Pathwise superreplication via Vovk’s outer measure

Since Hobson’s seminal paper (Hobson in Finance Stoch. 2:329–347, 1998), the connection between model-independent pricing and the Skorokhod embedding problem has been a driving force in robust finance. We establish a general pricing–hedging duality for financial derivatives which are susceptible to the Skorokhod approach.Using Vovk’s approach to mathematical finance, we derive a model-independent superreplication theorem in continuous time, given information on finitely many marginals. Our result covers a broad range of exotic derivatives, including lookback options, discretely monitored Asian options, and options on realized variance.     

Globalization and the dynamics of cultural identity

This paper presents a simple model where micro-founded dynamics of cultural identity are endogenous and interact with an international trade equilibrium. This process generates a strong home bias under autarky. We then show that goods market integration causes a phenomenon of cultural divergence, whereby the distributions of cultures become more dissimilar across countries and one of the cultures that existed under autarky ultimately disappears. By way of contrast, we show that social integration causes cultural convergence and can counterbalance the effects of goods market integration.     

Foreign trade act in transition

“The flow of goods, services, capital, current payments and other transactions of trade across frontiers … is fundamentally free …” — with these words begins the German AuBenwirtschafts-Gesetz — AWG (Foreign Trade Act), Article Number One. After this Law had been passed in 1961, many interpreted its introduction as a sign that it represented a new Magna Charta of foreign trade.     

An economic capital model integrating credit and interest rate risk in the banking book

Banks often measure credit and interest rate risk in the banking book separately and then add the risk measures to determine economic capital. This approach misses complex interactions between the two risk types. We develop a framework where these risks are analysed jointly. Since banking book positions are generally not marked to market, our model is based on book value accounting. Our simulations show that interactions matter, and that ignoring them leads to risk overstatement. The magnitude of the errors depends on the structure of the balance sheet and on the repricing characteristics of assets and liabilities.     

Giving up the hats? Entrepreneurs' role transitions and venture growth

At the start of a venture, most entrepreneurs wear many hats. However, entrepreneurs often cannot remain involved in every aspect of the venture process, and so they face important decisions about which roles to give up, which roles to retain, and which new roles to adopt. For many, this process is particularly difficult as roles represent more than just something entrepreneurs do but also an important part of who they are (role identities). Through an inductive field study, this research reveals how and why entrepreneurs add, subtract, or retain roles. We find three mechanisms—perceiving the entrepreneur as someone who ‘gives up the hats,’ discovering new meaning (new role identities) within the venture, and role identity imprinting—lead to a narrowing of one's role set, which ultimately influences venture growth.     

Peak-load pricing with different types of dispatchability

Journal of Regulatory Economics - We extend the theory of peak-load pricing by considering that the production with different technologies can be adjusted within their capacity at different speeds....     

Grid Load Contributions Through Electric Vehicles and Their Uncertainties

With the numbers of electric vehicles on the increase, their additional electricity demand can no longer be neglected. From a power systems’ perspective, it is the time dependent electricity consumption that matters. In particular, the peak demand is increased in the case of uncontrolled charging, imposing additional stress on the system. Unfortunately, since there is an absence of representative electric vehicle driving patterns, a quantification of such temporal charging requirements is challenging. To overcome this problem, we developed a detailed model, which maps combustion engine vehicles onto electric vehicle equivalents. The model’s main strengths are the consideration of the diversity within the vehicle fleet as well as the differentiation into the boundary cases of pure battery electric vehicles and plug-in hybrid electric vehicles. Applied to a German traffic study, load curves for these two cases were generated. In addition, the existing uncertainty in between was quantified using Monte Carlo method. We show that the peak energy demand through electric vehicles is much greater on working days than on weekend days. Moreover, we find that the distinction between pure and plug-in-hybrid electric vehicles matters, at least for the time being. Apart from the numerical results, the model is well suited to generate input for more sophisticated investigations of charging strategies within energy system simulations.     

Equity fund ownership and the cross-regional diversification of household risk

We explore the link between portfolio home bias and consumption risk sharing among Italian regions using household-level information on consumption, income and portfolio holdings. Since equity funds are typically diversified at the national or international level, we use data on equity fund ownership to proxy for regional home bias. Cross-regional patterns of equity fund ownership are qualitatively consistent with simple portfolio theory: regions with more asymmetric business cycles are more diversified because they have higher fund participation rates (the extensive margin of diversification) and higher average holdings of equity funds (diversification’s intensive margin). Also, fund holdings increase with the exposure of non-tradable income components (such as labor or entrepreneurial income) to regional shocks. Finally, interregional consumption risk sharing increases with fund holdings and this effect seems strongest when participation is widespread. Increased equity market participation could substantially improve interregional risk sharing.     

Deciding to Peg the Exchange Rate in Developing Countries: The Role of Private-Sector Debt

We argue that a higher share of the private sector in a country’s external debt raises the incentive to stabilize the exchange rate. We present a simple model in which exchange rate volatility does not affect agents’ welfare if all the debt is incurred by the government. Once we introduce private banks who borrow in foreign currency and lend to domestic firms, the monetary authority has an incentive to dampen the distributional consequences of exchange rate fluctuations. Our empirical results support the hypothesis that not only the level, but also the composition of foreign debt matters for exchange-rate policy.