Currency Prices, the Nominal Exchange Rate, and Security Prices in a Two‐Country Dynamic Monetary Equilibrium

This paper examines a continuous‐time two‐country dynamic monetary equilibrium in which countries with possibly heterogeneous tastes and endowments hold their own money for the purpose of transaction services formulated via money in the utility function. Given a price system, no‐arbitrage pricing results are provided for the price of each money and the nominal exchange rate. Characterizations are provided for equilibrium prices for general time‐additive preferences and non‐Markovian exogenous processes. Under a Markovian structure of model primitives, the currency prices are shown to solve a bivariate system of partial differential equations. Assuming that each country is endowed with heterogeneous separable power utility and the exogenous quantities all follow geometric Brownian motions, an equilibrium is shown to exist and additional characterization is provided. A further example of nonseparable Cobb–Douglas preferences is investigated. The additional features over the customary environment of homogeneous logarithmic preferences are emphasized.     

The role of existentialism in ethical business decision‐making

This paper presents an integrated model of ethical decision‐making in business that incorporates teleological, deontological and existential theory. Existentialism has been curiously overlooked by many scholars in the field despite the fact that it is so fundamentally a theory of choice. We argue that it is possible to seek good organisational ends (teleology), through the use of right means (deontology), and enable the decision‐maker to do so authentically (existentialism). More specifically, we provide a framework that will enable the decision‐maker to integrate the various ethical schools of thought available to them and to apply this framework in the ethical decision‐making process. The model presented makes explicit the existential position of choice and takes into account other contextual moderating factors. Negative Option Marketing is used as a running application to illustrate the role of existentialism in the decision‐making process.     

Step Options

Motivated by risk management problems with barrier options, we propose a flexible modification of the standard knock‐out and knock‐in provisions and introduce a family of path‐dependent options: step options . They are parametrized by a finite knock‐out (knock‐in) rate , ρ. For a down‐and‐out step option, its payoff at expiration is defined as the payoff of an otherwise identical vanilla option discounted by the knock‐out factor exp(-ρτ_B^‐) or max(1‐ρτ^-B,0), where &\tau;_B^‐ is the total time during the contract life that the underlying price was lower than a prespecified barrier level ( occupation time ). We derive closed‐form pricing formulas for step options with any knock‐out rate in the range $[0,∞). For any finite knock‐out rate both the step option's value and delta are continuous functions of the underlying price at the barrier. As a result, they can be continuously hedged by trading the underlying asset and borrowing. Their risk management properties make step options attractive "no‐regrets" alternatives to standard barrier options. As a by‐product, we derive a dynamic almost‐replicating trading strategy for standard barrier options by considering a replicating strategy for a step option with high but finite knock‐out rate. Finally, a general class of derivatives contingent on occupation times is considered and closed‐form pricing formulas are derived.     

A Discrete‐Time Intertemporal Asset Pricing Model: GE Approach with Recursive Utility

This paper studies the equilibrium characterization of asset pricing in a discrete‐time Lucas exchange economy (Lucas 1978) with the intertemporal recursive utility function of Epstein and Zin (1989). A general formulation of equilibrium asset pricing is presented. It is shown that risk aversion of a certainty equivalent corresponds to risk aversion in the intertemporal asset pricing model. The discrete‐time analogue of Ma's (1993) option pricing formula is derived in an i.i.d. environment, with which we prove an observational nonequivalence theorem in distinguishing the differences of the betweenness recursive utility functions and the expected utility functions. Additionally, when the consumption growth rate follows a first-order Markov process, it is shown that the observational nonequivalence result holds for Kreps–Porteus expected utility. Finally, as by-products, this paper also contains derivations of closed-form formulas for the aggregate equity (with endogenously determined yields), the term structure of interest rates, and European call options on the aggregate equity in a Markov setting.     

Ergodicity, State Prices, and Long Bond Returns

We present an analysis of price systems in securities markets with infinitely many time periods and infinitely many uncertain states of the world. A key result is that a Markov price system (MPS) has a unique representation in terms of the returns on a known set of bonds. The result implies that securities prices are the discounted value of dividends, where discount factors are the reciprocal of the returns on a long-horizon discount bond.     

Real‐estate agent ethics: Selected findings from two Norwegian studies

The article discusses selected findings from two Norwegian studies among real‐estate agents and real‐estate students, and their relevance for real‐estate education in professional ethics. The survey data‐set indicates that the industry morality of real‐estate agents is more peer‐group oriented, less individualistic and more intersubjective than in other comparable Norwegian industries. The qualitative material shows how respondents perceive and discuss three professional role conflict scenarios in a rule‐ or consequence‐focused pattern. The findings are followed by several suggestions relating to conflict handling approaches and professional ethics training among future and present real‐estate agents.     

PRICING CALLABLE BONDS BY MEANS OF GREEN'S FUNCTION1

This paper derives a closed-form solutin for the price of the European and semi-Amirican callable bond for two popular one-factor models of the term structure of interest rates which have been proposed by Vasicek as well as Cox, Ingersoll, and Ross. the price is derived by means of repeated use of Green's function, which, in turn, is derived from a series solution of the partial differential equation to value a discount bond. the boundary conditions which lead to the well-known formulae for the price of a discount bond are also identified. the algorithm to implement the explicit solution relies on numerical quadrature involving Green's function. It offers both higher accuracy and higher speed of computation than finite difference methods, which suffer from numerical instabilites due to discontinuous boundary values. For suitably small time steps, the proposed algorithm can also be applied to American callable bonds or to any American-type option with Green's function being explicitly known.     

基于Heston's SV模型下带有违约风险的最优再保险-投资策略

对于模糊厌恶型保险公司，在可违约金融市场中，考虑其比例再保险-投资问题。假设在任意时刻保险公司可购买比例再保险和投资无风险资产、风险资产和可违约债券，其中风险资产价格服从Heston's SV (Heston's Stochastic Volatility) 模型。首先，考虑模型不确定性，采用与参考模型概率测度等价的概率测度描述替代模型。利用Girsanov变换得到保险公司在替代模型下的财富过程，并通过动态规划原理建立了相应的HJB (Hamilton-Jacob-Bellman) 方程，其中，文章用含状态依赖的不同偏好参数度量模型不确定性的模糊度。其次，分别在违约前和违约后的情况下，针对CARA (Constant Absolute Risk Aversion) 效用函数求解HJB方程，得到了最优稳键的再保险-投资策略，并给出了数值模拟和经济学解释。结果表明：相比较使用同一偏好参数的模型结果，文章的最优策略的表达式更精确，考虑的模型更符合实际金融环境。     

PRICE‐ADMISSIBILITY CONDITIONS FOR ARBITRAGE‐FREE LINEAR PRICE FUNCTION MODELS FOR THE TERM STRUCTURE OF INTEREST RATES

To assure price admissibility—that all bond prices, yields, and forward rates remain positive—we show how to control the state variables within the class of arbitrage‐free linear price function models for the evolution of interest rate yield curves over time. Price admissibility is necessary to preclude cash‐and‐carry arbitrage, a market imperfection that can happen even with a risk‐neutral diffusion process and positive bond prices. We assure price admissibility by (i) defining the state variables to be scaled partial sums of weighted coefficients of the exponential terms in the bond pricing function, (ii) identifying a simplex within which these state variables remain price admissible, and (iii) choosing a general functional form for the diffusion that selectively diminishes near the simplex boundary. By assuring that prices, yields, and forward rates remain positive with tractable diffusions for the physical and risk‐neutral measures, an obstacle is removed from the wider acceptance of interest rate methods that are linear in prices.     

The effects of relational bonds on online customer satisfaction

The purpose of this empirical study is to investigate the effects of relational bonds on online customer satisfaction using gender and time horizon as moderators. The findings are three-fold. First, the financial and structural bonds have positive impacts on online shoppers’ satisfaction; however, the social bond does not. Second, the financial, social, and structural bonds have more positive impacts on female, than male, customer satisfaction. Third, the financial bond is more successful in strengthening customer satisfaction for short-term than for long-term customers; however, the structural bond is more important for long-term than for short-term customers.     

Engaging stakeholders in corporate accountability programmes: A cross‐sectoral analysis of UK and transnational experience

This paper explores the type of stakeholder engagement currently being undertaken by many organisations as part of social and ethical accounting, auditing and reporting (SEAAR) processes. Specifically, the paper seeks to determine the extent to which current corporate practice iteratively promotes stakeholder participation in collaboratively designing accountability programmes, or whether it merely is a new term for canvassing stakeholder opinions. Arnstein's Ladder of Citizen Participation is used as a conceptual model for positioning contemporary methods of stakeholder dialogue. The findings from interviews with representatives from twenty‐nine UK and transnational organisations actively engaged in stakeholder dialogue are presented. This paper concludes that contemporary organisations seem to be seeking to engage with stakeholders in partnerships, yet their attempts still fall short of what Arnstein called Citizen Control, the level of achievement that non‐governmental organisations would like stakeholder engagement to attain.     

The Effect of the Hedge Horizon on Optimal Hedge Size and Effectiveness When Prices are Cointegrated

This study compares two alternative regression specifications for sizing hedge positions and measuring hedge effectiveness: a simple regression on price changes and an error correction model (ECM). We show that, when the prices of the hedged item and the hedging instrument are cointegrated, both specifications yield similar results which depend on the hedge horizon (i.e., the time frame for measuring price changes). In particular, the estimated hedge ratio and regression R² will both be small when price changes are measured over short intervals, but as the hedge horizon is lengthened both measures will converge toward one. These results imply that, when prices are cointegrated, a longer hedge horizon will yield an optimal hedge ratio closer to one, while at the same time enhancing the ability to qualify for hedge accounting. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark 32:837–876, 2012     

Pricing risky corporate bonds: An empirical study

This paper empirically studies a model for pricing risky corporate bonds proposed by Baaquie—based on the seminal Merton. The proposed model provides an exact solution for the price of a risky corporate bond with a finite maturity and explains the market price of corporate fixed coupon bonds as being the result of the market risk that is carried by the bond. Baaquie's model is empirically tested using 42 fixed coupon bonds issued by 23 US corporations, between 2011 and 2017. It is found that the proposed model estimates most bond prices quite accurately. Market time (similar to the concept of psychological time), which is distinct from calendar time, is quantified in the paper and is an exogenous behavioral parameter that plays a pivotal role in improving the accuracy of the pricing model for long-maturity risky bonds.     

PORTFOLIO OPTIMIZATION WITH JUMPS AND UNOBSERVABLE INTENSITY PROCESS

We consider a financial market with one bond and one stock. The dynamics of the stock price process allow jumps which occur according to a Markov-modulated Poisson process. We assume that there is an investor who is only able to observe the stock price process and not the driving Markov chain. The investor's aim is to maximize the expected utility of terminal wealth. Using a classical result from filter theory it is possible to reduce this problem with partial observation to one with complete observation. With the help of a generalized Hamilton–Jacobi–Bellman equation where we replace the derivative by Clarke's generalized gradient, we identify an optimal portfolio strategy. Finally, we discuss some special cases of this model and prove several properties of the optimal portfolio strategy. In particular, we derive bounds and discuss the influence of uncertainty on the optimal portfolio strategy.     

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.     

When Does Convergence of Asset Price Processes Imply Convergence of Option Prices?

We consider weak convergence of a sequence of asset price models (Sⁿ) to a limiting asset price model S . A typical case for this situation is the convergence of a sequence of binomial models to the Black–Scholes model, as studied by Cox, Ross, and Rubinstein. We put emphasis on two different aspects of this convergence: first we consider convergence with respect to the given "physical" probability measures (P^n) and second with respect to the "risk‐neutral" measures (Q^n) for the asset price processes (Sⁿ) . (In the case of nonuniqueness of the risk-neutral measures the question of the "good choice" of (Qⁿ) also arises.) In particular we investigate under which conditions the weak convergence of (Pⁿ) to P implies the weak convergence of (Qⁿ) to Q and thus the convergence of prices of derivative securities.
The main theorem of the present paper exhibits an intimate relation of this question with contiguity properties of the sequences of measures (Pⁿ) with respect to (Qⁿ) , which in turn is closely connected to asymptotic arbitrage properties of the sequence (Sⁿ) of security price processes. We illustrate these results with general homogeneous binomial and some special trinomial models.     

我国可转债转股价调整条款设计存在的问题与修正建议

可转债转股价格调整条款设计的基本原则是要使可转债是红利保护的，要实现这一目标，必须将转股价格和股票价格进行同比例调整。我国可转债发行过程中转股价格调整条款对现金红利、增发和配股的处理办法在一般情况下基本符合红利保护的原则，但在现金红利数额较大，增发和配股比例比较高的情况下，必须根据更科学的方法来调整转股价格。     

TIME‐CHANGED MARKOV PROCESSES IN UNIFIED CREDIT‐EQUITY MODELING

This paper develops a novel class of hybrid credit‐equity models with state‐dependent jumps, local‐stochastic volatility, and default intensity based on time changes of Markov processes with killing. We model the defaultable stock price process as a time‐changed Markov diffusion process with state‐dependent local volatility and killing rate (default intensity). When the time change is a Lévy subordinator, the stock price process exhibits jumps with state‐dependent Lévy measure. When the time change is a time integral of an activity rate process, the stock price process has local‐stochastic volatility and default intensity. When the time change process is a Lévy subordinator in turn time changed with a time integral of an activity rate process, the stock price process has state‐dependent jumps, local‐stochastic volatility, and default intensity. We develop two analytical approaches to the pricing of credit and equity derivatives in this class of models. The two approaches are based on the Laplace transform inversion and the spectral expansion approach, respectively. If the resolvent (the Laplace transform of the transition semigroup) of the Markov process and the Laplace transform of the time change are both available in closed form, the expectation operator of the time‐changed process is expressed in closed form as a single integral in the complex plane. If the payoff is square integrable, the complex integral is further reduced to a spectral expansion. To illustrate our general framework, we time change the jump‐to‐default extended constant elasticity of variance model of Carr and Linetsky (2006) and obtain a rich class of analytically tractable models with jumps, local‐stochastic volatility, and default intensity. These models can be used to jointly price equity and credit derivatives.     

European‐Type Contingent Claims in an Incomplete Market with Constrained Wealth and Portfolio

This paper considers the problem of hedgeability and replicability of European‐type contingent claims in an incomplete market with the wealth and the portfolio possibly being constrained. For the case of no constraint, using the idea of a Four Step Scheme (Ma, Protter, and Yong 1994), we prove the replicability of a class of contingent claims (including European call and put options) without assuming ad hoc technical conditions. For the case with the wealth and portfolio being constrained, several positive and negative results concerning hedgeability and replicability are presented.     

APPROXIMATING GARCH-JUMP MODELS, JUMP-DIFFUSION PROCESSES, AND OPTION PRICING

This paper considers the pricing of options when there are jumps in the pricing kernel and correlated jumps in asset prices and volatilities. We extend theory developed by Nelson (1990) and Duan (1997) by considering the limiting models for our approximating GARCH Jump process. Limiting cases of our processes consist of models where both asset price and local volatility follow jump diffusion processes with correlated jump sizes. Convergence of a few GARCH models to their continuous time limits is evaluated and the benefits of the models explored.