The Variance Gamma Process and Option Pricing

A three parameter stochastic process, termed the variance gamma process, that generalizes Brownian motion is developed as a model for the dynamics of log stock prices. The process is obtained by evaluating Brownian motion with drift at a random time given by a gamma process. The two additional parameters are the drift of the Brownian motion and the volatility of the time change. These additional parameters provide control over the skewness and kurtosis of the return distribution. Closed forms are obtained for the return density and the prices of European options. The statistical and risk neutral densities are estimated for data on the S & P500 Index and the prices of options on this Index. It is observed that the statistical density is symmetric with some kurtosis, while the risk neutral density is negatively skewed with a larger kurtosis. The additional parameters also correct for pricing biases of the Black Scholes model that is a parametric special case of the option pricing model developed here.     

Scarcity Message Effects on Consumption Behavior: Limited Edition Product Considerations

Recently, many luxury brands have begun to launch limited edition (LE) products. When this happens, advertisers implement two typical types of scarcity messages for LE products: limited‐time scarcity (LTS) versus limited‐quantity scarcity (LQS) messages (Cialdini, 2008). Prior research offered empirical evidence that these scarcity messages make consumers feel that LE products are more special, unique, and valuable, and thus, positively influence their evaluation of the product (Aggarwal, Jun, & Huh, 2011). The current study examined the differential effects of LTS and LQS messages on different types of LE products by focusing on consumers’ need for uniqueness.     

Differences in the Cost of Mortgage Credit Implications for Discrimination

This paper estimates the mortgage interest rate differences paid by Asian, Hispanic, and African–American borrowers to a national home mortgage lender in the years 1988–1989. Controlling for differences in market rates, rate lock protection, and borrower risk factors, conventional loan interest rates are almost perfectly race-neutral. The single deviation from race-neutrality is that when interest rates fall during the borrower's rate-lock period, only African–American borrowers are unable to capture a share of this decline. Government (FHA and VA) credit models show small premia paid by African–American borrowers of about $1.80 per month on average. In government lending, Hispanic borrowers alone are unable to capture rate declines occurring during the borrower's rate-lock period.     

Day-of-the-Week Autocorrelations, Cross-Autocorrelations, and the Weekend Phenomenon

This study examines whether autocorrelations or cross-autocorrelations are more closely associated with the weekend phenomenon. Our results show a significant day-of-the-week pattern in autocorrelations associated with the weekend phenomenon. However, we find no marginal influence of a day-of-the-week pattern in cross-autocorrelations on the weekend phenomenon.     

Causality effects in return volatility measures with random times

We provide a structural approach to identify instantaneous causality effects between durations and stock price volatility. So far, in the literature, instantaneous causality effects have either been excluded or cannot be identified separately from Granger type causality effects. By giving explicit moment conditions for observed returns over (random) duration intervals, we are able to identify an instantaneous causality effect. The documented causality effect has significant impact on inference for tick-by-tick data. We find that instantaneous volatility forecasts for, e.g., IBM stock returns must be decreased by as much as 40% when not having seen the next quote change before its (conditionally) median time. Also, instantaneous volatilities are found to be much higher than indicated by standard volatility assessment procedures using tick-by-tick data. For IBM, a naive assessment of spot volatility based on observed returns between quote changes would only account for 60% of the actual volatility. For less liquidly traded stocks at NYSE this effect is even stronger.     

Efficiency Gains Under Exchange-Rate Emission Trading

In the case of emission of non-uniformly dispersed pollutants such as SO2 the negative effects depend on the location of the sources. A unit increase at one source must be compensated by either a larger or smaller reduction at another source to keep the negative effects at the same level. Emission trading between countries is possible under the Second Sulphur Protocol. Exchange rate trading and third party problems are studied within a simultaneous model facilitating impositions of various environmental constraints. Simulations based on the negotiated emission quotas are offered. Results indicate potential cost savings of 19%.     

Cow-calf profitability and leptin genotyping

Profitability of cow-calf production is determined largely by market prices, calf weaning weights, and cow productive life. While producers individually have no effect on prices, weaning weights and productive life have genetic influences and hence can be altered by selection programs implemented by producers. We investigate the impact of a mutation in the leptin gene (exon 2; single nucleotide polymorphism [SNP] 305) on cow-calf profitability. Prior research shows that this mutation has effects on performance and traits of fed cattle and milk production in dairy cows. Using data from a teaching-research herd, we find that it is also associated with calf weaning weights and cow productive life. A bio-economic stochastic simulation demonstrates that the mutation has statistically positive impacts on profits, suggesting that producers can profitably make use of this information.