Pricing Vulnerable Options with Jump Clustering

This paper presents a valuation of vulnerable European options using a model with self‐exciting Hawkes processes that allow for clustered jumps rather than independent jumps. Many existing valuation models can be regarded as special cases of the model proposed here. Using numerical analyses, this study also performs sensitivity analyses and compares the results to those of existing models for European call options. The results show that jump clustering has a significant impact on the option value. © 2017 Wiley Periodicals, Inc. Jrl Fut Mark     

The Inefficiencies of Regionalised Milk Quota Trade

This paper estimates the inefficiencies associated with the regionalisation of the milk quota trade. An optimisation model is developed to estimate the economic value of quota. Quota values are aggregated to derive quota sale and purchase curves under two scenarios: first, where quotas can be traded nationally and second, where the trade of quota is regionally restricted. Quota trade is simulated and the consequent effects on supplier structure estimated. Through the derivation of sectoral cumulative cost curves it is possible to estimate the impact of regionalising quota trade on sector efficiency. The model is solved using National Farm Survey data from Ireland and the inefficiencies of regionalised quota trade in Ireland are estimated at €27 million. The paper concludes by discussing the implications of restricted quota trade, especially in the context of eventual quota removal.     

Multifractal Detrended Fluctuation Analysis of Return on Bitcoin*

We revisit the issue of market efficiency of Bitcoin, which is an important part of the new financial technology (FinTech), by analyzing the Bitcoin returns using two recently developed analytical techniques called bipower variation method and Multifractal Detrended Fluctuation Analysis (MF‐DFA). MF‐DFA allows us to analyze the return series in ways not possible using a monofractal analytical techniques such as detrended fluctuation analysis (DFA) and R/S method. The bipower variation method suggests that the Bitcoin returns are efficient and contain some large finite jumps. Using MF‐DFA, we find that the Bitcoin returns are multifractal and, therefore, the Bitcoin market is not efficient. By carrying out further analysis, we also find that the multifractility and inefficiency are caused by the autocorrelated returns as well as extreme returns.     

Financial deepening and economic growth

The core of Shapley–Shubik games and general equilibrium models with a Venn diagram is applied for a theory on the role of real finance in economic growth among advanced economies. Then the dynamic computable general equilibrium (DCGE) models for Germany, France, the UK, Japan and the USA are constructed to assess the validity of the over-financing hypothesis that has reappeared after the financial crisis of 2008. Actual financial deepening ratios observed in the nonconsolidated balance sheet of the OECD exceeded by factors of 3.5, 2.4, 5.1, 11.6 and 4.8 than the optimal financial deepening ratios implied by DCGE models, respectively, in these countries because of excessive leveraging and bubbles up to 19 times of GDP which were responsible for this great recession. Containing such massive fluctuations for macroeconomic stability and growth in these economies are not possible in conventional fiscal and monetary policy models and require a DCGE analysis like this along with adoption of separating equilibrium strategy in line of Miller–Stiglitz–Roth mechanisms to avoid problem of asymmetric information in the process of financial intermediation so that the gaps between actual and optimal ratios of financial deepening remain as small as possible.     

Could a Resource Export Boom Reduce Workers’ Earnings? The Labour-Market Channel in Indonesia

For a decade from 2000, Indonesia underwent a natural-resource export boom. Aggregate income rose, but real labour earnings stagnated. Employment rose, too, but mainly in low-skill sectors with predominantly informal employment arrangements. In this article, we reveal causal connections from the aggregate phenomenon of Dutch disease to these labour-market outcomes. We first explain broad sectoral trends, and then, integrating data from several national surveys, investigate sources of variation in boom-era labour earnings. We use instrumental variables to address issues of endogeneity and selection in earnings equations. After controlling for individual and district features, we find that the intensity of palm oil production—palm oil having been a key booming resource export—robustly predicts diminished formal employment, and that lower formality, in turn, robustly predicts lower earnings. Our findings establish causal linkages absent from prior studies, and so provide a structural dimension to ongoing debates over persistent poverty, rising inequality, and the lack of educational progress in Indonesia.     

Enhancing Park and Ride with access control: A case study of Southampton

Implementing and promoting more sustainable forms of urban transport are key policies of Local Authorities throughout the UK. Park and Ride (P&R) is one such system implemented widely in the UK, especially in historic towns and cities with limited road and parking space in the centre. Some cities (e.g. Rome and London) have also implemented forms of ‘access control’ to reduce congestion and/or pollution in central areas. This paper describes a feasibility analysis of a unique application studied for potential implementation in Southampton—the integration of P&R with access control on a key corridor in Eastern Southampton where traffic demand is likely to increase significantly in the coming years because of new housing developments. The system concept is a P&R facility with express buses to the City centre, keeping the corridor free-flowing for these buses (and other traffic) using a combination of bus lanes and access control.Following an outline of the policy context and system design, this paper then describes the corridor and network modelling undertaken to predict the impacts of the scheme and alternatives of it. This has been based mainly on the CONTRAM dynamic traffic assignment model, which covers the whole of Southampton and its surrounding motorway network. The assessment of the benefits of the various options in this scheme showed that the combination of P&R with signalised access control was the best option to improve the movement of people on the corridor. The paper concludes with a discussion of potential issues for implementation, including the need for complimentary measures and a consistent policy framework.     

Insider Trading and Earnings Management

Abstract:  This paper analyzes the relationship between earnings management and insider trading, specifically investigating whether discretionary accruals are related to insider trading and valuation. We find strong evidence of insiders managing earnings downward when buying and managing earnings upward when selling. On the marginal basis, value (high book-to-market value) firms manage their earnings upward compared to growth (low book-to-market value) firms, consistent with a signaling hypothesis. However, the opposite is true on the average basis, consistent with an opportunistic hypothesis.     

The role of labour demand elasticities in tax incidence analysis with heterogeneous labour

Whether labour bears full burden of household level income and consumption taxes ultimately depends on the degree of substitutability among different types of labour in production. We find more variation in incidence patterns across households with less than perfectly substitutable heterogeneous labour than with perfectly substitutable homogeneous labour in production. This finding is based on results obtained from homogeneous and heterogeneous labour general equilibrium tax models calibrated to decile level income and consumption distribution data of UK households for the year 1994. We use labour supply elasticities implied by the substitution elasticity in households' utility functions and derive labour demand elasticities from the substitution elasticity in the production function. First version received: March 1998/Final version received: April 1999     

Price Discovery in Interrelated Markets

In this study, we generalize the information share (IS) proposed by Hasbrouck (1995) and extended by Lien and Shrestha (2009). The new generalized information share (GIS) can be used to analyze the price discovery process in interrelated securities markets, whereas the previous two measures can only be applied to almost identical markets. Thus, using the GIS, we can analyze broader markets thereby improving our understanding of the price discovery process as well as the efficiency of securities markets. As an empirical demonstration of the proposed method, we apply the GIS to credit default swap (CDS) and bond markets, and find that for the majority of cases price discovery mostly takes place in the CDS markets. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 34:203–219, 2014