Expected exponential utility maximization of insurers with a Linear Gaussian stochastic factor model

In this paper, we consider the problem of optimal investment by an insurer. The wealth of the insurer is described by a Cramér–Lundberg process. The insurer invests in a market consisting of a bank account and m risky assets. The mean returns and volatilities of the risky assets depend linearly on economic factors that are formulated as the solutions of linear stochastic differential equations. Moreover, the insurer preferences are exponential. With this setting, a Hamilton–Jacobi–Bellman equation that is derived via a dynamic programming approach has an explicit solution found by solving the matrix Riccati equation. Hence, the optimal strategy can be constructed explicitly. Finally, we present some numerical results related to the value function and the ruin probability using the optimal strategy.     

Cultural differences in perceptions of environmental problems

A comparative survey study of environmental perceptions and beliefs was conducted in Japan and in two New York State countries in 1974. While the samples and the instruments were not strictly comparable, there was sufficient comparability to compare perceptions about the seriousness of the environmental problem, perceptions of the quality of various environmental elements, the definition of the environmental problem, the causes of the environmental problem, attitudes toward governmental action to solve environmental problems, and citizen activity with respect to the environmental problem. Some general findings are that the definition of the environmental problem is culture bound. That we cannot expect people to support strong environmentally protective actions by governments until they perceive a clear and present danger. That if people perceive environmental damage to be caused by the social, economic, and political system, they will look to the system for the solution and will take little personal action to alleviate the problem. We had held a hope that mankind might take a more thoughtful and planned approach to a new environmentally protective social order; this hope received little encouragement from what we have learned in this study.     

A two-stage procedure for partially identified models

This paper studies a two-stage procedure for estimating partially identified models, based on Chernozhukov, Hong, and Tamer’s (2007) theory of set estimation and inference. We consider the case where a sub-vector of parameters or their identified set can be estimated separately from the rest, possibly subject to a priori restrictions. Our procedure constructs the second-stage set estimator and confidence set by taking appropriate level sets of a criterion function, using a first-stage estimator to impose restrictions on the parameter of interest. We give conditions under which the two-stage set estimator is a set-valued random element that is measurable in an appropriate sense. We also establish the consistency of the two-stage set estimator.     

Efficiency in a search and matching model with training costs

This paper studies the efficiency of the search and matching model with training costs. I incorporate productivity enhancing firm-specific skill training into the search and matching model of Pissarides (2000). I demonstrate that while the decentralized economy can be efficient if training costs are not sunk at the time of wage determination, the decentralized economy is not efficient due to a hold-up problem if training costs are sunk.     

Expressions of forward starting option price in Hull–White stochastic volatility model

Decisions in Economics and Finance - We are interested in problems related to forward starting options for Hull–White stochastic volatility model. Our objective is to obtain analytical,...     

Repetitive Advertising to Deter Entry

This paper develops a model in which advertising not only informs consumers of brands, but also can influence consumer brand choices through its repetition. By examining a multi‐stage game in which two firms sequentially advertise before simultaneously setting a price, we show that repetitive advertising can be a legitimate entry‐deterrence weapon available to an incumbent in subgame perfect equilibrium. This demonstrates that firms’ conduct of advertising repetition has anticompetitive implications.     

“Down-Side Risk” Probability Minimization Problem with Cox-Ingersoll-Ross’s Interest Rates

With a bank account and a risky stock, both of which are affected by Cox-Ingersoll-Ross’s interest rates, we treat two “down-side risk” minimization problems of the large deviation probability for long-term investment. Explicit solutions of the problems are given by solving the associated risk-sensitive portfolio optimization problems.     

Variety expansion,preference shocks,and financial intermediaries

We investigate the effect of lifetime uncertainty on economic growth by incorporating preference shocks into a variety-expansion model and comparing financial autarky and financial intermediaries. In this economy, long-term investment facilitates the promotion of R&D investment and the creation of new differentiated goods. Our results suggest that when risk aversion is high, an increase in number of differentiated goods slows down R&D investment through a decrease in the price index. Further, if the risk of early withdrawal and the liquidation cost of long-term investment are high, financial intermediaries have significant effects on the growth of variety.     

Productivity growth,on-the-job search,and unemployment

The impact of long-run productivity growth on unemployment is studied. We incorporate disembodied technological progress and on-the-job search into the endogenous job separation model of Mortensen and Pissarides (1994). Because we include on-the-job search, faster growth reduces unemployment by decreasing job separation and inducing job creation. The incorporation of on-the-job search substantially improves the ability of the Mortensen and Pissarides model to explain the effect of growth on labor market variables. Specifically, our model generates not only an empirically consistent sign of the effect, but also a larger impact of growth on unemployment than the standard matching model.     

Incomplete market participation, endogenous endowment risks and welfare

This paper investigates the equilibrium growth rate of capital stock and social welfare when risk-sharing externalities are incorporated into the infinite-horizon model where endowment risks are endogenized by the degree of incomplete market participation. There exist Nash equilibria depending on the degree of market participation. Under equilibrium with incomplete market participation, the endowment risks cannot be fully diversified as they induce precautionary savings and the over-accumulation of capital stocks while spillover effects on production technologies lead to the under-accumulation of capital stocks. This may have desirable effects on economic growth and improve social welfare.