Pareto-Improving Redistribution in a Monopoly

This paper discusses the impact of income transfers between consumers of a monopoly. In this context, redistributing the incomes could induce an increase of the demand elasticity which leads to a lower monopoly price, beneficial to any consumer. Under mild assumptions on the demand function, we prove the existence of a transfer maximizing the market coverage which remains advantageous for any contributing consumer. It is proved that the producer is also better off. Then the transfer is Pareto-improving. In the linear demand case, analytical results are found. Extensions to Cournot oligopoly and natural monopoly pricing are considered.
JEL Classification Numbers: D31, D64, H2, L13     

BILATERAL COUNTERPARTY RISK UNDER FUNDING CONSTRAINTS—PART II: CVA

The correction in value of an over‐the‐counter derivative contract due to counterparty risk under funding constraints is represented as the value of a dividend‐paying option on the value of the contract clean of counterparty risk and excess funding costs. This representation allows one to analyze the structure of this correction, the so‐called Credit Valuation Adjustment (CVA for short), in terms of replacement cost/benefits, credit cost/benefits, and funding cost/benefits. We develop a reduced‐form backward stochastic differential equations (BSDE) approach to the problem of pricing and hedging the CVA. In the Markov setup, explicit CVA pricing and hedging schemes are formulated in terms of semilinear partial differential equations.     

New Salary Functions for Pension Valuations

Abstract

This paper investigates salary functions as used in the valuation of pension plans. Pension actuaries as well as researchers in actuarial science may find many of the ideas in this article useful. The main conclusion of this paper is that salary functions, as derived from the parametric models, yield gains and losses that can be quite small and, in some cases, less variable than nonparametric methods. This paper starts by defining the salary function as an accumulation function based on inflation and merit. Next, we investigate traditional estimation methods in the context of this definition. We then present a parametric age-based model for the salary function and compare it with a parametric service-based model. Finally, we apply real pension plan data to derive age-and service-based salary functions and, through the use of two funding methods, investigate how these salary functions affect salary gains and losses.     

Condorcet cycles in bipartite populations

Summary. Simple majority voting between pairs of alternatives is used to aggregate individual preferences. The occurence of Condorcet cycles is limited thanks to a principle of homogeneity on individual preferences. The restrictions induced on the domain of the latters are weak: among the n! possible orderings of n alternatives, more than one half are admissible within a domain. The resulting aggregated preference has then a neglectable probability of showing up cycles. We show moreover that the set of individual preferences can be `naturally' partitioned into two such domains. Received: June 17, 1996; revised version: April 15, 1997     

MULTIFRACTIONAL STOCHASTIC VOLATILITY MODELS

The aim of this work is to advocate the use of multifractional Brownian motion (mBm) as a relevant model in financial mathematics. mBm is an extension of fractional Brownian motion where the Hurst parameter is allowed to vary in time. This enables the possibility to accommodate for varying local regularity, and to decouple it from long‐range dependence properties. While we believe that mBm is potentially useful in a variety of applications in finance, we focus here on a multifractional stochastic volatility Hull & White model that is an extension of the model studied in Comte and Renault. Using the stochastic calculus with respect to mBm developed in Lebovits and Lévy Véhel, we solve the corresponding stochastic differential equations. Since the solutions are of course not explicit, we take advantage of recently developed numerical techniques, namely functional quantization‐based cubature methods, to get accurate approximations. This allows us to test the behavior of our model (as well as the one in Comte and Renault) with respect to its parameters, and in particular its ability to explain some features of the implied volatility surface. An advantage of our model is that it is able both to fit smiles at different maturities, and to take volatility persistence into account in a more precise way than Comte and Renault.     

When Borch's Theorem Does Not Apply: Some Key Implications of Market Incompleteness,with Policy Relevance Today

Markets are incomplete when the assets available to the agents do not span the space of future contingencies. In that case, competitive equilibria on the markets for assets and commodities fail (generically) to be constrained efficient. Pareto‐superior allocations can be implemented through price/wage rigidities and quantity constraints. However, nominal rigidities are conducive to multiple equilibria, implying endogenous macroeconomic uncertainties that compound the primitive (exogenous) uncertainties. This paper defines a temporary general equilibrium for which there exists a set of equilibria defining an inflation – unemployment locus. Various policy implications are drawn, with relevance to the current crisis.     

Revisiting the trans-situationality of values in Schwartz’s Portrait Values Questionnaire

Quality & Quantity - Schwartz in his famous theory of basic values follows Parsons and Rokeach in arguing that human values are trans-situational or context free. For any individual, the same...     

A Career Path Leading to Well‐being and Success

In line with self‐determination theory (Deci & Ryan, 2000), this study aims to determine the influence of different contents and motives of career aspirations, together with objective career success, on subjective career success and well‐being. Moreover, it aims to verify if psychological need, satisfaction, and frustration play a mediating role in these relationships. Results suggest that the pursuit of some aspirations and the underlying motives for their pursuit are more beneficial. Aspiration contents, and aspiration motives, together with objective career success, influence subjective well‐being and subjective career success, in part because they satisfy or frustrate psychological needs. This study brings together two fields of research evolving in parallel—career and life aspirations— to shed new light on both of them. Copyright © 2018 ASAC. Published by John Wiley & Sons, Ltd.