The DOHA Round of Multilateral Negotiations and the Embellishing Role of the Developing Economies

Despite unanswered questions about causality, trade expansion is associated with rapid real GDP growth in the developing economies. While the WTO's mandate is to liberalize multilateral trade and support its rule-based conduct, its operations have definite development relevance. After a history of non-participation in the multilateral trading system, the developing economies began to participate in it in almost an explosive manner. Several developing economies have not only emerged as important traders since the mid-1980s but as G-21 they have also made their presence felt in the on-going multilateral trade negotiations. They made decisive contributions to the July Framework Agreement of 2004. The role of the developing economies in the Doha Round of multilateral trade negotiations has gone on steadily growing. It has been christened the Development Round. It deals with several areas of special interests to the developing economies—agriculture, non-agricultural market access and services being some of the more important ones—and eventually hopes to correct the imbalances in the multilateral trade regime. A successful Doha Round would indeed contribute favorably to growth, have a discernable favorable impact over the incidence of poverty and help in achieving the first MDG.     

Stock Return Characteristics, Skew Laws, and the Differential Pricing of Individual Equity Options

This article provides several new insights into the economicsources of skewness. First, we document the differential pricingof individual equity options versus the market index and relateit to variations in return skewness. Second, we show how riskaversion introduces skewness in the risk-neutral density. Third,we derive laws that decompose individual return skewness intoa systematic component and an idiosyncratic component. Empiricalanalysis of OEX options and 30 stocks demonstrates that individualrisk-neutral distributions differ from that of the market indexby being far less negatively skewed. This article explains thepresence and evolution of risk-neutral skewness over time andin the cross section of individual stocks.     

OPTION PRICING USING THE TERM STRUCTURE OF INTEREST RATES TO HEDGE SYSTEMATIC DISCONTINUITIES IN ASSET RETURNS1

This paper demonstrates the use of term-structure-related securities in the design of dynamic portfolio management strategies that hedge certain systematic jump risks in asset return. Option pricing formulas based on the absence of arbitrage opportunities in this context are also developed. the analysis is for the case where assets returns are driven by a finite number of Brownian motions and an m-variate point process. the inclusion of :the additional traded assets in the term structure makes it possible to hedge systematic jumps imbedded in the m variate point process.     

Co-Integration and Causality Testing of the Energy–GDP Relationship: A Cross-Country Study

In this paper, the energy–GDP relationship (in per capita terms) is analysed for a sample of 16 countries, over the time period 1950–51 to 1984–85. Co-integration theory is first used to test whether a long-run equilibrium relation exists between the two variables. After co-integration has been established, causality measures are constructed to quantify various types of feedback between energy and GDP for each country. It is then examined whether the causality measures are longitudinally related to certain basic economic indicators of the countries in the sample.     

A note on sufficient conditions for no arbitrage

It is shown that the absence of call spread, butterfly spread and calendar spread arbitrages is sufficient to exclude all static arbitrages from a set of option price quotes across strikes and maturities on a single underlier.     

A Discrete Time Equivalent Martingale Measure

An equivalent martingale measure selection strategy for discrete time, continuous state, asset price evolution models is proposed. The minimal martingale law is shown to generally fail to produce a probability law in this context. The proposed strategy, termed the extended Girsanov principle, performs a multiplicative decomposition of asset price movements into a predictable and martingale component with the measure change identifying the discounted asset price process to the martingale component. However, unlike the minimal martingale law, the resulting martingale law of the extended Girsanov principle leads to weak form efficient price processes. It is shown that the proposed measure change is relevant for economies in which investors adopt hedging strategies that minimize the variance of a risk adjusted discounted cost of hedging that uses risk adjusted asset prices in calculating hedging returns. Risk adjusted prices deflate asset prices by the asset's excess return. The explicit form of the change of measure density leads to tractable econometric strategies for testing the validity of the extended Girsanov principle. A number of interesting applications of the extended Girsanov principle are also developed.     

The evolution of renminbi yuan and the protracted debate on its undervaluation: An integrated review

For virtually a decade, the undervaluation of RMB yuan has become an issue of impassioned debate in international monetary economics. This issue kept the academic and policy circles engrossed in argumentative deliberations. That RMB yuan is undervalued is widely acknowledged. With China's emergence as an economic superpower of the future, this debate no doubt has considerable merit and ramifications. This article examines sang-froid the RMB yuan undervaluation and provides a review of recent and on-going research on it. The mid-2005 currency revaluation and modification of foreign exchange regime has enormous significance in this regard. It became a defining moment in the RMB yuan debate.This article attempts to examine whether accusations of currency manipulation made against China can hold, or are merely disingenuous. It encourages the reader to see whether the RMB yuan should be further appreciated. If yes, whether the misalignment is inordinately large or of incidental order which would be corrected with the passage of time. A good number of econometric exercises were undertaken, using differing methodologies. There was a complete lack of consensus on the misalignment of the RMB yuan. It has slowly appreciated since it abandoned its dollar peg in 2005. As the Chinese economy picks up further growth momentum, the currency appreciation is expected to accelerate.     

How behavioral decision research can enhance consumer welfare: From freedom of choice to paternalistic intervention

Decision-making researchers have largely focused on showing errors and biases in consumers' decision-making processes without paying much attention to the social welfare and policy implications of these systematic behaviors. In this paper, we explore how findings and methods in behavioral decision research can be used to help consumers improve their decision making and enhance their well-being. We first review select findings in behavioral decision research to explain why consumers need help in decisions, and based on these findings, suggest various interventions that could be effective within the scope of libertarian paternalism. Ethics and effectiveness of the interventions are also discussed.     

Profit Multiplier in Covered Currency Trading with Leverage

Currency trading, fully hedged with forward contracts and propelled by leverage, is enunciated within a microstructure of trade in foreign exchange with real-time data from Reuters data banks, and verified with banks and exchange dealers, first without and then with transactions costs. It is shown that iterative trading operations compound net profits significantly, and the existing academic maxim on arbitrage is thus raised to a new height—both in terms of theory and practice.