Noise Trader Model of Agricultural Product Prices： Evidence from the Chinese Garlic Market

This paper explores the determinants of the abnormal and volatile fluctuations of China＇s agricultural product prices in recent years by examining the trading behavior of traders, especially that of irrational noise traders. We present an overlapping generations model of the garlic market in which noise traders with erroneous beliefs influence prices. Noise traders＇ beliefs create a risk in the price of agricultural products that deters rational arbitrageurs from aggressively betting against them through changing supplies in a way that enables prices to diverge significantly from fundamental values even in the absence of fundamental risk. We also show that asymmetry of supply information, low price elasticity of demand, speculative capital inflows, restricted distribution channels, distorted wholesale markets from the perspective of market mechanisms and low risk aversion, biased self-attribution, and projection bias from the perspective of investor psychology, all influence expectations of investors and increase the volatility of agricultural product prices.     

DEFAULT AND SYSTEMIC RISK IN EQUILIBRIUM

We develop a finite horizon continuous time market model, where risk‐averse investors maximize utility from terminal wealth by dynamically investing in a risk‐free money market account, a stock, and a defaultable bond, whose prices are determined via equilibrium. We analyze the endogenous interaction arising between the stock and the defaultable bond via the interplay between equilibrium behavior of investors, risk preferences and cyclicality properties of the default intensity. We find that the equilibrium price of the stock experiences a jump at default, despite that the default event has no causal impact on the underlying economic fundamentals. We characterize the direction of the jump in terms of a relation between investor preferences and the cyclicality properties of the default intensity. We conduct a similar analysis for the market price of risk and for the investor wealth process, and determine how heterogeneity of preferences affects the exposure to default carried by different investors.     

Cooperative Solutions for Large Economies with Asymmetric Information

A proof of the existence of private core allocations is provided for an exchange economy ε where consumers and commodities are both infinite in number, supposing however that only finitely many types can be distinguished among traders. It is obtained passing through the Edgeworth equilibrium notion considered for a suitably associated discrete setting. For this setting a preliminary result—which is interesting in itself—is proved: in every discrete economy E with asymmetric information and unequal numbers of traders with the same characteristics there is a private core allocation which treats agents of the same type equally.     

Trader networks and options risk management

We examine the effect of trading partner concentration and a matrix of variables which dictate the relative importance of a trader to the network on a set of large member proprietary traders’ risk. An increased closeness centrality and concentration of trading among network partners are found to reduce price, volatility and rebalancing risk. We further explore the nature of trading concentration established through traders’ recurring trading relationships to find that trading with an established and small network has a positive, yet costly, effect on inventory management. Relationships among market makers are important to managing their portfolio of risk.     

Pareto Equilibria with coherent measures of risk

In this paper, we provide a definition of Pareto equilibrium in terms of risk measures, and present necessary and sufficient conditions for equilibrium in a market with finitely many traders (whom we call "banks") who trade with each other in a financial market. Each bank has a preference relation on random payoffs which is monotonic, complete, transitive, convex, and continuous; we show that this, together with the current position of the bank, leads to a family of valuation measures for the bank. We show that a market is in Pareto equilibrium if and only if there exists a (possibly signed) measure that, for each bank, agrees with a positive convex combination of all valuation measures used by that bank on securities traded by that bank.     

Global monetary policy under a dollar standard

This paper derives an optimal monetary policy in a world with a dollar standard, defined as an environment in which all traded goods prices are set in US dollars, so that exchange rate pass-through into the US price level is zero. We show that the US is essentially indifferent to exchange rate volatility, while the rest of the world places a high weight on exchange rate volatility. In a Nash equilibrium of the monetary policy game, US preferences dominate; the equilibrium is identical to one where the US alone chooses world monetary policy. Despite this, we find surprisingly that the US loses from the dollar's role as an international currency, since the absence of exchange rate pass-through leads to inefficient expenditure allocations within the US. Finally, we derive the conditions for a dollar standard to exist.     

浙商对推进市场与产业互动的作用

本文通过建立“市场交换演进模型”，及其对不同市场均衡状态的演进比较，从理论上回答了：（1）在具有众多浙商与消费者分散交易，以及具有垄断势力大商企购销经营共存的市场中，浙商推动了市场供给曲线右移，放大了市场销售量，导致了市场交换模式的演进；（2）众多浙商的存在，构造了可降低市场交易成本的机制，增进了社会福利；（3）浙商担当起了发现市场、拓展市场、推动市场与产业互动、促进浙江产业集群成长的作用。     

A STRUCTURAL RISK‐NEUTRAL MODEL FOR PRICING AND HEDGING POWER DERIVATIVES

We develop a structural risk‐neutral model for energy market modifying along several directions the approach introduced in Aïd et al. In particular, a scarcity function is introduced to allow important deviations of the spot price from the marginal fuel price, producing price spikes. We focus on pricing and hedging electricity derivatives. The hedging instruments are forward contracts on fuels and electricity. The presence of production capacities and electricity demand makes such a market incomplete. We follow a local risk minimization approach to price and hedge energy derivatives. Despite the richness of information included in the spot model, we obtain closed‐form formulae for futures prices and semiexplicit formulae for spread options and European options on electricity forward contracts. An analysis of the electricity price risk premium is provided showing the contribution of demand and capacity to the futures prices. We show that when far from delivery, electricity futures behave like a basket of futures on fuels.     

Quality disclosure in the presence of strategic consumers

Consider a market for short-life products, such as smartphones, where a firm and consumers have asymmetric quality information, the firm sells products in two periods, and consumers make purchase decisions strategically. We investigate when a firm should disclose quality and the interaction between consumers' strategic behavior and the firm's disclosure behavior. We obtain several findings. First, regardless of whether consumers have low or high patience, the firm should disclose quality information if product quality is high and conceal it if product quality is low. However, for products with moderate quality levels, the firm will disclose more quality information to consumers with relatively high or low patience levels than when consumer patience is moderate. Second, firms will disclose less information when consumers behave strategically than when they are myopic. Third, when concealing quality information is an equilibrium, product prices are affected only by disclosure costs and independent of true product quality. Finally, the firm can benefit from consumers' strategic behavior and a higher disclosure cost, but greater patience might be detrimental to consumer surplus and social welfare.     

Futures market equilibrium under Knightian uncertainty

This paper examines the effects of Knightian uncertainty on a commodity futures market within the Newbery‐Stiglitz framework. It is shown that Knightian traders act more conservatively. In a partial trade equilibrium, risk aversion and Knightian uncertainty have qualitatively similar effects on the equilibrium price and the equilibrium trading volume. Full‐trade and no‐trade equilibria are likely to prevail when the producer and the speculator incur different Knightian uncertainty. Herein different impacts of risk aversion and Knightian uncertainty are observed. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:701–718, 2003     

波动率风险溢酬:基于香港和美国期权市场的研究

文章运用方差互换合约的思想,从香港恒生指数和美国S&P500指数现货和期权的价格中提炼出无模型波动率风险溢酬,并对其特征进行了考察。研究结果表明,香港股市和美国股市中的波动率风险的确被定价,且风险溢酬显著为负,说明两市投资者均体现出风险厌恶。但同时我们也发现两个市场投资者的行为模式存在差异。此外,香港和美国市场的波动率风险相关度很高,且存在明显的溢出效应。     

Quantitative implications of a debt-deflation theory of Sudden Stops and asset prices

This paper shows that the quantitative predictions of an equilibrium asset-pricing model with financial frictions are consistent with key features of the Sudden Stop phenomenon. Foreign traders incur costs in trading assets with domestic agents, and a collateral constraint limits external debt to a fraction of the market value of domestic equity holdings. When this constraint does not bind, standard productivity shocks cause typical real-business-cycle effects. When it binds, the same shocks cause strikingly different effects depending on the leverage ratio and asset market liquidity. With high leverage and a liquid market, the shocks force “fire sales” of assets and Fisher's debt-deflation mechanism amplifies the responses of asset prices, consumption and the current account. Precautionary saving makes these Sudden Stops infrequent in the long run.     

Nonlinear dynamics and competing behavioral interpretations: Evidence from intra‐day FTSE‐100 index and futures data

Extant empirical research has reported nonlinear behavior within arbitrage relationships. In this article, the authors consider potential nonlinear dynamics within FTSE‐100 index and index‐futures. Such nonlinearity can be rationalized by the existence of transactions costs or through the interaction between informed and noise traders. They consider several empirical models designed to capture these alternative dynamics. Their empirical results provide evidence of a stationary basis term, and thus cointegration between index and index‐futures, and the presence of nonlinear dynamics within that relationship. The results further suggest that noise traders typically engage in momentum trading and are more prone to this behavior type when the underlying market is rising. Fundamental, or arbitrage, traders are characterized by heterogeneity, such that there is slow movement between regimes of behavior. In particular, fundamental traders act more quickly in response to small deviations from equilibrium, but are reluctant to act quickly in response to larger mispricings that are exposed to greater noise trader price risk. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:343–368, 2006     

Financial super-markets: size matters for asset trade

Empirically, demand and market size effects play an important role for international trade in assets and the determination of asset prices. Financial integration decreases the cost of capital, asset prices increase with investors base and market size determines international financial flows. We present a two-country model with an endogenous number of financial assets, where the interaction of a risk diversification motive and market segmentation explains those facts. In our set up, an imperfectly competitive structure of financial markets emerges naturally and provides a new source for home bias in equity holdings. Due to co-ordination failures, the extent of financial market incompleteness is inefficiently high in equilibrium.     

The Liquidity Discount

This paper characterizes the liquidity discount, the difference between the market value of a trader's position and its value when liquidated. This discount occurs whenever traders face downward sloping demand curves for shares and execution lags in selling shares. This characterization enables one to modify the standard value at risk (VaR) computation to include liquidity risk.     

Duopolistic Price Competition with Captives

We extend the Bertrand duopolistic competition to include captives. These are consumers that have no choice between the suppliers. Usual population of shoppers are modeled performing a sequential search in order to decide where to buy a homogenous good. These two simple departures from the original setup have sharp consequences. First, we find that duopolistic price competition is not robust to inclusion of captives. The equilibrium results starkly differ and the only possible equilibrium now includes duopolists charging monopolistic prices. Second, addition of sequential search introduces multiplicity of pure strategy Nash equilibria. In this setup, we observe perverse optimal response to competitor's price changes. Notably, we find that the firm might want to reduce the price in response to the competitor's price increase, which is at odds with the usual undercutting principle. Third, we investigate the behavior of equilibrium prices depending on the heterogeneity in consumer risk attitudes. We find that the higher consumer heterogeneity with respect to acceptance of risky gambles leads to higher prices in equilibrium.     

ON AGENT’S AGREEMENT AND PARTIAL‐EQUILIBRIUM PRICING IN INCOMPLETE MARKETS

We consider two risk‐averse financial agents who negotiate the price of an illiquid indivisible contingent claim in an incomplete semimartingale market environment. Under the assumption that the agents are exponential utility maximizers with nontraded random endowments, we provide necessary and sufficient conditions for negotiation to be successful, i.e., for the trade to occur. We also study the asymptotic case where the size of the claim is small compared to the random endowments and we give a full characterization in this case. Finally, we study a partial‐equilibrium problem for a bundle of divisible claims and establish existence and uniqueness. A number of technical results on conditional indifference prices is provided.     

Interdealer inference and price discovery

Futures floor dealers are investigated in terms of their joint product of price discovery. A vector error correction model is estimated using floor trader proprietary prices, examining the resulting information shares and common factor components. More active dealers are significant price leaders, with only one fifth of the traders responsible for a significantly higher degree of price discovery. Price leadership is more significant in both volatile and falling markets, when information is perhaps more valuable. It is also found that the most active floor traders generally trade at the same time and in the same direction. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28: 131–154, 2008     

电子商务信用风险的再思考:一个博弈分析视角

电子商务信用风险已成为电子商务进一步发展的主要障碍。建立两阶段动态博弈模型并对其求解发现,电子商务中交易者的信用度或守信度与其贴现因子以及管理者(即政府)的监管概率(即发现概率)和惩罚力度成反比;而政府的监管力度与惩罚力度、交易者贴现因子的平方以及政府的监管成本成反比。     

AN EQUILIBRIUM GUIDE TO DESIGNING AFFINE PRICING MODELS

The paper examines equilibrium models based on Epstein–Zin preferences in a framework in which exogenous state variables follow affine jump diffusion processes. A main insight is that the equilibrium asset prices can be computed using a standard machinery of affine asset pricing theory by imposing parametric restrictions on market prices of risk, determined inside the model by preference and model parameters. An appealing characteristic of the general equilibrium setup is that the state variables have an intuitive and testable interpretation as driving the consumption and dividend dynamics. We present a detailed example where large shocks (jumps) in consumption volatility translate into negative jumps in equilibrium prices of the assets as agents demand a higher premium to compensate for higher risks. This endogenous “leverage effect,” which is purely an equilibrium outcome in the economy, leads to significant premiums for out‐of‐the‐money put options. Our model is thus able to produce an equilibrium “volatility smirk,” which realistically mimics that observed for index options.