Gaussian process regression for pricing variable annuities with stochastic volatility and interest rate

Decisions in Economics and Finance - In this paper, we investigate value and Greeks computation of a guaranteed minimum withdrawal benefit (GMWB) variable annuity, when both stochastic volatility...     

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Pensions reforms,workforce ageing and firm-provided welfare

This paper investigates the impact of an exogenous increase in the legal retirement age on the firms’ propensity to provide welfare services voluntarily to their employees. To this purpose we exploit a unique information derived from the Rilevazione su Imprese e Lavoro (RIL), a survey conducted in 2015 on a large and representative sample of Italian firms. Applying different regression models we show that firms which were forced to give up previously planned hirings because of the Law 201/2011 (the so-called ‘Fornero pension reform’), increased the probability of providing welfare services at workplace. By referring to the sociological, human resource management and economic literature we then argue that a sudden increase in the legal retirement age may motivate the employers to establish welfare schemes as a way to cope with an ageing workforce. Our findings also hold when propensity score matching methods are used in order to control for sample selection issues.     

The Real Equilibrium South African Rand/US Dollar Exchange Rate: A Comparison of Alternative Measures

This article indicates how different measures of the real exchange rate, i.e., the exchange rate adapted for cost inflation, price inflation and labour costs, influence the equilibrium view and misalignment of the South African rand/US dollar exchange rate. The approach followed is based on the behavioural equilibrium exchange rate approach by Clark and MacDonald (1998), where the exchange rate is influenced by a number of fundamental and transitory factors. The real equilibrium exchange is estimated by using a single equation regression and a number of key explanatory variables. To determine the long-run relationship a Vector Error Correction Mechanism is used.     

Forecasting the diffusion of photovoltaic systems in southern Europe : A learning curve approach

Most analysts disagree upon whether photovoltaic systems (PV) will be able to play an important role in the energy scenarios of the future. A few scholars also question the appropriateness of policies that envisage the use of public subsidies to stimulate the growth of this industry and to accelerate market penetration. This paper contributes to this debate by examining whether carefully designed policies may initiate a process of large-scale diffusion of grid-connected PV, even without the deployment of external subsidies. Building upon a disaggregated characterization of the electricity market, it takes endogenously into account the learning curve phenomenon and simulates the diffusion of PV building-integrated systems in five European countries. The analysis is restricted to crystalline silicon systems and is repeated under four different macroeconomic scenarios corresponding to four different energy policies. The results suggest that already today there are opportunities for PV diffusion in many islands of the Mediterranean region, which may trigger sufficient scale economies to render the technology competitive in larger markets. They also show that the diffusion process could be accelerated through the implementation of carbon-tax policies that support initial penetration. The environmental benefits (net avoided CO₂ emissions over the system life cycle) associated with the forecasted penetration are also evaluated.     

Evolution of trade patterns in the new EU member states

The paper analyses the evolution of the trade specialization pattern in the new EU member states. Relying on the empirical approach of the Markov transition matrices it analyses both the changes in the external shape of the distribution of comparative advantages and the intra‐distribution dynamics. The new members show a dynamic trade pattern: they gained comparative advantages relatively fast in sectors in which they were lagging behind at the beginning of the transition, notably in some ‘high tech’ products. In addition, many specialization improvements occurred in those items for which world demand expanded at the fastest rate over the nineties.     

Explaining momentum profits with an epidemic diffusion model

We show that information diffusion is a function of its dissemination and assimilation. Whereas dissemniation is a function of observable factors such as volume and price volatility, assimilation is dependent on unobservable factors such as the usefulness and reliability of information. We find that buying low volume (or low volatility) past losers and shortselling low volume (or low volatility) past winners generates a positive net return across the entire sample period and especially during bear markets. Second, buying high volatility past winners and shortselling high volatility past losers generates a positive net return, especially during bear markets.     

The Austrian theory of the cooperative firm

This paper draws on Wicksell's Value, Capital and Rent. The (comparative-statics) response of the cooperative to a change in its parameters (capital stock, rate of interest paid on capital stock, and production function) is examined. Severe employment problems may be expected if, in a cooperative setting, the rate of interest is, by macroeconomic management, kept at a relatively low level. Technological progress also may lead to a contraction in employment and even, under some circumstances, cause a decline in output per man. The cooperative is throughout contrasted with its capitalist counterpart.     

Valuing Mortgage Insurance Contracts in Emerging Market Economies

We develop a new option-based method for the valuation of mortgage insurance contracts in closed form in an economy where agents are risk neutral. While the proposed valuation method is general and can be used in any market, it may be particularly useful in emerging market economies where other existing methods may be either inappropriate or are too difficult to implement because of the lack of relevant data. As an application, we price a typical Serbian government-backed mortgage insurance contract.