A perturbative approach to Bermudan options pricing with applications

In this paper we address the problem of the valuation of Bermudan option derivatives in the framework of multi-factor interest rate models. We propose a solution in which the exercise decision entails a properly defined series expansion. The method allows for the fast computation of both a lower and an upper bound for the option price, and a tight control of its accuracy, for a generic Markovian interest rate model. In particular, we show detailed computations in the case of the Bond Market Model. As examples we consider the case of a zero coupon Bermudan option and a coupon bearing Bermudan option; in order to demonstrate the wide applicability of the proposed methodology we also consider the case of a last generation payoff, a Bermudan option on a CMS spread bond.     

An empirical study of consumer behavior related to private labels and national brand promotions

One day while in the store, Bernard grabs his usual Dominick's cream cheese off the shelf. I notice and point out that the national brand of Philadelphia cream cheese is on sale and less expensive. Bernard looks at the two products and actually hesitates for a while to switch to the national brand. His hesitation makes it clear that his preference is not based solely on price. (Chang Coupland 2005, 115).     

The Effects of Depression on Leisure: Varying Relationships Between Enjoyment,Sociability, Participation,and Desired Outcomes in College Students

Depression leads to negative mood and affect, difficulty experiencing enjoyment in chosen activities (anhedonia), and a reduced desire for social interaction. This study compared 974 college students with different levels of depression (minimal, mild, and moderate to severe) relative to their desired outcomes for leisure, and their enjoyment of, participation and sociability in, different types of chosen leisure activities. Findings indicated consistency in their desired outcomes students, yet there were differences in how social they chose to be, the extent to which they partook, and how much enjoyment they perceived during their leisure participation. In addition, in several activities only a mild state of depression was sufficient to produce differences in leisure involvement. The results question whether depressed individuals experience “leisure” in the same manner as nondepressed individuals and whether elements of “leisure” experiences stressing enjoyment and sociability are applicable for individuals with differing levels of nonclinical depression.     

The Impact of FDI on CO2 Emissions in Latin America

This paper uses panel Granger causality tests to study the relationship between sector-specific foreign direct investment (FDI) and CO₂ emissions. Using a sample of 18 Latin American countries for the period 1980–2007, we find causality running from FDI in pollution-intensive industries (“the dirty sector”) to CO₂ emissions per capita. This result is robust to controlling for other factors associated with CO₂ emissions and using the ratio of CO₂ emissions to GDP. For other sectors, we find no robust evidence that FDI causes CO₂ emissions.     

Banking crises,labor reforms,and unemployment

Using a sample of 97 countries spanning the period 1980–2008, we estimate that banking crises have, on average, a large negative impact on unemployment. This effect, however, largely depends on the flexibility of labor market institutions: while in countries with more flexible labor markets the impact of banking crises is sharper but short-lived, in countries with more rigid labor markets the effect is initially more subdued but highly persistent. These effects are even larger for youth unemployment in the short term, and long-term unemployment in the medium term. Conversely, large upfront, or gradual but significant, comprehensive market reforms have a positive impact on unemployment, albeit only in the medium term.     

Exchange rate variability and trade: why is it so difficult to find any empirical relationship?

This paper discusses why previous literature has found little evidence of any effect of exchange rate variability on international trade. Methodological and statistical issues are discussed. In particular, comparisons are made of estimations based on different specifications or using different data sets and changes in the results depending on the method used are shown.     

Public Sector Science And The Strategy Of The Commons

We model the conditions under which incumbent firms may purposefully create an intellectual property (IP) commons such that no firm has the incentive to invest in new product development, despite the potential profitability of a public sector invention. The strategy of spoiling incentives to innovate by eliminating exclusive IP rights—the strategy of the commons—is motivated by a fear of cannibalization and supported by a credible threat. We show how the degree of potential cannibalization is related to this market failure and characterize the subgame perfect equilibrium in which the strategy of the commons is played.     

Robust subsampling

We characterize the robustness of subsampling procedures by deriving a formula for the breakdown point of subsampling quantiles. This breakdown point can be very low for moderate subsampling block sizes, which implies the fragility of subsampling procedures, even when they are applied to robust statistics. This instability arises also for data driven block size selection procedures minimizing the minimum confidence interval volatility index, but can be mitigated if a more robust calibration method can be applied instead. To overcome these robustness problems, we introduce a consistent robust subsampling procedure for M-estimators and derive explicit subsampling quantile breakdown point characterizations for MM-estimators in the linear regression model. Monte Carlo simulations in two settings where the bootstrap fails show the accuracy and robustness of the robust subsampling relative to the subsampling.     

Are stocks desirable in tax-deferred accounts?

Existing literature suggests that, in order to maximize the tax benefit of retirement accounts, investors should follow a “pecking order” location rule of placing highly taxed assets (e.g., bonds) in a tax-deferred account and lightly taxed assets (e.g., stocks) in a taxable account. Empirical evidence, however, documents that a large number of investors violate this rule. In this paper, we show that such violations can be optimal for risk-averse investors who face portfolio constraints. In particular, while the strategy of placing bonds in the tax-deferred account maximizes the expected level of tax benefit, it may lead to volatile benefits under different realizations of stock returns. By holding a similar portfolio in both accounts, investors can achieve a more balanced growth in the two accounts, minimize the likelihood of violating the constraints in the future and hence “smooth” the volatility of the tax benefit. For some risk-averse investors, this smoothing motive can lead to the observed violation of the pecking order location rule. Our model predicts that such violations are more likely when future tax benefits are more volatile, which can occur, for example, when: (i) the tax rate differential across assets increases over time due either to tax law changes or to tax bracket changes for investors; (ii) asset returns are more volatile; and (iii) investors anticipate large future liquidity needs.