Pricing equity default swaps under the jump-to-default extended CEV model

Equity default swaps (EDS) are hybrid credit-equity products that provide a bridge from credit default swaps (CDS) to equity derivatives with barriers. This paper develops an analytical solution to the EDS pricing problem under the jump-to-default extended constant elasticity of variance model (JDCEV) of Carr and Linetsky. Mathematically, we obtain an analytical solution to the first passage time problem for the JDCEV diffusion process with killing. In particular, we obtain analytical results for the present values of the protection payoff at the triggering event, periodic premium payments up to the triggering event, and the interest accrued from the previous periodic premium payment up to the triggering event, and we determine arbitrage-free equity default swap rates and compare them with CDS rates. Generally, the EDS rate is strictly greater than the corresponding CDS rate. However, when the triggering barrier is set to be a low percentage of the initial stock price and the volatility of the underlying firm’s stock price is moderate, the EDS and CDS rates are quite close. Given the current movement to list CDS contracts on organized derivatives exchanges to alleviate the problems with the counterparty risk and the opacity of over-the-counter CDS trading, we argue that EDS contracts with low triggering barriers may prove to be an interesting alternative to CDS contracts, offering some advantages due to the unambiguity, and transparency of the triggering event based on the observable stock price.     

Management sub-advising in the mutual fund industry

This is a study of how contractual mechanisms can mitigate agency conflicts in sub-advised mutual funds. Sub-advising contracts allow fund families to expand their product offerings to include new investment styles and thereby gain market share. We show that costly contractual arrangements, such as co-branding, multi-advising, and performance-based compensation, can mitigate agency conflicts in outsourcing and protect investors from potential underperformance. Fund families will find it cost-effective to implement such incentive mechanisms only when investors are sophisticated in assessing manager skill. The findings help to explain why a large percentage of fund families outsource their funds to advisory firms.     

Service Regulations,Input Prices and Export Volumes: Evidence from a Panel of Manufacturing Firms

Using a panel of firm‐level data from Spanish manufacturers, this study shows that better service regulation reduces the price of intermediate inputs paid by downstream firms. The beneficial cost effects of services reforms extend to both large and small‐to‐medium sized corporations (SME’s), but the former tend to enjoy greater gains. This feature also manifests itself in international markets. We find evidence of an input cost channel through which service regulations affect the volume of exports of large manufacturers, while the evidence of such a channel is weaker for SME’s. Our estimates indicate that, from 1991 to 2007, large firms increased their volume of exports by an average of 20 per cent as a result of the direct input cost effect of services reforms, such that the firms that benefited the most typically belonged to industries more dependent on service inputs. Furthermore, convergence to the ‘best practice’ regulatory framework in services would have raised exports at least by an additional nine per cent. We conclude that firm size is relevant for the connection between services reforms, intermediate input prices and export volumes.     

A Simultaneous-Equations Model of Trade, Conflict, and Cooperation

A simultaneous-equations model is developed for the reciprocal relationship among bilateral trade value, conflict, and cooperation by modeling the actions of exporters, importers, and governments. The model is estimated separately for each of the dyads among the US, the USSR, China, Japan, and (West) Germany for the yearly data from 1948 to 1992. The direction of the effects of conflict or cooperation on trade and that of trade on conflict or cooperation are generally mixed, as expected. Certain reciprocal relationship patterns emerge depending on whether countries belong to the East or West block.     

Happiness perception in Spain,a SEM approach to evidence from the sociological research center

Quality & Quantity - In the current study, we examined the relationship between perceived person happiness and factors that influence this perception, also, is inferred that life satisfaction...     

A discrete choice experiment to assess patients’ preferences for HIV treatment in the urban population in Colombia

Abstract

Aim: This study aimed to assess patients’ preferences for HIV treatment in an urban Colombian population.

Methods: A Discrete Choice Experiment (DCE) was conducted. Urban Colombian HIV patients were asked to repetitively choose between two hypothetical treatments that differ in regard to five attributes ‘effect on life expectancy’, ‘effect on physical activity’, ‘risk of moderate side effects, ‘accessibility to clinic’ and ‘economic cost to access controls’. Twelve choice sets were made using an efficient design. A Mixed Logit Panel Model was used for the analysis and subgroup analyses were performed according to age, gender, education level and sexual preference.

Results: A total of 224 HIV patients were included. All attributes were significant, indicating that there were differences between at least two levels of each attribute. Patients preferred to be able to perform all physical activity without difficulty, to have large positive effects on life expectancy, to travel less than 2?h, to have lower risk of side-effects and to have subsidized travel costs. The attributes ‘effect on physical activity’ and ‘effects on life expectancy’ were deemed the most important. Sub-analyses showed that higher educated patients placed more importance on the large positive effects of HIV treatment, and a more negative preference for subsidized travel cost (5% level).

Limitations: A potential limitation is selection bias as it is difficult to make a systematic urban/rural division of respondents. Additional, questionnaires were partly administered in the waiting rooms, which potentially led to some noise in the data.

Conclusions: Findings suggests that short-term efficacy (i.e. effect on physical activity) and long-term efficacy (i.e. effect on life expectancy) are the most important treatment characteristics for HIV urban patients in Colombia. Preference data could provide relevant information for clinical and policy decision-making to optimize HIV care.     

A discrete choice experiment to assess patients’ preferences for HIV treatment in the rural population in Colombia

Abstract

Aim: To elicit patients’ preferences for HIV treatment of the rural population in Colombia.

Methods: A discrete choice experiment (DCE), conducted in a HIV clinic in Bogotá, was used to examine the trade-off between five HIV treatment attributes: effect on life expectancy, effect on physical activity, risk of moderate side-effects, accessibility to clinic, and economic costs to access controls. Attributes selection was based on literature review, expert consultation and a focus group with six patients. An efficient experimental design was used to define two versions of the questionnaire with each of 12 choice sets and a dominance task was added to check reliability. A mixed logit model was then used to analyse the data and sub-group analyses were conducted on the basis of age, gender, education, and sexual preference.

Results: A total of 129 HIV patients were included for analysis. For all treatment attributes, significant differences between at least two levels were observed, meaning that all attributes were significant predictors of choice. Patients valued the effect on physical activity (conditional relative importance of 27.5%) and the effect on life expectancy (26.0%) the most. Sub-group analyses regard age and education showed significant differences: younger patients and high educated patients valued the effect on physical activity the most important, whereas older patients mostly valued the effect on life expectancy and low educated patients mostly valued the accessibility to clinic.

Limitations: One potential limitation is selection bias, as only patients from one HIV clinic were reached. Additionally, questionnaires were partly administered in the waiting rooms, which potentially led to noise in the data.

Conclusions: This study suggests that all HIV treatment characteristics included in this DCE were important and that HIV patients from rural Colombia valued short-term efficacy (i.e. effect on physical activity) and long-term efficacy (i.e. effect on life expectancy) the most.     

Cost of doing business index in Latin America

Quality & Quantity - The World Bank's Ease of Doing Business Index (EDBI) has been widely used in analyzes of attracting investments and formulating public policies. Despite its importance...     

Macroeconomic performance and convergence in OECD countries

This paper investigates the robustness of the correlation between growth and a set of variables which comprises accumulation rates in human and physical capital and medium term macroeconomic indicators in OECD countries. We include these variables as additional regressors in the standard growth equation that comes from the human capital-augmented Solow model. Our results show that variables related to medium term macroeconomic performance affect both growth and convergence. In some periods these variables even outperform the explanatory power of the conventional growth variables such as the accumulation rates. Our results also suggest that it is difficult to analyse the contribution to growth of any particular macroeconomic indicator in an isolated way. Rather, these effects should be studied in a framework that accounts for the macroeconomic performance of a country.