Optimal No‐Arbitrage Bounds on S&P 500 Index Options and the Volatility Smile

This article shows that the volatility smile is not necessarily inconsistent with the Black–Scholes analysis. Specifically, when transaction costs are present, the absence of arbitrage opportunities does not dictate that there exists a unique price for an option. Rather, there exists a range of prices within which the option's price may fall and still be consistent with the Black–Scholes arbitrage pricing argument. This article uses a linear program (LP) cast in a binomial framework to determine the smallest possible range of prices for Standard & Poor's 500 Index options that are consistent with no arbitrage in the presence of transaction costs. The LP method employs dynamic trading in the underlying and risk‐free assets as well as fixed positions in other options that trade on the same underlying security. One‐way transaction‐cost levels on the index, inclusive of the bid–ask spread, would have to be below six basis points for deviations from Black–Scholes pricing to present an arbitrage opportunity. Monte Carlo simulations are employed to assess the hedging error induced with a 12‐period binomial model to approximate a continuous‐time geometric Brownian motion. Once the risk caused by the hedging error is accounted for, transaction costs have to be well below three basis points for the arbitrage opportunity to be profitable two times out of five. This analysis indicates that market prices that deviate from those given by a constant‐volatility option model, such as the Black–Scholes model, can be consistent with the absence of arbitrage in the presence of transaction costs. © 2001 John Wiley & Sons, Inc. Jrl Fut Mark 21:1151–1179, 2001     

Ecomagination — Ein Unternehmen positioniert sich nachhaltig

Zusammenfassung  Nachhaltigkeit hat sich zu einer Art Mantra für das 21. Jahrhundert entwickelt. Damit steigt für Unternehmen der Erkl?rungsbedarf gegenüber der ?ffentlichkeit: Wie nachhaltig ist ihr eigenes wirtschaftliches Handeln? Verantwortungsbewusster Umgang mit natürlichen Ressourcen wird zunehmend zu einer Herausforderung von existenzieller Bedeutung. Unternehmen sollten die eigene Positionierung an diese Entwicklungen anpassen. Ein Beispiel für eine erfolgreiche Nachhaltigkeitspositionierung ist das Umweltengagement von General Electric.     

Mentoring and Practical Wisdom: Are Mentors Wiser or Just More Politically Skilled?

Mentoring is a natural setting for senior employees to render ethics advice and consultation to junior employees. Two studies examined the question of whether those who mentor are more practically wise than those who do not. Although four different measures of practical wisdom were used, no differences were detected. However, mentors were shown to be more politically skilled than non-mentors.     

An Economic Analysis of Housing Abandonment

Landlord abandonment of rental housing has affected many American cities since the 1960's. Because of data limitations, there have been few empirical analyses of the determinants of housing abandonment. In this paper, we use a rich database that contains information on individual residential properties in New York City to estimate a reduced form model of owner abandonment. We model an owner's decision to abandon his or her property as being similar to an investor's decision to exercise a put option on a financial instrument. When required to pay delinquent taxes, a wealth-maximizing landlord has an incentive to cede ownership of his or her residential property when the value of all outstanding liens exceeds the property's market value. Estimates from the model are used to examine whether empirical evidence supports this option model of abandonment.     

Quality oriented value and performance drivers

The quality endeavors of an organization, like other enterprise activities, must be oriented towards the economic principles. This approach gives a way to many organizations to question the extent to which the quality management contributes for the overall business success and to pin point the areas where particularly a high value or performance can be created in order to attain the maximum possible economic benefits out of quality management systems. Without including the answer of this question in the decision making process, the resources can not be allocated optimally for the quality purpose. Quality management activities create variety of effects that indirectly contributes towards the economic success and thus increase the company and stakeholder value. A closer look at the quality management philosophy reveals eight major principles namely： customer focus, leadership, involvement of people, process approach, system approach to management, continual improvement, factual approach to decision making, mutually beneficial supplier relationships. These eight principles lead the efforts in the domain of quality management to project a positive impact on the company. For an understanding of response relationships, it is necessary to consider in detail the indicators along the response relationships. They provide helpful clues and give an insight into the complex mechanisms of action of the quality approaches on the path to the company＇s success. The following illustration depicts how the quality based activities generate the value to enhance the performance and a variety of indicators reflects how they indirectly add value to an organization and hence contribute to its economic success.