Minimum return guarantees with fund switching rights—An optimal stopping problem

Recently, there is a growing trend to offer guaranteed products where the investor is allowed to shift her account/investment value between multiple funds. The switching right is granted a finite number of times per year, i.e. it is American style with multiple exercise possibilities. In consequence, the pricing and the risk management is based on the switching strategy which maximizes the value of the guarantee put-option. We analyze the optimal stopping problem in the case of one switching right within different model classes and compare the exact price with the lower price bound implied by the optimal deterministic switching time. We show that, within the class of log-price processes with independent increments, the stopping problem is solved by a deterministic stopping time if (and only if) the price process is in addition continuous. Thus, in a sense, the Black and Scholes model is the only (meaningful) pricing model where the lower price bound gives the exact price. It turns out that even moderate deviations from the Black and Scholes model assumptions give a lower price bound which is really below the exact price. This is illustrated by means of a stylized stochastic volatility model setup.     

Developing business ethics theory and integrating economic analysis into business ethics teaching – a conceptualization based on externalities and diminishing marginal utility

Contrary to understandings that treat ethical considerations and economic thinking as separate if not antagonistic issues, we advocate a holistic view that links business ethics to consequentialist economic concepts and their concern about how scarce means should be used for the attainment of (given) ends. We believe that business ethics students will profit from a development of business ethics theory that facilitates an outcome-based evaluation of business strategies anchored in the economic concepts of externalities, game theory, equilibria, efficiency, transaction costs, and diminishing marginal utility. We outline how moral judgments about (socially irresponsible) business behaviors, which often lack theoretical grounding and self-critical examination, can be made both more consistent and transparent through a systematic application of these theoretical concepts. We furthermore point out that, in this evaluative exercise, business ethics analysts should make all assumptions explicit to meet their task of facilitating informed public debates and informed moral choices.     

Trends in Job Quality for African-American Workers, 1979–2011

Economists expect that increases in education and work experience will increase workers’ productivity and translate into higher compensation. We use data from the March Current Population Survey (CPS) to show that over the past four decades, the “human capital” of the employed black workforce has increased enormously, yet the share of black workers in a “good job” --one that pays at least $19 per hour (in inflation-adjusted 2011 dollars), has employer-provided health insurance, and an employer-sponsored retirement plan-- has actually declined. The CPS data show that black women saw a modest increase in access to “good jobs,” but the share of black men in good jobs decreased. Despite improvements for black women, they were consistently less likely to be in a good job than black men in every year in our sample. Black workers at every age and education level were also less likely to be in a good job in 2011 than they were in 1979.     

An econometric analysis of energy over the next 75 years

Preliminary results from an econometric model with a 75-year time-horizon to determine base-load power generation mix is described. A number of conventional, evoloutionary and speculative generation systems are considered, together with constraints imposed by fuel availability and technical development times.