Pricing Options on an Asset with Bernoulli Jump-Diffusion Returns

The price movements of certain assets can be modeled by stochastic processes that combine continuous diffusion with discrete jumps. This paper compares values of options on assets with no jumps, jumps of fixed size, and jumps drawn from a lognormal distribution. It is shown that not only the magnitude but also the direction of the mispricing of the Black-Scholes model relative to jump models can vary with the distribution family of the jump component. This paper also discusses a methodology for the numerical valuation, via a backward induction algorithm, of American options on a jump-diffusion asset whose early exercise may be profitable. These cannot, in general, be accurately priced using analytic models. The procedure has the further advantage of being easily adaptable to nonanalytic, empirical distributions of period returns and to nonstationarity in the underlying diffusion process.     

Current Issues in the Analysis of Commercial Real Estate

This paper identifies and discusses a number of current issues regarding our understanding of commercial real estate markets. These issues include: 1) accurate estimation of the quantity and location of our nation's commercial space; 2) an understanding of the linkage between the space and capital markets for commercial real estate; 3) identification of the macroeconomic factors that affect the rate of return on commercial property and whether local market factors also affect the rate of return; 4) problems associated with measuring the return characteristics of equity investments in commercial property (including measures of the diversification benefits and inflation-hedging abilities of this asset class); 5) a better understanding of rental markets, including good measures of changes in effective rents over time; and 6) examination of the rationale for ownership of commercial space by corporate users. This paper reviews recent research related to these questions and suggests future research that should prove to be fruitful.     

Using an approximate kiefer-weiss solution for testing insect population densities

Summary A sequential testing procedure called 2-SPRT for the meanμ of the negative binomial distribution with known exponentk is presented. For any fixedμ ₀(μ ₁<μ ₀<μ ₂), the 2-SPRT provides an asymptotic solution to the modified Kiefer-Weiss problem. Determination ofμ ₀ such that the test provides an approximate solution to the Kiefer-Weiss problem is described. The behavior of the 2-SPRT and the Sequential Probability Ratio Test is investigated using Monte Carlo methods. The error probabilities and the average sample numbers are compared. All the computations were carried out on the Alabama Supercomputer.     

Further Ambiguity When Performance Is Measured by the Security Market Line

This paper employs the optimality conditions for expected utility and mean-variance portfolio problems to examine the ambiguities associated with the security market line criterion both at a point in time and through time. At a point in time, we show that the security market line criterion can be irrelevant, even in meanvariance economies. In a multiperiod setting, we show that the analysis of performance based on portfolio choice is inconsistent with the analysis based on return generating models. Empirical work suggests that the inconsistency can lead to dramatically different estimates of a security's required return.     

The effects of mergers on price and output: Two case studies from the airline industry

The literature on industrial organization contains very little direct evidence on the effects of actual mergers. This study estimates the effects of two recent airline mergers approved by the Department of Transportation over the objection of the Department of Justice. The merger of TWA and Ozark appears to have caused a slight increase in fares and a far greater reduction in service on city pairs out of St Louis. The merger of Northwest and Republic appears to have caused a significant increase in fares and a significant reduction in overall service on city pairs out of Minneapolis-St Paul.     

The local economic impact of construction projects in a small and relatively self-contained economy: The case of Lancaster University

Whilst the local multiplier impacts of the annual operation of universities has been the subject of intensive research, the economic impacts of capital construction projects have been almost completely ignored. This paper presents the results of detailed analysis of capital projects at Lancaster University in 1993-The reasons for the radically different annual operation and construction multipliers estimated in the Lancaster study are examined. Despite the smaller size of construction multipliers it is argued that it is a serious mistake to estimate local construction multipliers by making simplifying assumptions on the size of the key parameters in the multiplier equations.