An option pricing approach to the valuation of real estate contaminated with hazardous materials

This paper uses option pricing to examine how the presence of hazardous materials affects real estate value. The property owner has two options. The first option is to remove the hazardous materials at the best time. The second option, embedded in the first one, is to redevelop the property at the best opportunity. The owner has three possible timing strategies with respect to the exercise of these two options: remove the hazardous materials first and retain the option to redevelop the property later, remove and redevelop at the same time, or do nothing. Conditions under which the presence of the hazardous materials may either expedite or postpone the decision to redevelop are also derived. If the regulatory environment does not allow the property owner to make optimal timing decisions with respect to the exercise of these options, then our results provide an indication of the cost of regulation as measured by the additional loss in property value.     

人民币利率互换期权及其定价模型探析

自2005年推出债券远期以来,我国银行间利率衍生品市场在交易产品创新、参与主体培育和制度建设等方面取得了较大的发展。在利率市场化改革深人推进、市场利率波动性加大的背景下,进一步推进利率衍生品创新,有利于完善产品系列,更好满足市场主体管理利率风险的需求。文章介绍了利率互换期权的作用及定价模型,以期为同业开展该产品运用及定价方式研究提供参考。     

An implementation of the HJM model with application to Japanese interest futures

In this paper, we propose a new specification of the forward rate model of Heath, Jarrow and Morton [5] and apply it to the Japanese 3 month interest rate futures. Our empirical result shows that the model we propose can capture the forward interest rate movement.     

Labor market reform and price stability: An application to the Euro Area

Central bankers frequently suggest that labor market reform may be beneficial for inflation management. This paper investigates this topic by simulating the effects of reductions in firing costs and unemployment benefits on inflation volatility in the Euro Area, using an estimated New Keynesian model with search and matching frictions. Qualitatively, changes in labor market policies alter the volatility of inflation in response to shocks, by affecting the volatility of the three components of real marginal costs (hiring costs, firing costs and wage costs). Quantitatively, we find, however, that neither policy is likely to have an important effect on inflation volatility, due to the small contribution of hiring and firing costs to inflation dynamics.     

An application of a random level shifts model to the volatility of Peruvian stock and exchange rate returns

The literature has shown that the volatility of stock and forex rate market returns shows the characteristic of long memory. Another fact that is shown in the literature is that this feature may be spurious and volatility actually consists of a short memory process contaminated with random level shifts (RLS). In this paper, we follow recent econometric approaches estimating an RLS model to the logarithm of the absolute value of stock and forex returns. The model consists of the sum of a short-term memory component and a component of level shifts. The second component is specified as the cumulative sum of a process that is zero with probability ‘1-alpha’ and is a random variable with probability ‘alpha’. The results show that there are level shifts that are rare, but once they are taken into account, the characteristic or property of long memory disappears. Also, the presence of General Autoregressive Conditional Heteroscedasticity (GARCH) effects is eliminated when included or deducted level shifts. An exercise of out-of-sample forecasting shows that the RLS model has better performance than traditional models for modelling long memory such as the models ARFIMA (p,d,q).     

New Evidence on Risk Factors, Characteristics and the Cross-Sectional Variation of Japanese Stock Returns

This paper examines whether the cross-sectional variations in stock returns are better described by systematic risk factors or by firm characteristics such as book-to-market ratios and market capitalization. It provides new evidence from the Japanese stock market based on the recent sample period from 2002 to 2007, which is not addressed in the existing literature. Also, the new results are derived from the generalized method of moments applied to daily returns. The evidence suggests that both the firm size and book-to-market ratio are significantly related to average return premiums. There is mixed evidence, which tends to lend stronger support to the characteristic model rather than the Fama-French three-factor model as more reflective of the return dynamics in the Japanese stock market.     

Modeling time series information into option prices: An empirical evaluation of statistical projection and GARCH option pricing model

This paper compares the empirical performances of statistical projection models with those of the Black–Scholes (adapted to account for skew) and the GARCH option pricing models. Empirical analysis on S&P500 index options shows that the out-of-sample pricing and projected trading performances of the semi-parametric and nonparametric projection models are substantially better than more traditional models. Results further indicate that econometric models based on nonlinear projections of observable inputs perform better than models based on OLS projections, consistent with the notion that the true unobservable option pricing model is inherently a nonlinear function of its inputs. The econometric option models presented in this paper should prove useful and complement mainstream mathematical modeling methods in both research and practice.     

An alternative approach to the calibration of the Vasicek and CIR interest rate models via generating functions

We propose a new method to calibrate the Vasicek and Cox--Ingersoll--Ross interest rate models from bond prices. We define an appropriate generating function and derive recursive relations between the derivatives of the generating function and the bond prices. The parameters of the Vasicek and CIR models are then obtained by solving a system of linearly independent equations arising from the recursive relations. We include numerical results that show the method’s accuracy when bond prices generated from the exact formulas are used.     

国际再保险业战略发展模式及其对我国的借鉴

按照再保险战略发展模式的历史演进顺序,将目前国际再保险业的战略发展模式总结为四种:专业再保险模式,再保与直保一体化模式,金融一体化单元模式和多元化单元模式。结合选取了不同发展模式的典型国际再保险公司,对不同模式进行分析和比较,并进一步提出了我国再保险业战略发展建议。