GAME CALL OPTIONS REVISITED

In this paper, having been inspired by the work of Kunita and Seko, we study the pricing of δ‐penalty game call options on a stock with a dividend payment. For the perpetual case, our result reveals that the optimal stopping region for the option seller depends crucially on the dividend rate d. More precisely, we show that when the penalty δ is small, there are two critical dividends 0 < d₁ < d₂ < ∞ such that the optimal stopping region for the option seller takes one of the following forms: (1) an interval if d < d₁; (2) a singleton if d∈ [d₁, d₂]; or (3) an empty set if d > d₂. When d∈ [d₁, d₂], the value function is not continuously differentiable at the optimal stopping boundary for the option seller, therefore our result in the perpetual case cannot be established by the free boundary approach with smooth‐fit conditions imposed on both free boundaries. For the finite time horizon case, the dependence of the optimal stopping region for the option seller on the time to maturity is exhibited; more precisely, when both δ and d are small, we show that there are two critical times 0 < T₁ < T₂ < T, such that the optimal stopping region for the option seller takes one of the following forms: (1) an interval if t < T₁; (2) a singleton if t∈ [T₁, T₂]; or (3) an empty set if t > T₂. In summary, for both the perpetual and the finite horizon cases, we characterize in terms of model parameters how the optimal stopping region for the option seller shrinks when the dividend rate d increases and the time to maturity decreases; these results complete the original work of Emmerling for the perpetual case and Kunita and Seko for the finite maturity case. In addition, for the finite time horizon case, we also extend the probabilistic method for the establishment of existence and regularity results of the classical American option pricing problem to the game option setting. Finally, we characterize the pair of optimal stopping boundaries for both the seller and the buyer as the unique pair of solutions to a couple of integral equations and provide numerical illustrations.     

The Minimal Entropy Martingale Measure and the Valuation Problem in Incomplete Markets

Let χ be a family of stochastic processes on a given filtered probability space (Ω, F, (F_t)_t∈T, P) with T?R₊. Under the assumption that the set M_e of equivalent martingale measures for χ is not empty, we give sufficient conditions for the existence of a unique equivalent martingale measure that minimizes the relative entropy, with respect to P, in the class of martingale measures. We then provide the characterization of the density of the minimal entropy martingale measure, which suggests the equivalence between the maximization of expected exponential utility and the minimization of the relative entropy.     

DYNAMIC CDO TERM STRUCTURE MODELING

This paper provides a unifying approach for valuing contingent claims on a portfolio of credits, such as collateralized debt obligations (CDOs). We introduce the defaultable (T, x) ‐bonds, which pay one if the aggregated loss process in the underlying pool of the CDO has not exceeded x at maturity T, and zero else. Necessary and sufficient conditions on the stochastic term structure movements for the absence of arbitrage are given. Background market risk as well as feedback contagion effects of the loss process are taken into account. Moreover, we show that any exogenous specification of the volatility and contagion parameters actually yields a unique consistent loss process and thus an arbitrage‐free family of (T, x) ‐bond prices. For the sake of analytical and computational efficiency we then develop a tractable class of doubly stochastic affine term structure models.     

The Sustainability of Current Account Deficits and Tourism Receipts in Turkey

Current Account Deficits (CAD) in Turkey have reached significantly high levels in the recent years and discussions around the sustainability of these deficits continue. On the other hand, thanks to its rapid development within the same period, the tourism sector is observed to increase its positive contribution to the current accounts balances. This study is an initiative to highlight the contribution of the tourism sector to the sustainability of the CAD in Turkey. Unit root and Cointegration tests have been used to this end. This approach is applied to the long-run relationship between Exports + Tourism Receipts (X + TR) and Imports + Tourism Expenditures (M + TE) for the period of 1980Q1–2005Q2. We question the weak sustainability hypothesis where the cointegrating vector is (X + TR)_t = a + b(M + TE)_t + η _t . In this vector, if b equals to one and η_t is stationary, then the current account deficits are strongly sustainable, if b is between 0 and 1(0 < b < 1) and η_t is stationary or b = 1 but η_t is non-stationary, then the current account deficits are weakly sustainable and lastly, if there is no cointegration or b = 0, then the current account deficits are unsustainable. The empirical results indicate that CAD in Turkey are unsustainable in spite of the rising shares of tourism receipts in current account balances. Therefore, in Turkey, where exports are exceedingly depended on imports, which makes it not very easy to reduce imports, the only way to ensure that CAD are sustainable is to seek options to further increase the tourism receipts.     

BLACK–SCHOLES REPRESENTATION FOR ASIAN OPTIONS

Asian options are securities with a payoff that depends on the average of the underlying stock price over a certain time interval. We identify three natural assets that appear in pricing of the Asian options, namely a stock S, a zero coupon bond B^T with maturity T, and an abstract asset A (an “average asset”) that pays off a weighted average of the stock price number of units of a dollar at time T. It turns out that each of these assets has its own martingale measure, allowing us to obtain Black–Scholes type formulas for the fixed strike and the floating strike Asian options. The model independent formulas are analogous to the Black–Scholes formula for the plain vanilla options; they are expressed in terms of probabilities under the corresponding martingale measures that the Asian option will end up in the money. Computation of these probabilities is relevant for hedging. In contrast to the plain vanilla options, the probabilities for the Asian options do not admit a simple closed form solution. However, we show that it is possible to obtain the numerical values in the geometric Brownian motion model efficiently, either by solving a partial differential equation numerically, or by computing the Laplace transform. Models with stochastic volatility or pure jump models can be also priced within the Black–Scholes framework for the Asian options.     

Effects of selected emulsifiers,enzymes and a carbohydrate-based fat substitute on physical and sensory characteristics in a low-fat muffin

Abstract Selected emulsifiers, enzymes and a carbohydrate-based fat substitute were incorporated into a standard muffin recipe, and their effects were compared with a full-fat counterpart. The control muffin had a significantly (P<0·01) more yellow crumb, was less firm (P<0·01) and contained less moisture (P<0·01). Sodium stearoyl-2-lactylate (SSL) and diacetyl tartaric acid methyl esters (DATEM) contributed to a less firm crumb (P<0·01) and helped to maintain moisture (P<0·01) in the fat-reduced muffin. Sensory analysis yielded complementary results to the physical data with respect to crumb firmness and crust colour. However, the full-fat muffin was significantly (P<0·01) moister. The emulsifiers along with the enzymes were found to be responsible for reducing crumb size (P<0·01).     

A Fundamental Theorem of Asset Pricing for Large Financial Markets

We formulate the notion of “asymptotic free lunch” which is closely related to the condition “free lunch” of Kreps (1981) and allows us to state and prove a fairly general version of the fundamental theorem of asset pricing in the context of a large financial market as introduced by Kabanov and Kramkov (1994). In a large financial market one considers a sequence (Sⁿ)_n=1^∞ of stochastic stock price processes based on a sequence (Ωⁿ, Fⁿ, (F_tⁿ)_t∈In, Pⁿ)_n=1^∞ of filtered probability spaces. Under the assumption that for all n∈ N there exists an equivalent sigma‐martingale measure for Sⁿ, we prove that there exists a bicontiguous sequence of equivalent sigma‐martingale measures if and only if there is no asymptotic free lunch (Theorem 1.1). Moreover we present an example showing that it is not possible to improve Theorem 1.1 by replacing “no asymptotic free lunch” by some weaker condition such as “no asymptotic free lunch with bounded” or “vanishing risk.”     

MODEL‐INDEPENDENT LOWER BOUND ON VARIANCE SWAPS

It is well known that, under a continuity assumption on the price of a stock S, the realized variance of S for maturity T can be replicated by a portfolio of calls and puts maturing at T. This paper assumes that call prices on S maturing at T are known for all strikes but makes no continuity assumptions on S. We derive semiexplicit expressions for the supremum lower bound on the hedged payoff, at maturity T, of a long position in the realized variance of S. Equivalently, is the supremum strike K such that an investor with a long position in a variance swap with strike K can ensure a nonnegative payoff at T. We study examples with constant implied volatilities and with a volatility skew. In our examples, is close to the fair variance strike obtained under the continuity assumption.     

Decentralized Evolutionary Mechanism of Growth in a Linear Multi-sector Model

The paper considers the following mechanism of intertemporal decisions in a linear multisector production model: at each time t a program for two time periods t, t + 1 is worked out but is followed only during the first period t, after which the rest of the program is replaced by a new two-period program for t + 1, t + 2, etc. Terminal conditions in these two-period programs are continually adapted to the current state. The result of the procedure, called an adaptive rolling plan, is shown to yield growth of production at the maximum rate over time which is a natural intertemporal optimality criterion for the production model. It is also demonstrated that adaptive rolling plans can be realized in a decentralized economy, and therefore they provide an intertemporally decentralized mechanism of achieving maximum growth.     

An empirical study into the influence of customer satisfaction on customer revenues

It is broadly expected that customer satisfaction (CS) influences customer revenues (CR), but there is little evidence for the corresponding hypothesis. If CS influences CR, there must be a relation between CS at time t?=?0 and CR at time t?>?0. We developed a statistical model representing this relation, which we tested in a longitudinal study using person-level data (N?=?1682) from a Dutch retail bank. We found that CS had a positive effect on CR with 1-year and 2-year time lags. These results support the hypothesis that CS influences CR.     

Neural network approximation for superhedging prices

This article examines neural network-based approximations for the superhedging price process of a contingent claim in a discrete time market model. First we prove that the α-quantile hedging price converges to the superhedging price at time 0 for α tending to 1, and show that the α-quantile hedging price can be approximated by a neural network-based price. This provides a neural network-based approximation for the superhedging price at time 0 and also the superhedging strategy up to maturity. To obtain the superhedging price process for $t>0$, by using the Doob decomposition, it is sufficient to determine the process of consumption. We show that it can be approximated by the essential supremum over a set of neural networks. Finally, we present numerical results.     

THE STATISTICS OF LONG-HORIZON REGRESSIONS REVISITED1

This paper compares commonly used approaches for estimating the relation between long-horizon returns and a predetermined variable X₁, such as dividend yields. Specifically, we look at regression of (i) nonoverlapping multiperiod returns on X_t (ii) overlapping multiperiod returns on X_t, (iii) single-period returns on multiperiod X_t, and (iv) single-period returns on X_t and its implied long-horizon regression coefficient. We provide analytical formulae which quantify the efficiency of the estimators used in the various approaches. Using the formulae, as well as Monte Carlo simulations, we demonstrate that the relative efficiency of the estimators used in the various approaches differs remarkably, depending on the dynamic structure of the regressor. of special interest for financial economists, when the regressors are highly autocorrelated, we find that the regressions (ii) (iii), and (iv) provide only marginal efficiency gains above and beyond the nonoverlapping long-horizon regression.     

Pilot intervention with adolescents to increase knowledge and consumption of folate‐rich foods based on the Health Belief Model

Folate is important in the prevention of birth defects and in the maintenance of general health. Even after mandatory fortification, many people are still not consuming the recommended dietary allowance (RDA) of 400 mcg folate/day. Consuming a diet rich in naturally high‐folate foods, as opposed to supplementation, may offer additional health benefits and promote an overall healthy diet. The purpose of this pilot study was to test the hypothesis that a learner‐centred educational intervention based on the Health Belief Model (HBM) will successfully increase knowledge and consumption of folate‐rich foods, while increasing positive beliefs about folate and health in adolescents. A two‐group parallel control trial was conducted in two schools in Nebraska. Pre‐ and post‐study questionnaires included a folate‐based food frequency questionnaire, a HBM questionnaire and a folate knowledge test. Participants in the intervention group completed a post‐study evaluation. The intervention consisted of three 30‐min lessons followed by participant creation of podcasts. One podcast was viewed each week for 8 weeks following the lessons. Data were analysed using t‐tests to measure simple effects within the intervention and control groups, and analysis of variance to measure within‐subject effects between the groups. Folate consumption decreased in both the intervention and control groups, but these differences were not significant (P > 0.05). Significant increases (P = 0.000) in folate knowledge occurred in the intervention group. This difference remained significant (P = 0.001) when compared to the control group. Average HBM rankings significantly decreased (P < 0.05) towards ‘strongly agree’ (Likert scale of 1–6) in the intervention group (P < 0.05) for all constructs except cues to action. However, when compared to the control group, these differences were only significant for self‐efficacy and perceived susceptibility. Creating and viewing podcasts may be helpful for the retention of knowledge over time, but did not appear to be an effective cue to action for increased folate‐rich foods in this pilot study.     

Pricing Via Utility Maximization and Entropy

In a financial market model with constraints on the portfolios, define the price for a claim C as the smallest real number p such that sup_π E[U(X_T^{x+p, π}?C)]≥ sup_π E[U(X_T^{x, π})], where U is the negative exponential utility function and X^{x, π} is the wealth associated with portfolio π and initial value x. We give the relations of this price with minimal entropy or fair price in the flavor of Karatzas and Kou (1996) and superreplication. Using dynamical methods, we characterize the price equation, which is a quadratic Backward SDE, and describe the optimal wealth and portfolio. Further use of Backward SDE techniques allows for easy determination of the pricing function properties.     

会计信息披露实际与内幕交易——基于年报首季披露时差与异常超额交易量的实证研究

Considering the cost of capital, systematic risk and the probability of being monitored and punished, informed traders are most likely to conduct informed trading at the small time gap between the disclosure of annual report of year t and 1^st quarter reports of year t+1 because the gap is the best and safest time for informed trading. Meanwhile, due to the high cost and risks of informed trading, traders need huge trading volumes to gain abnormal returns. Based on these characteristics of informed trading, a research sample and a control sample are found for this paper. The former refers to companies with loss annual report in year t and profit-making 1^st quarter financial report in year t+1 in tandem. The latter refers to companies announced loss in the previous year and and profit-making 1^st quarter financial report in year t+1 simultaneously or companies with loss annual report in the year t and loss 1^st quarter financial report in year t+1 in tandem. Results confirm the existence of informed trading by measuring “extra abnormal trading volume”. Therefore, authors suggest that a good disclosure policy should not only consider the timeliness and accuracy of the financial reports, but also the overall information disclosure process to prevent potential informed trading. Translated and revise from Zhongguo Kuaiji Pinglun 中国会计评论 (China Accounting Review), 2008, 6(2): 207–222     

Effects of selected antioxidants on physical and sensory characteristics of yeast bread containing flaxseed meal

Flaxseed has been identified as a potential functional food because of its high content of phytochemicals, alpha‐linolenic (α‐linolenic) acid and lignans. Flaxseed can be used in baked goods because of its minimal loss of α‐linolenic acid. Alpha‐linolenic acid is susceptible to oxidation and the development of off‐aromas and flavours in the food. The focus of this study was to determine the effectiveness of both synthetic and natural antioxidants that were incorporated into a yeast bread that contained 15% flaxseed as a partial replacement for bread flour. The study evaluated the effectiveness of the antioxidants on the physical and sensory characteristics of the bread. Physical properties, such as per cent moisture and loaf volume, were not affected (P > 0.05) by the antioxidants, but ascorbic acid, butylated hydroxytoluene and butylated hydroxyanisole, independently, had a softening affect (P < 0.05) on crumb firmness. Sensory analysis indicated significant (P < 0.05) changes in aroma, grainy taste, aftertaste and moistness in all bread samples regardless of antioxidant, however, only ascorbic acid was rated as effective in maintaining a softer (P < 0.05) crumb.     

Book Reviews

The United States and the Politicization of the World Bank, BARTRAM S. BROWN (London, New York: Kegan Paul International Ltd, 1992), pp. xvii & 295, £45.00 hardback, ISBN 0 7103 0424 4. Open Economies: Structural Adjustment and Agriculture, IAN GOLDIN and ALAN WINTERS (Cambridge, New York: Cambridge University Press, 1992), pp. xxi & 320, £35.00, US $59.95 hardback, ISBN 0 521 42056 3. Current Issues in Development Economics, V.N. BALASUBRAMANYAM and S. LALL (eds.) (Basingstoke: Macmillan, 1991), pp. xii & 287, £40.00 hardback, £12.50 softback, ISBN 0 333 51323 1 and IBSN 0 333 51324 X. International Financial Markets, Integration, Efficiency and Expectations, JEROME L. STEIN (Oxford, Cambridge, MA: 1992), pp. x & 159, £30.00 hardback, ISBN 1 55786 230 3. Tax Policy in Developing Countries, JAVAD KHALILZADEH-SHIRAZI and ANWAR SHAH (Washington: The World Bank, 1991, obtainable in the UK from Microinfo Ltd, PO Box 3, Omega Park, Alton, Hampshire GU34 2PG), pp. xxiv & 252, softback, ISBN 8213 1990 6. Does Debt Management Matter?, JONAS AGELL, MATS PERSSON and BENJAMIN M. FRIEDMAN (Oxford: Oxford University Press, 1992), pp. viii & 155, £25.00 hardback, ISBN 019 828361 X. Authority and Academic Scribblers — The Role of Research in East Asian Policy Reform, SYLVIA OSTRY (ed.) (San Francisco: International Center for Economic Growth, 1991), pp. xiii & 181, $A24.95 hardback, $A12.95 softback, ISBN 1 55815 133 8 and 1 55815 132 X. Global Protectionism, DAVID GREENAWAY, ROBERT C. HINE, ANTHONY P. O'BRIEN and ROBERT J. THORNTON (eds.) (Basing-stoke: Macmillan, 1992), pp. ix & 310, £45.00 hardback, ISBN 0 333 52969 3. Japan and the Third World, WILLIAM R. NESTER (Basingstoke: Macmillan Press, 1992), pp. x & 323, £45.00 hardback, ISBN 0 333 52642 2.     

Evaluation of fat replacers Avicel™, N Lite S™ and Simplesse™ in mayonnaise

Samples of mayonnaise were prepared in which the oil content was reduced from 30% to 10% and replaced with the fat replacers, Avicel, N Lite S and Simplesse. The control sample had a significantly higher viscosity (P < 0.001) and droplet size (P < 0.01) than the samples containing the replacers. There was a significant (P < 0.001) correlation (r = 0.97) between viscosity and droplet size. Sensory analysis also showed that the control had significantly higher scores (P < 0. 001) for the attributes of thickness, meltability, glossiness and oiliness. There was a significant (P < 0.05) correlation (r = 0.93) between viscosity and sensory thickness. However, there was no significant preference for any of the samples, showing that variations in physical properties and sensory profile attributes do not necessarily affect preference. The use of the replacers reduced the energy values of the mayonnaises by 52% to 55%.     

Universal Portfolios

We exhibit an algorithm for portfolio selection that asymptotically outperforms the best stock in the market. Let x_i= (x_i, x_i2,…, x_im)^t denote the performance of the stock market on day i, where x_ii is the factor by which the jth stock increases on day i. Let b_i= (_bi1 b_i2, b_im)^t, b;_ij? 0, b_ij= 1, denote the proportion b_ij of wealth invested in the j th stock on day i. Then S_n= II_iⁿ= bi^tx_i is the factor by which wealth is increased in n trading days. Consider as a goal the wealth S_n*= max_b II_iⁿ=₁ b^tx_i that can be achieved by the best constant rebalanced portfolio chosen after the stock outcomes are revealed. It can be shown that Sn * exceeds the best stock, the Dow Jones average, and the value line index at time n. In fact, S_n* usually exceeds these quantities by an exponential factor. Let x₁, x₂, be an arbitrary sequence of market vectors. It will be shown that the nonanticipating sequence of portfolios db yields wealth such that , for every bounded sequence x₁, x₂…, and, under mild conditions, achieve where J, is an (m - 1) x (m - I) sensitivity matrix. Thus this portfolio strategy has the same exponential rate of growth as the apparently unachievable S*_n.     

Yield curve risks in currency carry forwards

We provide empirical evidence that cross-country yield curve gaps (parallel gap, twist gap, and butterfly gap) are predictive to the expected currency carry premiums using currency forward contracts. We find that the expected currency gains are more notable as these yield curve risk factors at time t indicate short-term bond prices of investment currencies to go up (positive parallel movement, negative twist, and positive butterfly). We also find carry gains are more sensitively affected by cross-country monetary shocks than currency-country inflation pressures and business cycles. Our findings support that cross-country yield curve risk premiums still exist even after considering transaction costs.