Multi-tranche securitisation structures: more than just a zero-sum game?

This paper explains multi-tranche structuring and the yield that securitisation bonds offer by incorporating several factors into a comprehensive model. Results indicate that the degree of complexity of multi-tranche securitisation structures is related to market completeness and solving information asymmetry problems. We also find that the complexity of multi-tranche structure enables the yield offered by triple-A bonds to be reduced but not the average yield, concluding that tranching is a zero-sum game. This research uses a database comprising of all the MBS and ABS issues (1993–2011) in Spain, one of the world’s main securitisation markets. Analysing this long period has allowed us, for the first time, to contrast the Great Financial Crisis (GFC) disruptive effect on the analysed relationships in the securitisation market.     

Localised Estimates of Dynamics of Multi‐dimensional Disadvantage: An Application of the Small Area Estimation Technique Using Australian Survey and Census Data

Deep and persistent disadvantage is an important, but statistically rare, phenomenon in the population, and sample sizes are usually not large enough to provide reliable estimates for disaggregated analysis. Survey samples are typically designed to produce estimates of population characteristics of planned areas. The sample sizes are calculated so that the survey estimator for each of the planned areas is of a desired level of precision. However, in many instances, estimators are required for areas of the population for which the survey providing the data was unplanned. Then, for areas with small sample sizes, direct estimation of population characteristics based only on the data available from the particular area tends to be unreliable. This has led to the development of a class of indirect estimators that make use of information from related areas through modelling. A model is used to link similar areas to enhance the estimation of unplanned areas; in other words, they borrow strength from the other areas. Doing so improves the precision of estimated characteristics in the small area, especially in areas with smaller sample sizes. Social science researchers have increasingly employed small area estimation to provide localised estimates of population characteristics from surveys. We explore how to extend this approach within the context of deep and persistent disadvantage in Australia. We find that because of the unique circumstances of the Australian population distribution, direct estimates of disadvantage have substantial variation, but by applying small area estimation, there are significant improvements in precision of estimates.     

The value of information in cross-listing

Until 2004, the London Stock Exchange allowed firms to be traded in the specialized SEAQ-I platform without the firm's involvement. Trading only required an application by one LSE trading member firm. Such an institutional arrangement, which made cross-listings possible without a firms' approval, allows for a direct test of different theories of foreign listing. In particular, we can differentiate between market segmentation and liquidity hypotheses, which rely on a firm trading in a foreign exchange and informational hypotheses, which assume that a firm makes the decision to trade in a foreign exchange. We identify a sample of international firms that are admitted to trading on London's SEAQ-I platform without their involvement. We estimate the valuation effects of this multi-market trading event and compare them to those enjoyed by firms that pursue a standard London Stock Exchange cross-listing. A cross-sectional abnormal returns analysis documents significant evidence in support of information-related hypotheses of cross-listing. An analysis of the firms' home market price volatility corroborates the results.     

Computationally simple lattice methods for option and bond pricing

We propose new lattice-based algorithms for option and bond pricing, which rely on computationally simple trees, i.e., trees with the number of nodes that grows at most linearly in the number of time intervals. Contrary to commonly used methods, the target diffusion is approximated directly, without having to transform the original process into a constant volatility process. The discrete approximating process converges to the target continuous process, and the proposed algorithms are shown to be efficient and accurate for pricing purposes.     

Dynamic appraisal of infrastructure investments

The assessment of the reciprocal impacts of infrastructure investments and their socio-economic environment requires that a number of such aspects be simultaneously considered. Some of those aspects, however, have not been traditionally incorporated in such assessments due (in part) to the limitations inherent in the techniques utilized in current practice. This paper presents a conceptual framework for the use of dynamic simulation in the assessment of packages of infrastructure investments. The concepts are then applied to case studies involving the evaluation of coordinated sets of infrastructure projects in rural areas.     

Additional utility of insiders with imperfect dynamical information

In this paper we consider a market driven by a Wiener process where there is an insider and a regular trader. The insider has privileged information which has been deformed by an independent noise vanishing as the revelation time approaches. At this time, the information of every trader is the same. We obtain the semimartingale decomposition of the original Wiener process under dynamical enlargement of the filtration, and we prove that if the rate at which the additional noise in the insiders information vanishes is slow enough then there is no arbitrage and the additional utility of the insider is finite.Received: 1 October 2003, Mathematics Subject Classification: 60G48, 90A09, 60H07, 90A60JEL Classification: D82, G11, G14     

Creditor Protection and Credit Response to Shocks

This article studies the relationship between creditor protectionand credit responses to macroeconomic shocks. Using a data seton legal determinants of finance in a panel of data on aggregatecredit growth for 79 countries during 1990–2004, it isshown that credit is more responsive to external shocks in countrieswith weak legal creditor protection and weak enforcement. Theresults are statistically and economically significant and robustto alternative measures of creditor protection, to the inclusionof variables that reflect different stages of economic development,to the restriction of the sample to only developing economies,to the controls for systemic crises, to alternative shock measures,and to vector autoregressive specifications.     

Economic Democracy, Social Dialogue, and Ethical Analysis: Theory and Practice

The purpose of this article is to present in a summarized form a new approach to the ethical analysis of economic policies and to illustrate its importance with a reference to recent experiences of social dialogue in Costa Rica.A general view of the Latin American scenario is presented, with the belief that some of the main problems there observed call for a type of analysis like the one here proposed. In the second place, a brief characterization of this new ethical analysis is included.Democracy suffers from the existence of asymmetries in social and economic relationships, insofar as the success of political democracy cannot be neither understood nor built up independently from economic democracy. The strengthening of democratic processes in Latin America requires a better understanding and consolidation of the relationship between political democracy and economic democracy. On the other hand, present orientation of globalization makes of the international environment an obstacle to realize democracy at a national level. Hence, two focus of interest arise for the ethical analysis of economics at the macroeconomic level: the study of the ethical conditions of participation for each country in the globalization process, and the realization of an economic democracy within each particular country.After identifying both lines of reflection, this article summarizes the theoretical basis of a proposal for the ethical analysis of economic policy making. This approach attempts to answer the challenges of economic democratization. Centered on the ethical dimension of these processes, and from the point of view of a dialogical ethics, stress is given to those aspects of the process which will guarantee the ethical character of the consequences. This is a methodological approach which tries to discover the ethical values feasible within the economic policies and, at the same time, to go in greater depth in the construction of democratic practices. Rooted in the Latin American regional reality, this academic reflection is just in its beginning and must be considered as complementary to the business ethics analysis already developed in Latin America and Spain.A reference to recent experiences of social dialogue in Costa Rica gives the theoretical presentation a support for the acceptance of its realization in practice.     

A spatial high-resolution model of the dynamics of agricultural land use

An area model is presented for agricultural land use, based on a generalized linear mixed model. This model is spatially explicit and dynamic and, although it uses aggregated data, allows for heterogeneity of behavior among individual farmers. The parameters of the fixed component of the model are obtained using an estimation equations approach, and the structure of spatiotemporal correlation is assessed using empirical semivariograms. The model is illustrated using as an example the dynamics of agricultural land use in the Lower Guadalquivir area in Spain. A simulation study indicates that the model gives poor results if the heterogeneity of individual behavior and spatiotemporal autocorrelation are ignored.     

Excess Burden of Taxation and Environmental Policy Mix with a Consumer‐Friendly Firm

This study examines the environmental policy mix of tradable emission permits and emission taxes in a duopoly model with a consumer‐friendly firm. We analyse the interplay of the two policies and the welfare consequences in the presence of excess burden of taxation. We show that an emission tax can be redundant when both the excess burden of taxation and the degree of consumer friendliness are insignificant. However, when the excess burden of taxation is significant, tradable permits policy with tax treatment should be applied to enhance welfare in the presence of a consumer‐friendly firm. Finally, under the tax revenue‐neutral case where the excess burden of taxation does not matter, the environmental policy mix is also efficient if the degree of consumer friendliness is sufficiently high.