) utility functions for which the marginal cost of consumption (MCC) interacts with the habit formation process and satisfies a recursive integral equation with forward functional Lipschitz integrand and (ii) utilities for which the MCC is independent of the standard of living and satisfies a recursive integral equation with locally Lipschitz integrand. Result (i) is demonstrated here for the first time. Result (ii) is novel and enables us to consider Cobb-Douglas utilities without placing lower bounds on the system of Arrow-Debreu prices. We also review and extend our earlier results in the linear case; in particular, we provide new insights about the structure of optimal portfolios. Additional new features of the model include the possibility of finite marginal utility of consumption at zero and habit formation mechanisms with stochastic coefficients. an extension to a financial market model with general processes is outlined. A byproduct of the analysis is a set of fixed-point theorems for recursive integral equations with forward functional Lipschitz or locally Lipschitz integrands.     

Value relevance of blog visibility

This study empirically examines the effect of a non-traditional information source, namely a firm's blog visibility on the capital market valuation of firms. After controlling for earnings, book value of equity and other value relevant variables, such as traditional media exposure, R&D spending, and advertising expense, we find a positive association between a firm's blog visibility and its capital market valuation. In addition, we find blog visibility Grange causes trading, not vice versa. Our findings indicate that non-traditional information sources such as blogs help disseminate information and influence consumers' investment decisions by capturing their attention.     

纵向市场结构与企业创新——一个文献综述

创新是企业乃至整个经济发展的源动力,受到了社会各界的广泛关注。其中,企业创新的影响因素是学术界研究的焦点问题。“熊彼特假说”提出之后,大量的研究讨论了横向市场结构对企业创新的影响。然而近年来,随着部分行业上下游企业间市场势力的变化,学者们开始将目光转向纵向市场结构,特别是随着部分行业中买方势力的不断增强,买方势力对上游企业创新的影响受到了学者们的重点关注。本文梳理了国内外有关纵向市场结构对企业创新影响的研究成果,以期为国内相关领域的理论研究和政策实践提供一些借鉴。