Model misspecification analysis for bond options and Markovian hedging strategies

In this paper, we analyse the model misspecification risk of Markovian hedging strategies for discount bond options. We show how to decompose the Profit and Loss that results from model misspecification, and emphasize the importance of the position’s gamma in order to control it. We further provide mathematical results on the distribution of the forward Profit and Loss function for specific univariate term structure models. Finally, we run numerical simulations for options’ hedging strategies in order to examine the sensitivity of the forward Profit and Loss function with respect to the volatility of the forward rate curve, the frequency of the position rebalancing and the characteristics of the position being hedged.      

BREAKING DOWN A LONG-RUN MARGINAL COST OF AN LP INVESTMENT MODEL INTO A MARGINAL OPERATING COST AND A MARGINAL EQUIVALENT INVESTMENT COST

In linear programming, a simple observation on duality allows us to break down a long-run marginal cost into a marginal operating cost and a marginal equivalent investment cost. This marginal equivalent investment cost is an acceptable means of allocating the equivalent investment cost to the different finished products (and similarly for the marginal operating cost). It is useful for determining the products on which a sales campaign should focus and for analyzing short-run marginal costs once an investment decision has been taken. As an example, we will examine a simplified investment model in the oil refining industry.     

Professional mismanagement: The skill wastage in employment

Absenteeism and overmanning occur in management too, as do collusive games that give a false impression of the manager's worth and the professional's relevance. New forms of employment contract are one way to alleviate the problem.     

THE STRUCTURE OF NON-INDUSTRIAL ORGANIZATIONS

O rganization structure is determined by the interaction of several variables. Woodward's work suggested that technology is one of the most important and this study attempts to extend her findings from the industrial to the non-manufacturing sphere. The results show that structure does relate to task within the non-manufacturing group — but that taken as a whole the structures of the non-manufacturing group differ from all those Woodward found in manufacture. Some of these differences are seen to derive from the relative simplicity of the non-manufacturing technology. Others can be traced to the operation of intervening variables.     

Genetically modified crops as real options: Identifying regional and country-specific differences

This paper employs real options methodology for evaluating profitability of genetically modified (GM) crops in volatile market and regulatory environments. Observed instances of market entry, or product introduction, are viewed as outcomes of profit maximizing decisions based on comparison of market entry costs, expected future returns, and the value of managerial flexibility. The process is estimated using simulated maximum likelihood. The estimates suggest that, in the developing countries, the downward volatility of the returns is higher resulting in lower adoption rates, whereas the environment in the top four industrialized GMO adopting countries appears to be costlier but much more optimistic. Commercial success of GM soybean and maize in Argentina, Brazil, and the U.S. is explained mostly by a combination of high upward return volatility and moderate entry costs. The findings may contribute to the general understanding, measurement, and possibilities of controlling the rate of technical advance in biotechnology.     

A Lagrangian heuristic for the real-time vehicle rescheduling problem

When a public transit vehicle breaks down on a scheduled trip, one or more vehicles need to be rescheduled to serve that trip and other service trips originally scheduled for the disabled vehicle. In this paper, the vehicle rescheduling problem (VRSP) is investiaged to consider operating costs, schedule disruption costs, and trip cancellation costs. The VRSP is proven to be NP-hard, and a Lagrangian relaxation based insertion heuristic is developed. Extensive computational experiments on randomly generated problems are reported. The results show that the Lagrangian heuristic performs very well for solving the VRSP.     

DESIGNING AND MANAGING MULTIPLE PIPELINES

There is a growing recognition that supply chains should be designed from “the customer backwards” rather than from “the company outwards.” If such a view is accepted then the implication is that since the organization will likely be serving multiple markets or segments, there will be the need to design and manage multiple pipelines to serve those different customers. To assist decision makers in their choice of appropriate supply chain design, a framework is proposed based upon multiple criteria. A case study is presented which highlights the benefits of selecting, engineering, and operating multiple pipelines tailored to the needs of the marketplace.     

SAVINGS BEHAVIOR IN 17 OECD COUNTRIES

This article compares savings behavior in a sample of 17 OECD countries over 24 years. On the basis of an analysis of variance and of a life-cycle-hypothesis-based equation, we test the homogeneity of households' savings behavior. It appears that one cannot really speak of a homogeneous saving behavior across countries. This is a relevant finding in times of increasing economic and financial integration.