Two-dimensional risk-neutral valuation relationships for the pricing of options

The Black–Scholes model is based on a one-parameter pricing kernel with constant elasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel with at least two parameters. We price European-style options on assets whose probability distributions have two unknown parameters. We assume a pricing kernel which also has two unknown parameters. When certain conditions are met, a two-dimensional risk-neutral valuation relationship exists for the pricing of these options: i.e. the relationship between the price of the option and the prices of the underlying asset and one other option on the asset is the same as it would be under risk neutrality. In this class of models, the price of the underlying asset and that of one other option take the place of the unknown parameters.      

On the Importance of Sectoral and Regional Shocks for Price‐Setting

We use novel disaggregate sectoral‐regional euro‐area data to investigate the sources of price changes, introducing a new method to extract factors from overlapping data blocks that allows for estimation of aggregate, sectoral, country‐specific and regional components of price changes. Our sectoral component explains much less variation in disaggregate inflation rates and exhibits much less volatility and more persistence than previous findings for the US indicate. Country‐ and region‐specific factors play an important role, emphasizing heterogeneity of inflation dynamics along both sectoral and geographical dimensions. Our results are incompatible with basic sticky‐information or Calvo‐type price‐setting models, but require multi‐sector, multi‐country models. Copyright © 2015 John Wiley & Sons, Ltd.     

Measuring long-run marketing effects and their implications for long-run marketing decisions

This paper discusses the role of agents’ beliefs and their implications for the economic modeling of their behavior, in particular, their behavior over time. The paper also discusses the corresponding planning problems facing both firms and consumers in their current decision making. After a general discussion of the consumer and firm problem, we discuss recent examples of some of the emerging empirical literature on dynamic choice behavior in marketing.     

Background risk and the demand for state-contingent claims

Summary. We consider the demand for state-contingent claims, in the presence of an independent zero-mean, non-hedgeable background risk. An agent is defined to be generalized risk averse if he/she chooses a demand function for contingent claims with a smaller slope everywhere, given a simple increase in background risk. We show that the conditions for standard risk aversion, that is positive, declining absolute risk aversion and prudence, are necessary and sufficient for generalized risk aversion.Received: 13 February 2002, Revised: 10 February 2003, JEL Classification Numbers: D52, D81, G11. Correspondence to: Guenter FrankeWe are grateful to Louis Eeckhoudt, Christian Gollier, Harris Schlesinger and an unknown referee for valuable comments.     

Weekend vs. midweek stays: Modelling hotel room rates in a small market

Using a hedonic model, we estimate the willingness to pay for different hotel characteristics for a small market environment. We uniquely collected a data set from a meta-booking engine including their detailed customer review ratings compiled from numerous individual hotel search engines. We argue that meta-search engines are well suited to gather prices to be used in hedonic models. In our estimation, we distinguish hedonic models for single room stays during the week potentially relevant for business travellers and double room stays during the weekend intended for leisure. Important determinants of hotel room prices are popularity ratings (derived from customer reviews), the hotel star rating, weeks of advance booking, and certain hotel characteristics such as express checkout, room service, or Internet access. A number of important characteristics such as wellness offers or wireless Internet in the rooms are insignificant pointing to the conclusion that these may be regarded as standard attributes and do not fetch additional economic value in terms of higher consumer willingness to pay.     

The effects of political, economic and institutional development on international banks

For the most part, the international banking system operated in a predictable manner seeking to maximize profitability and extend the reach, if not the grasp, of the individual banking institutions. Now, in the summer of 1983, we face a series of related economic and financial problems for which there is no simple solution and certainly no single solution. What must evolve is a series of governmental and banking policies and pratices which will first address the short-term problems but in a manner which will be consistent with long-term objectives. The banking system and individual banks must be given full assistance to deal with liquidity problems. The supervisory authorities must also insure that the banking system as a whole remains solvent. But where bad management decisions have destroyed the net worth of a bank — no matter how large — the supervisory authorities must permit such an institution to be reorganized. Banks are only part of the private sector if they are vulnerable, as every other company in the private sector is, to the fear of bankruptcy.