Canonical valuation and hedging of index options

Canonical valuation is a nonparametric method for valuing derivatives proposed by M. Stutzer (1996). Although the properties of canonical estimates of option price and hedge ratio have been studied in simulation settings, applications of the methodology to traded derivative data are rare. This study explores the practical usefulness of canonical valuation using a large sample of index options. The basic unconstrained canonical estimator fails to outperform the traditional Black–Scholes model; however, a constrained canonical estimator that incorporates a small amount of conditioning information produces dramatic reductions in mean pricing errors. Similarly, the canonical approach generates hedge ratios that result in superior hedging effectiveness compared to Black–Scholes‐based deltas. The results encourage further exploration and application of the canonical approach to pricing and hedging derivatives. © 2007 Wiley Periodicals, Inc. Jnl Fut Mark 27: 771–790, 2007     

The Economics Of Compatibility Standards: An Introduction To Recent Research 1

This paper surveys the contributions that economists have made to understanding standards-setting processes and their consequences for industry structure and economic welfare. Standardization processes of four kinds are examined, namely: (1) market competition involving products embodying unsponsored standards, (2) market competition among sponsored (proprietary) standards, (3) agreements within voluntary standards-writing organizations, a18d (4) direct governmental promulgation. The major trajectories along which research has been moving are described and related to both the positive and the normative issues concerning compatibility standards that remain to be studied.     

Creating Economic Advantage By Setting Compatibility Standards: Can ‘Physical Tie-Ins’ Extend Monopoly Power?

The paper deals with the micro-economics of interface manipulation, i.e. the design of the interface between two products to enhance the profits accruing to the firm controlling the design. Taking several alleged instances of ‘physical tie-ins’ as a reference point, it argues that economist's usual treatment of ‘tie-ins’ and bundling is inappropriate for these cases, and it proposes an alternative model. The model identifies the circumstances under which interface manipulation will yield competitive advantages to an integrated system designer. It also focuses on the limits placed on such behavior by the demand for ‘backward compatible’ components. The model's implications are then examined for the light they shed on arguments about the plausibility of ‘leveraging’–i.e. the use of monopoly power in one component market to gain monopoly power in a complementary component market. The paper concludes that the notion of leveraging can be given analytical substance, but emphasizes that the concept should be used with some care.     

Linking management behavior to ethical philosophy

This study investigates current linkages between ethical theory and management behavior. The vignettes used in this investigation represent ethical dilemmas in the areas of coercion and control, conflict of interest, physical environment, and personal integrity. The results indicate that even with the heightened state of ethical awareness that has evolved in recent years the link between ethical philosophy and management behavior remains basically the same as it was in the mid 1980s. Specifically, practitioners still rely almost totally on the utilitarian ethical philosophy when making business decisions.Shane R. Premeaux is a Professor of Marketing, and the Associate Dean at McNeese State University, Lake Charles, Louisiana. He is an avid author with over fifty articles appearing in such journals asPersonnel, Peronnel Journal, Personnel Administrator, Transportation Journal, theLogistics and Transportation Review, and theJournal of Small Business Management. He has also co-authored books entitled:Personal Selling: Function, Theory, and Practice, 3rd ed.,Supervision, 2nd ed.,Human Resources Management, 4th ed.,Management and Organization Behavior, 1st ed., andManagement Concepts, Practices, and Skills, 5th ed.R. Wayne Mondy is a Professor of Management and Dean of the College of Business at McNeese State University. Dr. Mondy has authored or co-authored seven college textbooks, two trade books, fifty-one articles, and twenty papers. Dr. Mondy is an avid author with numerous articles in various refereed journals. He has coauthored the following books:Staffing the Contemporary Organization, 1st ed.,Personal Selling: Function, Theory, and Practice, 3rd ed.,Supervision, 2nd ed.,Human Resources Management, 4th ed.,Management and Organizational Behavior, 1st ed., andManagement Concepts, Practices, and Skills, 5th ed.     

Application of the DIERS methodology to the study of runaway polymerization: Validation of the DIERS methodology using blow-down tests

The Design Institute for Emergency Relief Systems (DIERS) and more recently the DIERS Users Group have been investigating various aspects of emergency relief for more than 12 years. The DIERS programs have given rise to an in-depth understanding of the basic mechanism of how runaway thermal reactions are safely vented. In concert with the development of the understanding of the venting mechanism, DIERS also developed experimental procedures and computational techniques for estimating emergency vent sizes.     

Dealer attention,the speed of quote adjustment to information,and net dealer revenue

Using trade and quote data from the NYSE, we examine the relation between dealer attention, dealer revenue, and the probability of informed trade. We find that dealer revenue net of losses to better-informed traders in NYSE stocks is positively related to the speed at which quotes adjust to full information levels. The speed of quote adjustment is faster for stocks with greater dealer attention, as measured by a stock’s relative prominence at its post and panel location on the NYSE floor. The level of dealer attention in turn is positively related to a stock’s probability of information-based trading. The results are consistent with a theoretical model we derive in which dealers trade multiple securities and must optimally allocate their limited attention to monitoring order flow to minimize losses to better-informed traders.     

The Determinants of Underpricing for Seasoned Equity Offers

Seasoned offers were underpriced by an average of 2.2 percent during the 1980s and 1990s, with the discount increasing substantially over time. The increase appears to be related to Rule 10b‐21 and to economic changes affecting both IPOs and SEOs. Consistent with temporary price pressure, underpricing is positively related to offer size especially for securities with relatively inelastic demand. Underpricing is also positively related to price uncertainty and, after Rule 10b‐21, to the magnitude of preoffer returns. Additionally, I find that underpricing is significantly related to underwriter pricing conventions such as price rounding and pricing relative to the bid quote.     

Entry into the Schooling Market: How is the Behaviour of Private Suppliers Influenced by Public Sector Decisions?

This research examines the location choice of private schools entering the California schooling market in 1979–80. We find that entrants are more likely to locate in public school districts with lower levels of per–pupil expenditure and higher fractions of public school students who reside in low–income households. In addition, we provide evidence of differences in the responsiveness of different types of private schools to the underlying conditions. Also, in comparing our results to those of previous research, we find that the determinants of the location choices of entrants appear to be the same as the determinants of the location pattern of incumbent private schools.     

How many singularities are near and how will they disrupt human history?

This paper reviews a large number of approaches that have been used for considering technologically driven profound societal change. We agree with Vinge's suggestion for naming events that are “capable of rupturing the fabric of human history” (or leading to profound societal changes) as a “singularity”. This is a useful terminology especially since a mathematically rigorous singularity seems impossible for technological and related societal change. The overview of previous work is done within the context of a broader look at the role of technological change within human history. The review shows that a wide variety of methods have been used and almost all point to singularities in the present century particularly in the middle of the century. The diversity of the methods is reassuring about the potential robustness of these predictions. However, the subjectivity of labeling events as singularities (even well studied past events) is a concern about all of the methods and thus one must carefully pause when relying in any way on these predictions. The general lack of empirical research in this area is also a concern.Quantitative considerations (by proponents and opponents) about past singularities or future singularities often confound two types of metrics. The first type is essentially related to diffusion of technologies (or bundles of technologies) where the logistic curve is empirically well established as the proper time dependence. The second type of metric is for technological capability where hyper-exponentials are empirically well established for their time dependence. In this paper, we consider two past singularities (arguably with important enough social change to qualify) in which the basic metric is alternatively of one type or another. The globalization occurring under Portuguese leadership of maritime empire building and naval technological progress is characterized by a metric describing diffusion. The revolution in time keeping, on the other hand, is characterized by a technological capability metric. For these two cases (and thus robust to the choice of metric type), we find that:

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  People undergoing profound technologically-driven societal change do not sense a singularity.

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  The societal impacts depend in complicated ways on human needs, institutional variables and other more uncertain factors and thus are particularly hard to project;

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  The societal impact is apparently not determined by the rate of progress on either type of metric or by projections to mathematical points with either kind of metric. This finding supports the existing concept that social change due to technology is a more holistic phenomenon than can be characterized by any technical metric.

In the final section, we use these empirical findings as the basis for exploring the possibilities for and nature of future singularities. In this we speculate that the potential for a future strong singularity based upon computational capability does not appear particularly probable but that one may already be occurring and is not fully noticed by those (us) going through it. Other possible 21st century singularities (life extension and fossil fuel elimination are two examples considered) may also be already underway rather than waiting for the predicted mid-century changes.     

A polymorphism associated with entrepreneurship: evidence from dopamine receptor candidate genes

The tendency to be an entrepreneur may be influenced by genetic variation. Sensation seeking is more common among entrepreneurs than among the general population. Twin studies show that the tendency to be an entrepreneur is heritable and that common genes influence both sensation seeking and entrepreneurial tendency (Nicolaou et al. Manag Sci 54:167–179, 2008a; Strateg Entrep J 2:7–21, 2008b). Since dopamine receptor genes have been associated with novelty seeking/sensation seeking (Benjamin et al. Nat Genet 12:81–84, 1996; Ebstein et al. Nat Genet 12:78–80, 1996; Noblett and Coccaro Curr Psychiatry Rep 7:73–80, 2005), and attention deficit hyperactivity disorder (ADHD) has been reported to occur at greater rates among entrepreneurs, we examined the association between five dopamine receptor genes and four ADHD-associated genes, with the tendency to be an entrepreneur in a sample of 1,335 individuals from the UK. We found a single nucleotide polymorphism (rs1486011) of the DRD3 gene on chromosome 3 to be significantly associated with the tendency to be an entrepreneur. This result is the first evidence of the association of a specific gene with entrepreneurship. Further studies are needed to replicate this association.