Portfolio optimization under solvency II: a multi-objective approach incorporating market views and real-world constraints

Decisions in Economics and Finance - We propose a new approach to handle the problem of portfolio optimization for non-life insurance company incorporating the solvency capital requirement (SCR),...     

Bank profitability and macroeconomic conditions: Are business models different?

The paper investigates the impact of macroeconomic conditions on the profitability of EU banks by testing for differential effects according to the business model. We group banks into three business models using a hierarchical cluster analysis and find that using clusters based on the share of assets invested in loans reveals heterogeneity in the sensitivity of bank profitability to economic growth across business models. Our main result is that GDP growth, credit growth, and the risk-free yield curve influence profitability as expected, but we also find that the effect of GDP growth is only significant for banks that have a high and medium share of assets invested in loans, and not for banks that hold large portfolios of securities. This difference depends on the impact of growth on asset write downs, especially those on loans and, to a lesser extent, on revenues. The results suggest that studies relating bank profitability to macroeconomic conditions should take the heterogeneity of business models into account.     

Matching rules

Institutions often utilize matching rules to achieve cooperative outcomes. However, the equilibrium induced by a matching rule may not be socially optimal. After presenting the case in which matching rules yield privately and socially optimal levels of cooperation, this article identifies the conditions which generate inefficient cooperation. Matching rules undershoot (i.e. parties cooperate less than is socially optimal) in one group of cases. In a second, more puzzling case, matching rules overshoot (i.e. parties that interact under a matching constraint are induced to cooperate more than is socially optimal). This paper identifies the conditions for such occurrences. Copyright © 2008 John Wiley & Sons, Ltd.     

陈年的勃艮第

众所周知,喝太年轻的佳酿几乎是一种浪费。对我而言,常常会有罪恶感,因为不仅错过了品酒过程中最珍贵、最有趣的部分,而且会误解这瓶酒的真理。我人生的第一个陈年勃艮第的经验始于1996年,     

Asymptotic expansion for some local volatility models arising in finance

Decisions in Economics and Finance - In this paper, we study the small noise asymptotic expansions for certain classes of local volatility models arising in finance. We provide explicit expressions...     

Costless discrimination and unequal achievements in an experimental tournament

We investigate the emergence of discrimination in an experiment where individuals affiliated to different groups compete for a monetary prize, submitting independent bids to an auctioneer. The auctioneer receives perfect information about the bids (there is no statistical discrimination), and she has no monetary incentive to favor the members of her own group (the bidders are symmetric). We observe nonetheless some discrimination by auctioneers, who tend to assign the prize more frequently to a member of their own group when two or more players put forward the highest bid. Out-group bidders react to this bias and reduce significantly their bids, causing an average decay of their earnings throughout the game, with cumulative effects that generate unequal outcomes. Because the initial bias is costless, such mechanism can survive even in a competitive market, providing a rationale for the long-run persistence of discrimination.     

UNPRODUCTIVE INVESTMENT AND RENT EXTRACTION

This paper proposes a simple case of moral hazard in the credit market. A potential firm–entrepreneur needs outside financing to start up one potentially productive project. This agent has some initial illiquid endowment and is assumed to choose the amount of collateral to secure the financial debt. The model shows that, in the case of a monopolistic moneylender, only the minimum part of the endowment is offered as collateral and so invested in the productive sector. This occurs despite the fact that the loan received and, as a consequence, the final product will be the lowest possible. With perfectly competitive banks, instead, it is shown that it is possible to reach the first‐best outcome.