Moment explosions in stochastic volatility models

In this paper, we demonstrate that many stochastic volatility models have the undesirable property that moments of order higher than 1 can become infinite in finite time. As arbitrage-free price computation for a number of important fixed income products involves forming expectations of functions with super-linear growth, such lack of moment stability is of significant practical importance. For instance, we demonstrate that reasonably parametrized models can produce infinite prices for Eurodollar futures and for swaps with floating legs paying either Libor-in-arrears or a constant maturity swap rate. We systematically examine the moment explosion property across a spectrum of stochastic volatility models. We show that lognormal and displaced-diffusion type models are easily prone to moment explosions, whereas CEV-type models (including the so-called SABR model) are not. Related properties such as the failure of the martingale property are also considered.

---

Electronic Supplementary Material Supplementary material is available for this article at and is accessible for authorized users.      

Strategic responsiveness and Bowman's risk–return paradox

One of the most enduring puzzles in the strategy literature is the negative association between risk and return known as the Bowman paradox. This paper formalizes a model of strategic conduct based on the concept of strategic fit and the heterogeneity of firm strategic capabilities. This model is shown mathematically to yield the negative association of the Bowman paradox. Furthermore, the model makes several other testable predictions. To examine these predictions, simulated data from the model are compared with a large empirical study of 45 industries during 1991–2000. The predictions of the model are consistent with the empirical data. Copyright © 2007 John Wiley & Sons, Ltd.     

A reduced form framework for modeling volatility of speculative prices based on realized variation measures

Building on realized variance and bipower variation measures constructed from high-frequency financial prices, we propose a simple reduced form framework for effectively incorporating intraday data into the modeling of daily return volatility. We decompose the total daily return variability into the continuous sample path variance, the variation arising from discontinuous jumps that occur during the trading day, as well as the overnight return variance. Our empirical results, based on long samples of high-frequency equity and bond futures returns, suggest that the dynamic dependencies in the daily continuous sample path variability are well described by an approximate long-memory HAR–GARCH model, while the overnight returns may be modeled by an augmented GARCH type structure. The dynamic dependencies in the non-parametrically identified significant jumps appear to be well described by the combination of an ACH model for the time-varying jump intensities coupled with a relatively simple log-linear structure for the jump sizes. Finally, we discuss how the resulting reduced form model structure for each of the three components may be used in the construction of out-of-sample forecasts for the total return volatility.     

Multinational risk and performance outcomes: Effects of knowledge intensity and industry context

A multinational presence can diversify corporate business activities and provide access to diverse overseas resources. This can enhance operational flexibility and create new business propositions that increase responsiveness to global market changes. Establishing an international corporate structure may also require irreversible investments and impose maintenance and processing costs that contravene the implied resilience and agility benefits. We distinguish between downside risk and upside potential as the relevant outcome measures to assess the implied advantages of multinationality. Consistent with the rationales of the OLI paradigm, we argue that multinational reach particularly in knowledge-based industries can reduce downside risk and enhance upside potential. These results introduce more nuances to the ongoing debate about multinational risk and performance effects. Based on a large cross-sectional dataset, we find that flexibility and responsiveness thrives on a multinational presence among firms operating in information-driven knowledge businesses. In contrast, internationalizing firms in capital-based network services display adverse risk effects.     

利用生产停顿机会进行维修以提高产量

介绍Statoil公司提出的机会维修概念和它对生产所起的重要作用,举例说明机会维修的可行性,并对机会维修进行优化使它更好地为生产服务.     

Deutsche Mark–Dollar Volatility: Intraday Activity Patterns, Macroeconomic Announcements, and Longer Run Dependencies

This paper provides a detailed characterization of the volatility in the deutsche mark–dollar foreign exchange market using an annual sample of five-minute returns. The approach captures the intraday activity patterns, the macroeconomic announcements, and the volatility persistence (ARCH) known from daily returns. The different features are separately quantified and shown to account for a substantial fraction of return variability, both at the intraday and daily level. The implications of the results for the interpretation of the fundamental "driving forces" behind the volatility process is also discussed.     

Exploring longitudinal risk‐return relationships

We study a longitudinal fit model of adaptation and its association with the longitudinal risk‐return relationship. The model allows the firm to adjust its position in response to partial learning about a changing environment characterized by two path‐dependent processes—a random walk and a stochastic trend. Computational simulations at low levels of learning in both environmental contexts are consistent with empirical data. However, the results are also consistent when firm behavior appears to be mindless in the form of a random walk. Hence, both imperfect learning and a mindless random walk can lead to the inverse longitudinal risk‐return relationships observed empirically. We discuss this apparent paradox and the possible resolution between mindless and conscious behavior as plausible causes of the longitudinal Bowman Paradox. Copyright © 2014 John Wiley & Sons, Ltd.     

Intergenerational redistribution and risk sharing with changing longevity

Trend increases in longevity are a global phenomenon challenging the fiscal sustainability of current welfare arrangements. Policy proposals abound and often build on implicit assertions concerning intergenerational equity. This paper offers a simple but manageable OLG model with endogenous retirement and cohort-specific longevity to address intergenerational redistribution and risk sharing. While it is well known that a utilitarian planner strives for consumption smoothing, it is shown that healthy ageing calls for work smoothing in the sense that retirement ages increase with longevity. Hence, cohorts with higher longevity should contribute to their larger consumption needs via later retirement, although it is shown that the planner still front-loads some financing (pre-saving). Stochastic longevity raises the issue of intergenerational risk sharing, which implies that cohorts turning out to have a high longevity are compensated at the expense of cohorts turning out to have a relatively short longevity.