Arbitrage-free valuation of interest rate securities under forward curves with stochastic speed and acceleration

Arbitrage-free models for valuing interest rate securities posit that stochastic changes in spot or forward interest rates (forward rate “speed”) follow a diffusion process. This paper extends the Heath, Jarrow and Morton [Bond pricing and the term structure of interest rates: a new methodology for contingent claims valuations, Econometrica 60 (1992) 77-105], HJM framework by allowing diffusive shocks to both the “speed” and “acceleration” of forward rates. The arbitrage-free restriction on forward rates is identified and involves volatilities of the speed and acceleration dynamics and their correlation. Although the extended forward rates remain in the diffusive framework and evolve continuously, they may exhibit large changes over short intervals (as with jumps) due to stochastic acceleration. Comparisons of bond prices show that the proposed model generates more complex and intricate shapes for the restricted forward curve with the same number of stochastic factors and volatility.     

Quick and dirty technology assessment: The case of an Italian Research Centre

Technology assessment has an increasingly critical role to play, in light of the fact that technology is the ultimate source of competitive advantage for companies, and of economic and social development for nations. In this paper, we present a methodology for a “quick and dirty” technology assessment, developed with reference to a real-word case study. The case in question is that of a large Italian Research Centre, whose top management required a rapid assessment of the technological competences, resources and results of the organisation. Because technology assessment is inherently highly complex, the problem consisted in reducing the complexity to obtain a simple methodology that could be rapidly deployed in practice.In summary, this paper: (i) describes a methodology for a “quick and dirty” technology assessment, effectively implemented in practice; (ii) points out the main problems/difficulties encountered and the possible solutions; (iii) discusses the results and the validity/applicability of the formulated methodology.     

Technology transfer in the IT industry: A Korean perspective

Recently Korean Government announced ambitious IT strategy to establish Korea as one of leaders in world IT market. To implement this strategy, technology transfer from research lab to market should be successfully performed. This study is to identify factors influencing technology transfer and to examine contribution of these factors on success of technology transfer in Korean IT industry. Survey results show that technology project leaders evaluated “Concreteness of Technology” as the most influential factor for technology transfer, followed by “Communication Channels,” “Collaboration among Participants,” “Management Support,” “Government Support,” and “Incentives for Transfer.” Out of 135 technology transfer projects, respondents rated 33 projects as sustaining (28.44%), 38 as promoting (28.15%), 26 as demonstrating (19.26%), 27 in incubating (20.00%), and the remaining 7 in imaging stage (8.15%). This statistics means that 28.15% of technology transfer projects did not reach production stage. Regression analysis identifies that “Communication Channels,” “Management Support,” “Concreteness of Technology” “Sense of Common Purpose,” and “Awareness of Technology Transfer” were statistically significant in explaining success of technology transfer.     

Quantitative mapping of scientific research—The case of electrical conducting polymer nanocomposite

This study aims to understand knowledge structure both quantitatively and visually by integrating keyword analysis and social network analysis of scientific papers. The methodology proposed in this study is capable of creating a three-dimensional “Research focus parallelship network” and a “Keyword Co-occurrence Network”, together with a two-dimensional knowledge map. The network and knowledge map can be depicted differently by choosing different information for the network actor, i.e. country, institute, paper and keyword, to reflect knowledge structures from macro, to meso, to micro-levels. A total of 223 highly cited papers published by 142 institutes and 26 countries are analyzed in this study. China and the US are the two countries located at the core of knowledge structure and China is ranked no. 1. This quantitative exploration provides a way to unveil important or emerging components in scientific development and also to visualize knowledge; thus an objective evaluation of scientific research is possible for quantitative technology management.     

Measuring fossil resource inequality—A case study for the UK between 1968 and 2000

This paper quantifies fossil resource inequalities amongst income quintiles in the UK between 1968 and 2000. It calculates a resource-based Gini coefficient using an input-output based resource allocation model.The results show that the Gini coefficient for total fossil resource consumption grew by 24% over the time period. By comparison the Gini coefficient for overall household expenditure rose by only 13%. The increase in resource inequality was prompted by the rising demand by high income quintiles for goods and services such as: “fuel and light” (heating and lighting the home), “car use” (private transportation), “recreation”, “travel” and “other services”. The analysis shows further that the Gini coefficient for “direct” fossil resources (“fuel and light” and “car use”) was lower and rose less steeply than the Gini coefficient for fossil resources embodied in other goods and services (indirect fossil resource requirements).Investigation into the drivers behind direct and indirect resource inequalities suggests a number of policy conclusions. Firstly, it is clear that policy initiatives to reduce fossil resource requirements (and the associated climate change impacts) must pay careful attention to distributional differences. Additionally, increased attention needs to be paid to the inequalities associated with indirect fossil resources consumption as well as the more visible direct resource inequalities.     

The extended and generalized Shapley value: Simultaneous consideration of coalitional externalities and coalitional structure

The Shapley value assigns, to each game that is adequately represented by its characteristic function, an outcome for each player. An elaboration on the Shapley value that assigns, to characteristic function games, a “partition function” outcome is broadly established and accepted, but elaborations to encompass games with externalities (represented by partition functions) are not. Here, I show that simultaneous consideration of the two elaborations (“generalization” and “extension”) obtains a unique Shapley-type value for games in partition function form. The key requirement is that the “Extended, Generalized Shapley Value” (EGSV) should be “recursive”: the EGSV of any game should be the EGSV of itself. This requirement forces us to ignore all but the payoffs to bilateral partitions. The EGSV can be conceptualized as the ex ante value of a process of successive bilateral amalgamations. Previous Shapley value extensions, if generalized, are not recursive; indeed, they iterate to the EGSV.     

International migration and “educated unemployment”

This paper provides a novel explanation of “educated unemployment”, which is a salient feature of the labor markets in a number of developing countries. In a simple job-search framework we show that “educated unemployment” is caused by the prospect of international migration, that is, by the possibility of a “brain drain”. In addition, the analysis shows that a developing country may end up with more educated workers despite the brain drain and educated unemployment.     

Agency conflicts in the presence of random private benefits from project implementation

We study a contracting problem where a principal delegates the decision to implement a “project” to an agent who obtains private information about the value of the project before making the implementation decision. Moral hazard arises because the agent gets private random non-contractible benefits, or incurs private random non-contractible costs, if the project is implemented. This contracting problem is pervasive, when “project” and “benefits” are interpreted broadly.     

Specifying “regime” — A framework for defining and describing regimes in transition research

It is more and more agreed by research and policy that a long-term sustainability of industrialized societies cannot be achieved without fundamental changes at the level of different societal subsystems, such as the agricultural, transportation or water management systems. This view has lead to an increase in the amount of research carried out about the so-called “transitions”. Transitions comprise long-term, fundamental change in societal subsystems and are seen as encompassing co-evolutionary and mutually reinforcing processes in the economic, technological, institutional and socio-cultural domains. Transition research aims at understanding transitions and at finding methods that facilitate change directed towards societal goals (so-called “transition management”).This paper adds to the growing body of concepts of this young research strand. It suggests a framework for defining and describing “regimes”, the systems resulting from the broad and interdisciplinary view taken by transition research. The concept “regime” is of central importance for transition research, since it defines the level of societal systems on which transitions are mainly analysed. What actually is “the regime” to be researched and possibly managed is however usually not given through clear system boundaries but is a matter of framing and deliberation. In order to guide processes of regime identification, the paper develops five defining characteristics of regimes and gives a definition based on them. Further a method useful to structure and graphically represent knowledge about a regime is introduced. Such a structuring of knowledge is an important first step to understand how a regime “works”.     

The internet as an indicator of corruption awareness

We apply a standard specification of the causes of corruption to a large sample of countries to investigate the effect of internet awareness about corruption on prevalence and perceptions of corruption. The main hypothesis is that greater corruption awareness acts as a corruption deterrent. A unique data set of internet searches on Google and Yahoo is compiled using alternate variations of “corruption”, “bribery” and “country name” keywords to capture internet corruption awareness. Results show that internet hits about corruption per capita correlate negatively with corruption perceptions and corruption incidence. This finding generally holds for different specifications and other robustness checks.     

A methodology of technological foresight: A proposal and field study

The study of one's own business future is a distinctive element of a business strategy. Innovative companies are aware of weak signals coming from the periphery and of trends in their industry, and they monitor the coherence between weak signals and trends (the external perspective) and strategic direction (the internal perspective).The literature today does not provide well-framed and complete methodologies for assessing the coherence among trends, vision and products. Therefore, the authors propose a methodology called “the methodology of future coverage”, which measures how much the strategy oriented to the future effectively covers trends and megatrends. In other words, it helps to check the contents and the coherence of the firm' vision and products and those of the trends that will have relevance for the future of the industry, and this process supplies firms with supplementary information on how to improve. The authors tested this methodology and exemplified its use via the Eurotech case study, employing longitudinal analysis.The methodology can be useful as a tool for diagnosing the coherence between trends and company strategy. Moreover, from a dynamic point of view, it can be used as a tool to check on the company's progress in following up on trends by adapting its strategy over time. Finally, the methodology can be also used as a tool for cross-comparison of the “level of future orientation” among companies in the same industry.     

ExpertLens: A system for eliciting opinions from a large pool of non-collocated experts with diverse knowledge

The complexity of policy decision-making raises the need to elicit opinions from large and heterogeneous groups of stakeholders with broad and diverse sets of expertise. Existing options for elicitation include small face-to-face panels of experts by using the Nominal Group Technique (NGT), large Delphi panels whose members do not interact with each other face-to-face, and crowdsourcing, which involves an open call for input issued to a large community of people. In an attempt to close the gap between the practical needs of policy makers and the methodological challenges associated with eliciting opinions of large, diverse, and distributed groups, we have developed a new online elicitation system and methodology called ExpertLens. By optimizing the direct interactions of NGT with the larger number of Delphi participants and the wisdom of “selected crowds,” our approach is designed to save on the costs associated with traditional expert panels, while increasing accuracy in elicitation by reducing the potential for group process losses that can occur in large, diverse, and non-collocated panels whose members interact via asynchronous online discussion boards. The ExpertLens approach is iterative, does not require participants to develop consensus, and determines what the group “thinks” by statistically analyzing data collected in all rounds of the elicitation. This paper describes the ExpertLens system and methodology, briefly discusses recent ExpertLens trials, provides conceptual arguments for why it is an appropriate model for eliciting expert opinions, illustrates its main components and analytics by using an infrastructure investment example, and discusses a research agenda for testing the underlying tenets of the ExpertLens approach.     

A study on the relationship between technology diffusion and new product diffusion

This study investigates the relationship between “technology diffusion” and “new product diffusion”. We define “technology diffusion” as a knowledge spillover process, which is represented by patent citation, and “new product diffusion” as the spread of a new product that has been developed by the application of patented technology. To investigate the relationship between the two types of diffusion, we use patent citation data of code division multiple access (CDMA) technology and market sales data of mobile phones in South Korea for the analysis. The results show that the diffusion of technology through patent citation could be successfully explained by empirical analysis, for which the Bass diffusion model was used. Moreover, we can find out if technology diffusion can be the leading indicator of a new product's diffusion before its launching; in other words, before the commercialization of the patent.     

Using scenarios for roadmapping: The case of clean production

Roadmapping and scenarios are two widely used futures techniques which help R&D managers set priorities for research. These techniques are combined in a Foresight exercise assessing development of clean production in metal manufacturing, drawing on the European CLEANPROD project. The aim of the project is to develop a set of roadmaps for metal processing R&D to achieve breakthrough sustainability — “clean production”.Scenarios, a frequently used Foresight method, are used to set the context for the exercise, inform the design of technology roadmaps and influence the wider policy context. Roadmaps are developed for three process areas of metal manufacture - surface preparation, machining and coating - on four levels including long run visions up to 2020, interim targets up to 2015, key R&D areas and specific project topics. Roadmaps are appraised in the light of alternative scenarios on the future of manufacturing. Promoting sustainability highlights gaps in a “business as usual” roadmap, suggesting a different portfolio of research projects. A revised overall scenario is used to shape public policy.R&D teams usually adopt one particular methodology to support resource allocation. However joint use of futures techniques helps if there is uncertainty over competing alternative technologies. Roadmapping often focuses on a single future. Scenario building as a Foresight technique introduces “multiple futures” thinking.     

Myopia, redistribution and pensions

This paper reviews a number of recent contributions that study pension design with myopic individuals. Its objective is to explore how the presence of more or less myopic individuals affects pension design when individuals differ also in productivity. This double heterogeneity gives rise to an interesting interplay between paternalistic and redistributive considerations, which is at the heart of most of the results that are presented. The main part of the paper is devoted to the issue of pension design when myopic individual do not save “enough” for their retirement because their “myopic self” (with a high discount rate) emerges when labor supply and savings decisions are made. Some extensions and variations are considered in the second part. In particular we deal with situations where labor disutility or preferences for consumption are subject to “habit formation” and where sin goods have a detrimental effect on second period health. Myopic individuals tend to underestimate the effects of both habit formation and sinful consumption, which complicates public policy.     

Free trade and European economic development in the 19th century

This article is an attempt to analyse empirically the effects of the free trade period which began around 1860 on three then “less developed” countries: France, Germany and Italy, and on the “developed” country: Great Britain.     

Does a ‘non-committed’ government always generate lower social welfare than its ‘committed’ counterpart? Strategic trade policy when consumer surplus matters

We show that social welfare in the setup where the government lacks the full ability to commit to its trade policies may exceed the social welfare when the government possesses full commitment power if consumer surplus is part of the social welfare function. This is never the case in the standard, “third market” framework of strategic trade policy. We provide two examples in which consumer surplus matters: the “home market” and the “intra-industry trade” setup. The policy instruments under consideration are import tariffs and export subsidies and there are R&D spillovers from the domestic to the foreign firm.     

Future fiscal and budgetary shocks

We study the effects of future tax and budgetary shocks in a non-monetary and possibly non-Ricardian economy. An (unanticipated) temporary labor tax cut to be effective on a given future date—a delayed “debt bomb”—causes at once a drop in the (unit) value placed on the firms' business asset, the customer, with the result that share prices, the hourly wage, and employment drop in tandem. This paradox of reduced activity through announcement of future “stimulus” does not hinge on an upward jump of long interest rates. A future tax-rate cut lacking a “sunset” provision has the same negative effects.     

Minimum wage,on-the-job search and employment: On the sectoral and aggregate equilibrium effect of the mandatory minimum wage

We study the impact of a minimum wage in a segmented labor market in which workers are at different stages of their careers. At the end of a learning-by-doing period, workers paid the minimum wage quit “bad jobs” for better-paying “good jobs”, following an on-the-job search process with endogenous search intensity. A rise in the minimum wage reduces “bad jobs” creation and prompts workers to keep their “bad jobs” by reducing on-the-job search intensity. The ambiguous impact on unqualified employment replicates and explains the findings of several empirical studies. However, a minimum wage rise reduces overall employment and output.     

Public debt and financial development

We examine the role of public debt in financial development. The literature has highlighted its supportive role through providing collateral and benchmark. We contrast this “safe asset” view to a “lazy banks” view: developing banking sectors that lend mainly to the public sector may develop more slowly, because it could make banks profitable but inefficient. Results from country-level and bank-level regressions are more supportive of the “lazy banks” view, but the “safe asset” view seems to play a role at moderate levels of public debt held by banks. There is also evidence of a harmful interaction between public debt and financial repression.