Transaction Costs,Option Prices,and Model Risk in Fair Value Accounting

This paper examines the reliability of option fair value estimates in the presence of transaction costs. The Black Scholes Merton (BSM) framework assumes zero transaction costs and thus might not provide a reasonable approximation in this context. We investigate the model adjustments companies make to their BSM models to deal with these transaction costs. We specifically examine Employee Stock Option (ESO) plans listed on the French stock exchange, as detailed disclosure on modeling is available for these ESOs. Our analysis questions the reliability of these model adjustments, especially their bias and the extent to which they provide a faithful representation of option fair values. Holding parameter values constant, we find that the model adjustments lead to a median understatement of 52% compared to the BSM model price, higher than the discount we observe for the opportunistic determination of model parameters (below 20%). The paper contributes to the fair value literature by highlighting model risk in the fair valuation of options. This model risk stems from assumptions made about the size of transaction costs and complements the notion of parameter risk analyzed in previous literature. As a result, the model itself might be a possible channel for fair value management.     

Pre-Kommunikation im Internet — Der BMW X1 trifft Kunden im Social Web

Kunden suchen heute verst?rkt im Social Web nach der Unterstützung anderer Kunden bei der Kaufentscheidung und entscheiden selbst, welche Inhalte sie über welche Kan?le abrufen. Unternehmen sollten daher das Social Web für die Pre-Kommunikation nutzen. Das Praxisbeispiel der BMW Group zeigt, wie man damit die Bekanntheit steigern und neue Zielgruppen erreichen kann.     

Trends towards regionalism in the world economy

The world economy has for some time been characterised by a growing generalised trend towards regionalism. This is often considered to be on a par with the formation of blocs, fragmentation of the trading system and a relapse into the disastrous conditions of the thirties. However, if regionalism is understood not as a defensive or aggressive policy of bloc building, as in the thirties, but as a regional grouping that is open towards the world economy, it appears to have something to offer as an alternative to the old international economic order.     

Notes on unequal exchange between developing and industrialised countries

Proponents of the theory of unequal exchange claim that the international division of labour is based on the exploitation of the developing countries by the industrialised countries. But the international division of labour allows the developing countries to import goods which they either could not produce themselves, or only at a higher price than they pay for the imports. The lower wage-levels in the developing countries may also help them to obtain employment at the expense of the industrialised countries. Low wages are therefore ultimately not a question of exploitation but of development priorities.     

Trans-frontier capital links between socialist enterprises

It seems reasonable to assume that the East European efforts concerning the functional viability of strictly socialist International Economic Organizations will also improve the chances for East-West corporations in the medium term. The further development of these organizations deserves therefore to be watched. Impulses radiating from this field may make it possible to change over to a qualitatively new kind of economic relations between East and West.     

International comparisons of common carrier rates and efficiency: The quest for objectivity

There have been few reliable comparisons of different countries' telephone rates, and fewer of the efficiency of their national common carriers. Yet such comparisons are needed if governments and others are to have objective yardsticks by which to judge the carriers' performance. The author reviews several of the more accurate comparative techniques now used in Europe, where the lack of effective control over public sector monopolies is becoming a major political issue in certain countries.