Interest Rate Derivatives in a Duffie and Kan Model with Stochastic Volatility: An Arrow-Debreu Pricing Approach

Simple analytical pricing formulae have been derived, by different authors and for several derivatives, under the Gaussian Langetieg (1980) model. The purpose of this paper is to use such exact Gaussian solutions in order to obtain approximate analytical pricing formulas under the most general stochastic volatility specification of the Duffie and Kan (1996) model. Using Gaussian Arrow-Debreu state prices, first order stochastic volatility approximate pricing solutions will be derived only involving one integral with respect to the time-to-maturity of the contingent claim under valuation. Such approximations will be shown to be much faster than the existing exact numerical solutions, as well as accurate.     

Risk and return: Long-run relations,fractional cointegration,and return predictability

Univariate dependencies in market volatility, both objective and risk neutral, are best described by long-memory fractionally integrated processes. Meanwhile, the ex post difference, or the variance swap payoff reflecting the reward for bearing volatility risk, displays far less persistent dynamics. Using intraday data for the Standard & Poor's 500 and the volatility index (VIX), coupled with frequency domain methods, we separate the series into various components. We find that the coherence between volatility and the volatility-risk reward is the strongest at long-run frequencies. Our results are consistent with generalized long-run risk models and help explain why classical efforts of establishing a naïve return-volatility relation fail. We also estimate a fractionally cointegrated vector autoregression (CFVAR). The model-implied long-run equilibrium relation between the two variance variables results in nontrivial return predictability over interdaily and monthly horizons, supporting the idea that the cointegrating relation between the two variance measures proxies for the economic uncertainty rewarded by the market.     

Firms’ leverage and labour productivity: a quantile approach in Portuguese firms

We show that the leverage of Portuguese firms tends to negatively affect its labour productivity for firms with relatively lower labour productivity but to positively affect this variable for firms in the right-hand side of the productivity distribution. This is particularly important in a country where labour productivity is persistently lower compared with the richer countries in Europe. Thus, we have concluded that, controlling for the usual effects, increasing leverage cannot be a solution for the less productive (and consequently the majority) of Portuguese firms.     

Emotional and satisfaction benefits to visitors as explanatory factors in the monetary valuation of environmental goods. An application to periurban green spaces

Over the last few decades, especially in urban areas, there has been a revival of the notion of quality of life in connection with periurban green spaces, the presence of which is thought to improve emotional well-being. This paper aims to determine how far the monetary valuation of this environmental resource is influenced by aspects relating to users’ emotional experience and satisfaction. The contingent valuation method is used to estimate monetary valuation and structural equation models allow examination of the relationships between visitor attitude and behaviour variables. The study focuses on two periurban green spaces in Spain and the data are obtained by means of face-to-face, in situ surveys of visitors. The findings support the relationship between visitor attitudes and the monetary valuation of this environmental good, revealing the need to advance further in exploring the potential of such natural resources to enhance urban social well-being.