Pricing Discrete Barrier Options Under Stochastic Volatility

This paper proposes a new approximation method for pricing barrier options with discrete monitoring under stochastic volatility environment. In particular, the integration-by-parts formula and the duality formula in Malliavin calculus are effectively applied in pricing barrier options with discrete monitoring. To the best of our knowledge, this paper is the first one that shows an analytical approximation for pricing discrete barrier options with stochastic volatility models. Furthermore, it provides numerical examples for pricing double barrier call options with discrete monitoring under Heston and λ-SABR models.     

A trend filtering method closely related to $$\ell _{1}$$ trend filtering

The filtering method developed by Kim et al. (SIAM Rev 51:339–360, 2009), \(\ell _{1}\) trend filtering, is attractive because it enables us to estimate a continuous piecewise linear trend. This paper introduces a new filtering method closely related to \(\ell _{1}\) trend filtering in order to contribute to the accumulation of knowledge on \(\ell _{1}\) trend filtering. We show that the piecewise linearity, which is the key feature of \(\ell _{1}\) trend filtering, is derived from the new filtering. For this reason, we refer to the filtering as ‘pure’ \(\ell _{1}\) trend filtering. We also demonstrate some other miscellaneous results concerning the new filtering.     

Dynamic analysis of outsourcing

This paper develops an R&D-based growth model and calibrates the model to aggregate data of the US economy to quantify a structural relationship between patent length, R&D and consumption. Under parameter values that match the empirical flow-profit depreciation rate of patents and other key features of the US economy, extending the patent length beyond 20 years leads to a negligible increase in R&D despite equilibrium R&D underinvestment. In contrast, shortening the patent length leads to a significant reduction in R&D and consumption. Finally, this paper also analytically derives and quantifies a dynamic distortionary effect of patent length on capital investment.     

Mechanism design for a solution to the tragedy of commons

We consider the problem of the tragedy of commons in cooperative production economies, and propose a mechanism to resolve this tragedy, taking into account that the coordinator cannot perfectly monitor each agent’s labor skill and each agent may have an incentive to overstate as well as understate his own skill. Even in such a situation, the mechanism implements the proportional solution (Roemer in Soc Philos Policy 6:74–92, 1989 and Roemer and Silvestre in J Econ Theory 59:426–444, 1993) in Nash and strong equilibria when it is played as a normal form game. Moreover, the mechanism triply implements the solution in Nash, subgame-perfect, and strong equilibria when it is played as a two-stage extensive form game. We are greatly thankful to Semi Koray, William Thomson, and an anonymous referee of this journal for their concrete and helpful comments on improving the paper. An earlier version of this paper was presented at the annual meeting of the Japanese Economic Association held at Hitotsubashi University in October 2001 and at the Conference on Economic Design held at NYU in July 2002. We are grateful to Takehiko Yamato for his useful comments in the former conference. We are also thankful to Tatsuyoshi Saijo, Kotaro Suzumura, and Yoshikatsu Tatamitani for their kind comments.     

ACHIEVING FISCAL BALANCE IN JAPAN*

Japan is aging and has the highest government debt‐to‐output ratio among advanced economies. In this article, we build a micro data‐based, large‐scale overlapping generations model for Japan in which individuals differ in age, gender, employment type, income, and asset holdings, and incorporate the Japanese pension rules. Using existing pension law, current fiscal policy, and medium variants of demographic projections, we produce future paths for government expenditures and tax revenues, with implications for government debt and the public pension fund. Additional pension reform, a higher consumption tax, and higher female labor force participation help achieve fiscal stability.     

Trade Creation Effects of Regional Trade Agreements: Tariff Reduction versus Non‐tariff Barrier Removal

This study uses the most disaggregated tariff line‐level trade data in a large number of countries in the world to empirically decompose the trade creation effects of regional trade agreements (RTAs) into those owing to tariff reduction and those owing to non‐tariff barrier (NTB) removal. Specifically, utilizing our detailed dataset, we employ the standard gravity equation and identify those effects by estimating the trade creation effects of RTAs for ineligible and eligible products for RTA preferential schemes separately. Our major findings are as follows. First, for the whole sample, there are significantly positive trade creation effects owing to tariff reduction while the effects for NTB removal are weak. Second, the trade creation effects of tariff reduction and NTB removal are substantially large in the case of trade among low‐income countries but weak among high‐income countries.     

Who values the family‐friendly aspects of a job? Evidence from the Japanese labour market

Women with family responsibilities such as child‐rearing generally prefer jobs with flexible working conditions. According to the theory of compensating wage differentials, women working in such family‐friendly jobs are paid less than those working in family‐unfriendly jobs. The present paper investigates whose wages are more greatly affected by the family‐(un)friendly aspects of their jobs. Based on a longitudinal survey of Japanese women, we found that among several family‐(un)friendly attributes of a job, only commuting time requires a wage premium, and most of the premium is associated with job changes made by part‐time‐working married women.     

Finitely repeated games with monitoring options

We study finitely repeated games where players can decide whether to monitor the other players? actions or not every period. Monitoring is assumed to be costless and private. We compare our model with the standard one where the players automatically monitor each other. Since monitoring other players never hurts, any equilibrium payoff vector of a standard finitely repeated game is an equilibrium payoff vector of the same game with monitoring options. We show that some finitely repeated games with monitoring options have sequential equilibrium outcomes which cannot be sustained under the standard model, even if the stage game has a unique Nash equilibrium. We also present sufficient conditions for a folk theorem, when the players have a long horizon.     

Stock price targeting and fiscal deficit in Japan: Why did the fiscal deficit increase during Japan’s lost decades?

The purpose of this paper is to explain why Japan’s fiscal deficit increased so dramatically in the 1990s and the 2000s. We focus on the role of “stock price targeting” to explain why the fiscal expenditure increased so much. After presenting a simple model to describe government behavior with an optimistic view about stock price and output growth, the paper tests whether the model can explain Japan’s fiscal expenditure. The empirical results, using biannual and high-frequency data of the 1990s and the 2000s, show that the stock price targeting can track Japan’s fiscal expenditure reasonably well, especially in the 1990s. They imply that without the stock price targeting, the total amount of biannual fiscal stimulus from 1992 to 2000 would have been lower by 2.5 trillion yen on average.