Amazing discovery: Vincenz Bronzin’s option pricing models

In 1908, Vinzenz Bronzin, a professor of mathematics at the Accademia di Commercio e Nautica in Trieste, published a booklet in German entitled Theorie der Prämiengeschäfte (Theory of Premium Contracts) which is an old type of option contract. Almost like Bachelier’s now famous dissertation (1900) [Bachelier, Louis, 1900, 1964. Théorie de la speculation, Annales Scientifiques de l’ Ecole Normale Supérieure, Paris, Ser. 3, 17, pp. 21–88. (English translation in: The random character of stock market prices (Ed. Paul Cootner), MIT-Press (1964), pp. 17–79)], the work seems to have been forgotten shortly after it was published. However, almost every element of modern option pricing can be found in Bronzin’s book. In particular, he uses the normal distribution to derive a pricing equation which comes surprisingly close to the Black–Scholes–Merton formula.     

Measuring the part worth of the mode of transport in a trip package: An extended Bradley–Terry model for paired-comparison conjoint data

This study measures the travelers' perceived change in utility by accepting one of the modes of transport air, rail, or bus as one component of a packaged city trip. The part-worth values for the trip product elements are expected to depend on a number of traveler characteristics. The predictors hypothesized are city travel experience, general modal preference, socio-economic status, and car ownership. In the survey, the combinations of trip attributes differed between the two subgroups of leisure and business travelers. The leisure travelers rated three levels of mode, length of stay, and price, but only one level of the hotel category. The business travelers were shown four mode alternatives and only two levels for each of the other trip product elements. The conjoint measurements were elaborated by fitting an Extended Bradley–Terry Model. Demonstrating the application of the EBTM is the main purpose of the paper. The EBTM offers several advantages over the more popular versions of conjoint analysis. It correctly treats ties and allows for simultaneous estimation of the trip package (‘object’) parameters, object covariates (trip attributes), subject covariates (traveler characteristics) and their interactions. For both the business and the leisure travelers, the mode of transport dominated the assessment of a city trip package. For leisure tourists, e.g., switching from train 2nd class to an economy flight boosted the trip package more than twice as much as replacing train for bus. A variation of the package price was much more important for the leisure than for the business travelers. The socio-economic status proved to be an important factor and was particularly influential among the business travelers. In the leisure tourists' sub-sample age was not only important for valuing the mode of transport, but had a preferential impact for all trip components. Finally, the limitations of this demonstration study that discourage extrapolation to city travelers in general are emphasized.     

German exports and economic development

The influence of the export trade on the economic development since 1974 shows how greatly economic activities in the Federal Republic of Germany depend upon the situation abroad. In this context the author analyses the regional distribution and the goods structure of German exports and discusses their medium-term prospects.     

Sales Forecasting in High-Technology Markets: A Utility-Based Approach

Accurate sales projections are of vital importance to the profitability and long‐term survival of high‐tech companies. This is especially true in the growth stage of product innovation, because major investments and marketing decisions are made in this phase. By examining recent empirical studies focusing on consumer behavior in high‐technology markets, several factors are identified that can affect individual buying decisions and aggregate sales, namely, interpersonal communication, democratization of innovation, direct and indirect network effects, forward‐looking behavior, and consumer heterogeneity. Against this background the diffusion‐modeling and the utility‐based approach are reviewed in terms of their basic conception and their applicability to the markets concerned. Based on this investigation a sales forecasting model for high‐tech products, specifically in the growth stage, is developed. The model has a utility‐theoretic background and a logistic structure. Since data are scarce in this early stage of the product life cycle two versions of the new approach are discussed, an extended version considering forward‐looking behavior and a more parsimonious (“myopic”) one. The performance of the new model is demonstrated using real sales data on the CD player, the DVD player/recorder, and the digital camera market. The empirical comparisons include alternative specifications of the Bass diffusion model as well as a proportional hazard model and consist of two steps. First, the models are checked as to whether they are able to represent the sales data at all. It is shown that both versions of the proposed model are at least equivalent, if not superior, to the models used as benchmarks in terms of fit. In the next step, the models are applied to predict future sales in the three markets. The resulting forecasts show that the proposed model performs significantly better than its benchmarks. Its parsimony enables reliable predictions, even in cases, where only short time series are available for parameter estimation. The model is able to anticipate decreasing diffusion rates as they occur at the end of the growth stage and, thus, helps to avoid overoptimistic sales forecasts, which may cause severe economic damages. The new approach is easy to calibrate and can be applied without specialized econometric expertise.     

Technology spillover effects and economic integration: evidence from integrating EU countries

The article uses time series for the period 1981–2008 to estimate the impact of foreign technology spillover effects on Greece, Ireland, Portugal and Spain, representing the integrating European Union (EU) countries. I restrict technology diffusion to EU-12 countries and compare the results to unrestricted technology diffusion from a sample of 32 OECD countries. Accounting for nonstationarity and co-integration, the dynamic OLS estimator is used to estimate the impact of foreign R&D stock on labour productivity, taking into account patent-, trade- and FDI-related technology diffusion channels. I find empirical evidence for trade-related foreign technology spillover effects for Greece and Ireland if technology diffusion is unrestricted. Restricting technology diffusion to EU-12 countries, there are significant foreign technology spillover effects from European integration for Portugal (patent related) and Spain (trade and FDI related). Moreover, the domestic R&D stock and education are significant drivers for labour productivity in integrating EU countries. The empirical results are robust for different regression specifications and sources of technology diffusion.     

Attitudes Towards Genetically Modified Food with a Specific Consumer Benefit in Food Allergic Consumers and Non‐food Allergic Consumers

The aim of the reported study was to investigate attitudes towards genetically modified food with a specific consumer benefit. Fifty food allergic and one hundred non‐allergic consumers took part in a telephone interview study in each of Austria, Spain and the Netherlands. Participants were first asked about their purchase intentions for an unspecified genetically modified food. Next, participants were asked about their purchase intentions for a genetically modified food with a specific consumer benefit. Food allergic consumers were asked about ‘low‐allergen food’ produced using genetic modification and non‐allergic consumers were asked about ‘food that benefits your health’ produced using genetic modification. It was found that intention to purchase genetically modified food with these specific benefits was higher than intention to purchase an unspecified genetically modified food.     

Was bringt eine geänderte Ertragskompetenz bei der Einkommensteuer? — eine Replik

The Reply

The reform proposal would complicate the rules for sharing income tax revenues. The measures proposed are not compatible with the rules set out in the German Federal Constitution and the relevant decisions of the Constitutional Court. The states would lose tax revenues, whereas the federal government would gain them. As to individual states, the financially strong ones would be the losers, despite the fact that economic strength and financial strength should be significantly related.

The Response

Future fiscal equalisation in Germany requires not only a new equalisation formula but also a fairer, more equal, broader and more transparent tax base for states and local governments. If necessary, changes to the Federal Constitution should be undertaken to achieve a more equal vertical assignment of tax powers. The actual reform discussion should not be a confrontation between rich and poor states but should lead to a financial constitution by 2020 which can be unanimously approved by all of the German states.     

Structural analysis of portfolio risk using beta impulse response functions

We estimate the data generating process of daily excess returns of 20 major German stocks in a CAPM framework with time varying betas. Our sample spans a 23 year period from 1974 to 1996. An asymmetric dependence of volatility on lagged innovations is taken into account. We introduce beta impulse response functions to shed light on the structural implications of systematic risk associated with competing volatility models. The dependence of beta on news is characterized with respect to different sources (asset specific vs. market general news). The empirical results suggest that negative news emerging from the market involve a stronger impact on beta relative to positive news. Concerning firm specific news the opposite relation is found for the majority of the analysed data sets.     

Dynamic stochastic copula models: estimation,inference and applications

We propose a new dynamic copula model in which the parameter characterizing dependence follows an autoregressive process. As this model class includes the Gaussian copula with stochastic correlation process, it can be viewed as a generalization of multivariate stochastic volatility models. Despite the complexity of the model, the decoupling of marginals and dependence parameters facilitates estimation. We propose estimation in two steps, where first the parameters of the marginal distributions are estimated, and then those of the copula. Parameters of the latent processes (volatilities and dependence) are estimated using efficient importance sampling. We discuss goodness‐of‐fit tests and ways to forecast the dependence parameter. For two bivariate stock index series, we show that the proposed model outperforms standard competing models. Copyright © 2010 John Wiley & Sons, Ltd.     

The optimum currency area theory and the EMU

The eurozone crisis has revealed certain shortcomings of the EMU, such as its vulnerability to asymmetric shocks and its inability to act as predicted by the theory of optimum currency areas. Although the share of intra-EU trade has increased since the introduction of the euro, dissimilarities in economic structure combined with high degrees of industrial specialisation have increased the EMU’s vulnerability to asymmetric shocks. Moreover, the lack of labour mobility or a transfer payment system limits the EMU’s crisis adjustment capabilities. However, most of the implemented and proposed stabilisation measures seek to remedy this vulnerability by promoting economic integration, further fiscal discipline and debt redemption.