Finance, Politics, and the Accounting for Stock Options

The politics of option accounting crosses party lines, reflecting both the interests of the affected constituencies and the desire for power over standard setting. House Bill HR-3574, which mandates an assumption of zero stock price volatility, runs counter to the recently passed Financial Accounting Standards Board (FASB) rule requiring fair-value expensing of stock options. For any option issued at or out of the money, where strike prices are normally set, expense recognition is zero under this bill's mandated assumption.
Besides excessive use of stock options, the lack of a "final peace" in the option accounting war appears to have encouraged another questionable corporate practice. This article examines a sample of "six-and-one restructurings," exchanges of options in which expensing of re-priced (deep out-of-the-money) options can be avoided if employees wait at least six months and one day before receiving new options. The authors found that market-adjusted stock prices tend to decrease during the six-month period before the strike price is reset. This result provides one more reason why companies should be required to use fair-value option pricing models to expense options.     

International money and stock market contingent claims

We develop a unified approach with closed-form solutions for pricing bonds, stocks, currencies and their derivatives. The specification assumes a fundamental risk factor represented by a stochastic positive definite matrix following a Wishart autoregressive (WAR) process. By assuming a volatility-in-mean specification for the domestic stock returns and the relative changes of exchange rates, and a domestic stochastic discount factor exponential affine with respect to the fundamental risk, it is possible to derive closed form solutions for the term structures of interest rates and for the risk-neutral probabilities while keeping the flexibility of the model. In particular:

i) The domestic and foreign term structures are jointly affine and correspond to Wishart quadratic term structures, which can ensure the positivity of interest rates;

ii) In this framework where the stock price follows a model with stochastic volatility, we obtain explicit or quasi-explicit formulas for futures and forward contracts, swaps and options. This extends results by

Heston (1993)

and

Ball and Roma (1994)

.

The rise and decline of the Soviet economy

The reasons for the rapid growth of the Soviet Union before roughly 1970 and for its subsequent growth slowdown are analysed. The concentration of investment on heavy industry and soft budget constraints explain most of the growth in the 1930s. The growth slowdown was due to disastrous investment decisions following the elimination of surplus labour and the diversion of research and development resources to the military rather than the failure of firms to carry out plans or diminishing returns to capital.     

Subsidisation of Upland Conservation in West Java: The Citanduy II Project 1

The Citanduy II Project's model farm program on steep slopes in West Java was started in 1981 with the dual goals of reducing erosion and increasing farmer incomes. Limited success in reaching both goats has been achieved. Subsidies used to implement the program, however, could have been allocated more efficiently.     

Impacts de l'ouverture à la concurrence sur la R&D dans le secteur électrique

The aim of this paper is to analyse the impact of the opening of the competitive arena in regulated markets on the nature and intensity of innovation. The cases of the electricity sectors in the USA and England & Wales are taken as examples. The present condition and the evolution of R&D programmes and institutions in the American and English electric sectors are analysed. We show that the current regulatory reforms lead to significant cuts in R&D programmes, especially those focusing on new technological fields.     

不良资产剥离后不良贷款缘何居高不下

处理银行不良资产已成为建立稳定经济金融体系的当务之急，我国通过成立金融资产管理公司处理不良资产，对化解银行风险具有重要意义，但部分银行出现了不良资产前剥后增的现象，造成这种现象的原因是多方面的，因此，化解银行不良贷款的政策也应综合考虑。