Proving regularity of the minimal probability of ruin via a game of stopping and control

We reveal an interesting convex duality relationship between two problems: (a) minimizing the probability of lifetime ruin when the rate of consumption is stochastic and the individual can invest in a Black–Scholes financial market; (b) a controller-and-stopper problem, in which the controller controls the drift and volatility of a process in order to maximize a running reward based on that process, and the stopper chooses the time to stop the running reward and pays the controller a final amount at that time. Our primary goal is to show that the minimal probability of ruin, whose stochastic representation does not have a classical form as does the utility maximization problem (i.e., the objective’s dependence on the initial values of the state variables is implicit), is the unique classical solution of its Hamilton–Jacobi–Bellman (HJB) equation, which is a non-linear boundary-value problem. We establish our goal by exploiting the convex duality relationship between (a) and (b).     

Endogenous Firm Objectives

We analyze the behavior of a monopolistic firm in general equilibrium when the firm's decisions are taken through shareholder voting. We show that, depending on the underlying distribution, rational voting may imply overproduction as well as underproduction, relative to the efficient level. Any initial distribution of shares is an equilibrium, if individuals do not recognize their influence on voting when trading shares. However, when they do, and there are no short–selling constraints, the only equilibrium is the efficient one. With short–selling constraints typically underproduction occurs. It is not market power itself causing underproduction, but the inability to perfectly trade the rights to market power.     

Achieving the Millennium Development Goals in Sub‐Saharan Africa: A Macroeconomic Monitoring Framework

This paper presents a macroeconomic approach to monitoring progress toward achieving the Millennium Development Goals (MDGs) in Sub‐Saharan Africa. At the heart of our framework is a macro model which captures key linkages between foreign aid, public investment (disaggregated into education, infrastructure and health), the supply side and poverty. The model is then linked through cross‐country regressions to indicators of malnutrition, infant mortality, life expectancy and access to safe water. A composite MDG Indicator is also calculated. The functioning of our framework is illustrated by simulating the impact of an increase in foreign aid to Niger at the MDG horizon of 2015, under alternative assumptions about the degree of efficiency of public investment. Our approach can serve as the building block for Strategy Papers for Human Development (SPAHD), a more encompassing concept than the current ‘Poverty Reduction’ Strategy Papers.     

Portfolio greenness and the financial performance of REITs

This paper investigates the effects of the energy efficiency and sustainability of commercial properties on the operating and stock performance of a sample of US REITs, providing insight into the net benefits of green buildings. We match data on LEED- and Energy Star-certified buildings with detailed information on REIT portfolios and calculate the share of green properties for each REIT over the 2000–2011 period. We estimate a two-stage regression model and document that the greenness of REITs is positively related to three measures of operating performance – return on assets, return on equity and the ratio of funds from operations to total revenue. We also document that there is no significant relationship between the greenness of property portfolios and abnormal stock returns, suggesting that stock prices already reflect the higher cash flows deriving from investments in more efficient properties. However, REITs with a higher fraction of green properties display significantly lower market betas.     

Organizational forms in the knowledge economy: a comparative institutional analysis

This paper provides a framework with which to analyze organizational forms in the knowledge economy. We focus on an important trade-off facing modern firms: firms can acquire the property of all the innovations developed by their employees and can greatly increase their profits, yet this type of private intellectual property rights regime can discourage the innovative effort of the very same workers. Allowing workers to carry their knowledge outside the firm eliminates this disincentive. Hence, strategic complementarities may exist between innovative partners and a disclosure driven intellectual property rights regime, and passive employees and a private intellectual property rights regime. An evolutionary game theoretic model demonstrates these strategic complementarities and shows when economies tend towards disclosure driven or private intellectual property rights regimes.     

Political risk in private participation projects: The effects of political discretionality and corruption

This article investigates the impact of political risk on the performance of private participation infrastructure projects in emerging markets. Previous studies have shown that firms in regulated sectors are prone to employ political capabilities in their investments overseas. Our analysis of 32,257 projects in 114 emerging countries from 1997 to 2013 shows that higher political discretionality in the host country is negatively associated with project completion. In contrast, a higher level of corruption in the host country is positively associated with project completion. The study makes a contribution to the literature on political risk in foreign direct investments.     

PRICING ASIAN OPTIONS FOR JUMP DIFFUSION

We construct a sequence of functions that uniformly converge (on compact sets) to the price of an Asian option, which is written on a stock whose dynamics follow a jump diffusion. The convergence is exponentially fast. We show that each element in this sequence is the unique classical solution of a parabolic partial differential equation (not an integro‐differential equation). As a result we obtain a fast numerical approximation scheme whose accuracy versus speed characteristics can be controlled. We analyze the performance of our numerical algorithm on several examples.     

No arbitrage conditions for simple trading strategies

Strict local martingales may admit arbitrage opportunities with respect to the class of simple trading strategies. (Since there is no possibility of using doubling strategies in this framework, the losses are not assumed to be bounded from below.) We show that for a class of non-negative strict local martingales, the strong Markov property implies the no arbitrage property with respect to the class of simple trading strategies. This result can be seen as a generalization of a similar result on three dimensional Bessel process in Delbaen and Schachermayer (Math Finance 4:343–348, 1994). We also provide no arbitrage conditions for stochastic processes within the class of simple trading strategies with shortsale restriction.     

Effects of spatial experiences & cognitive styles in the solution process of space-based design problems in the first year of architectural design education

There are many factors that influence designers in the architectural design process. Cognitive style, which varies according to the cognitive structure of persons, and spatial experience, which is created with spatial data acquired during life are two of these factors. Designers usually refer to their spatial experiences in order to find solutions to design problems. Information recalled from past spatial experiences lay the ground for creating the conceptual framework when solving a design problem. In addition, the person’s cognitive style, which develops through factors such as education, environment, genetics and family, can also be effective in solving design problems. In this line, an empirical study was conducted to research the effects of spatial experiences and cognitive styles on the solution process of spatial design problems in the first year of architectural design education. The study concluded that the cognitive styles of students were effective on their space creation method, order and duration.     

Telecommunications Policy Reform in Turkey

This paper, considering the economic effects of liberalisation in the telecommunications sector on the Turkish economy, makes use of the empirical studies on the linkages between regulatory regimes and telecommunications prices. Since Turkey is trying to liberalise the telecommunications sector by following the EU approach to liberalisation, the paper considers briefly the regulatory regimes in the telecommunications sectors of the EU and Turkey, determines the ad valorem equivalent of barriers to the telecommunications services sector in Turkey, and derives estimates of the welfare effects of adopting the EU rules and regulations in the Turkish telecommunications sector. It shows that there is tremendous scope for Turkey to benefit from adopting and implementing the legislative, regulatory and institutional framework of the EU telecommunications sector.