Hedging of a credit default swaption in the CIR default intensity model

An important issue arising in the context of credit default swap (CDS) rates is the construction of an appropriate model in which a family of options written on credit default swaps, referred to hereafter as credit default swaptions, can be valued and hedged. The goal of this work is to exemplify the usefulness of some abstract hedging results, which were obtained previously by the authors, for the valuation and hedging of the credit default swaption in a particular hazard process setup, namely, the CIR default intensity model.     

Inefficiency of manual weeding in rainfed rice systems affected by parasitic weeds

Manual weeding is the predominant weed control practice and the most labor‐consuming activity in smallholder, rainfed rice systems in sub‐Saharan Africa. This study investigates the technical inefficiency of weeding labor, other labor, and overall inputs, and identifies sources of technical inefficiency of weeding labor in the context of parasitic weed infestation. The analysis applies a two‐stage approach. First, a directional input distance function DEA approach was used to compute input‐specific technical inefficiencies. Second, sources of technical inefficiency of weeding labor were identified using a truncated bootstrap regression. Data from 406 randomly selected smallholder farmers from Benin (n = 215) and Côte d'Ivoire (n = 191) were used. The technical inefficiency of weeding labor was high in both countries (58% in Côte d'Ivoire and 69% in Benin). This implies that a substantial fraction of weeding labor could be saved without reducing rice productivity or increasing the use of other inputs. A decrease in the technical inefficiency of weeding labor with an increase in production scale was observed. In addition, weeding regime and education level were each associated to significant changes in the technical inefficiency of weeding labor.     

Arbitrage pricing of defaultable game options with applications to convertible bonds

This paper is the first in a series that we devote to studying the problems of valuation and hedging of defaultable game options in general, and convertible corporate bonds in particular. Here, we present mathematical foundations for our overall study. Specifically, we provide several results characterizing the arbitrage price of a defaultable game option in terms of relevant Dynkin games. In addition, we provide important results regarding price decomposition of defaultable options. These general results are then specified to the case of convertible bonds, yielding in particular a decomposition of convertible bonds in an optional and a bond component.     

Up and down credit risk

This paper discusses the main modeling approaches that have been developed for handling portfolio credit derivatives, with a focus on the question of hedging. In particular, the so-called top, top down and bottom up approaches are considered. We give some mathematical insights regarding the fact that information, namely the choice of a relevant model filtration, is the major modeling issue. In this regard, we examine the notion of thinning that was recently advocated for the purpose of hedging a multi-name derivative by single-name derivatives. We then illustrate by means of numerical simulations (semi-static hedging experiments) why and when the portfolio loss process may not be a ‘sufficient statistic’ for the purpose of valuation and hedging of portfolio credit risk.     

Models of democracy in spatial investments

Governance regarding spatial investments meets or even creates institutional tensions that process management finds difficult to cope with. Traditional democracy is confronted with new ways of policy making. New practices include multi-level governance, public?–?private partnerships and citizen participation. Central government and parliamentary control have to adapt to such practices. This article studies institutional tensions in two cases of spatial investment, using representative and participatory democracy as models of political regime and policy implementation. The analysis also links governance to characteristics of space. The authors make recommendations to combine ‘representative’ and ‘participatory’ elements of governance in a way that reduces institutional tensions in processes of spatial investment.     

Moving purchasing & supply management beyond a cost-focused identity

Practitioners and researchers recognize that purchasing and supply management (PSM) contributes value to business performance beyond reported cost reductions, though capturing and evaluating such contributions is often challenging. The goal of this research is to understand roadblocks impeding the recognition of PSM's contributions beyond cost reduction, and suggest potential solutions to these challenges. Social identity theory offers a conceptual framework to study PSM's self-identity and how it is perceived by others in the organization. Gaining acceptance for value-added metrics is critical to move perceptions of PSM's contribution beyond cost reduction and achieve its full potential. Social identity theory is used as a lens to assess the data and develop propositions. Using a qualitative interview method, the researchers identified important roadblocks hindering PSM's attainment of a broader value-based perception. PSM's identity is closely linked to cost-savings by itself, other functions and upper management. These perceptions are further reinforced by PSM through excessive cost reporting metrics. We provide two suggested solutions for PSM to expand its recognition beyond cost savings: 1) PSM must change its narrative and associated self-identity; and 2) PSM needs to develop metrics that are meaningful across multiple areas of the business.     

Linear and non-linear price decentralization

Compendious and thorough solutions to the existence of a linear price equilibrium problem, the second welfare theorem, and the limit theorem on the core are provided for exchange economies whose consumption sets are the positive cone of arbitrary ordered Fréchet spaces—dispensing entirely with the assumption that the vector ordering of the commodity space is a lattice. The motivation comes from economic applications showing the need to bring within the scope of equilibrium theory vector orderings that are not lattices, which arise in the typical model of portfolio trading with missing options. The assumptions are on the primitives of the model. They are bounds on the marginals of non-linear prices and for ω-proper economies they are both sufficient and necessary.     

Social Power and Power Over Space: How the Bourgeoisie Reproduces itself in the City

Urban sociology has long ignored districts of wealth and privilege in cities because they harbor few ‘social problems’ and the class background of sociologists has not inclined them to venture there. In France after 1968, the continued attraction of Marxism and the sulfurous reputation of sociology conspired to make such investigation difficult. Pierre Bourdieu pioneered it with his landmark book on the bourgeoisie, Distinction: A Social Critique of the Judgement of Taste. This essay reports on two decades of research extending Bourdieu's model of social space to study the territories and strategies of the French high bourgeoisie and aristocracy. The dominant class lives in reserved upscale districts and this seclusion, resulting from the elective spatial aggregation of familial dynasties, is a fundamental characteristic of the group. Segregative isolation is strengthened by specific institutions, such as society balls and social clubs, entrusted with effecting class closure and perpetuation. But, in the greater Paris region, the best districts also attract businesses (corporate headquarters, luxury firms), and thus employment that prompts the established bourgeoisie to migrate westwards in an endless search for social exclusivity. In addition to their Paris homes, upper‐class dynasties possess family properties (a castle or a large manor house) in the provincial hinterland that serve as a basis for paternalistic forms of sociability, linking them to the local lower class via such institutions as riding to hounds. Spaces reserved by and for the high bourgeoisie are major vectors of social reproduction and, along with family and elite schools, help to train heirs suited to safeguarding and valorizing their inherited assets.     

The Role of a Firm’s Net Cash Payouts in Leland’s (1994) Model

We study the effects of introducing payouts on corporate debt and optimal capital structure in a structural credit risk model à la Leland (1994) . We find that increasing the payout parameter not only affects the endogenous bankruptcy level, which is decreased, but modifies the magnitude of a change on the endogenous failure level as a consequence of an increase in risk‐free rate, corporate tax rate, riskiness of the firm and coupon payments. This simple analytical framework is able to capture realistic insights about optimal leverage, spreads and default probabilities more in line with historical norms (if compared to Leland’s results) and closer to predictions obtained through more sophisticated models.