GRAPHICAL MODELS FOR CORRELATED DEFAULTS

A simple graphical model for correlated defaults is proposed, with explicit formulas for the loss distribution. Algebraic geometry techniques are employed to show that this model is well posed for default dependence: it represents any given marginal distribution for single firms and pairwise correlation matrix. These techniques also provide a calibration algorithm based on maximum likelihood estimation. Finally, the model is compared with standard normal copula model in terms of tails of the loss distribution and implied correlation smile.     

Gender differences in competitiveness: Empirical evidence from professional distance running

A large body of literature documents the existence of a considerable and persistent gender gap in competitiveness. Using longitudinal data from professional distance running covering a period of nearly 40 years (1973-2009) I first confirm the findings of most previous studies by demonstrating that on average the women's races were - for most years - indeed less competitive than the men's contests. Closer inspection of the data, however, reveals that the women's races over distances with large amounts of prize money and/or prestige at stake (5000 m track, 10,000 m road, half marathon, and marathon) have always been particularly “balanced”. Moreover, although it still exists, the gender gap has considerably narrowed over the years. These findings are not compatible with the hypothesis that gender differences in competitiveness reflect evolved biological differences and/or psychological predispositions. It is, however, compatible with two other (complementary rather than substitute) hypotheses: due to changing socio-cultural conditions boys and girls are today socialized similarly in many parts of the world and due to the increasing returns to success (i.e. identical prize money levels and distributions) women are nowadays motivated to train as hard as comparably talented men.     

Modeling Financial Sector Joint Tail Risk in the Euro Area

We develop a novel high‐dimensional non‐Gaussian modeling framework to infer measures of conditional and joint default risk for numerous financial sector firms. The model is based on a dynamic generalized hyperbolic skewed‐t block equicorrelation copula with time‐varying volatility and dependence parameters that naturally accommodates asymmetries and heavy tails, as well as nonlinear and time‐varying default dependence. We apply a conditional law of large numbers in this setting to define joint and conditional risk measures that can be evaluated quickly and reliably. We apply the modeling framework to assess the joint risk from multiple defaults in the euro area during the 2008–2012 financial and sovereign debt crisis. We document unprecedented tail risks between 2011 and 2012, as well as their steep decline following subsequent policy actions. Copyright © 2016 John Wiley & Sons, Ltd.     

Logic from space

This is one of the essential results of an inquiry into spacetime-sociology which was outlined and begun with in a research memorandum of the Institute for Advanced Studies, Vienna (IHS) 1992. It contains a proof that classical logic, or Boole's laws of thought, can be derived from an original concept of orientation that has emerged in human cognition during paleolithic worship activity. The original concept of orientation represents a genetic structure of orientation in both physical and social space. This is of a considerable importance. Because the original concept of orientation in its exact mathematical form is a symmetry in space, strictly a subgroup of the rotation-groupD ₃. Thus it belongs to the fields of mathematics and physics entirely and has nothing to do with logistics, linguistics or sociology. On the other hand binary logic is an important aspect of language and thought and seems to have little in common with the perception of objects in space. So there is a connection between logic and orientation in space. Mathematically this is represented by an isomorphism between the spatial symmetryD _2d of the Mandala of the quartered circle and the symmetry of classical logic.     

Temporary overpessimism: Job loss expectations following a large negative employment shock

Job loss expectations were widespread amongst workers in East Germany following reunification with West Germany. Though experiencing a large negative employment shock, East German workers were nevertheless overpessimistic immediately after reunification with respect to their job loss risk. Over time, job loss expectations fell and converged to West German levels, which was driven by a stabilizing economic environment and by an adaptation of the interpretation of economic signals with workers learning to distinguish individual risk from firm-level risk. In fact, conditional on actual job loss risk, East German workers quickly caught up to West Germans regarding the share of correctly predicted job losses.     

Why is the corporate tax rate lower than the personal tax rate?: The role of new firms

In many OECD countries, statutory corporate tax rates are lower than personal income tax rates. This tax rate difference is often particularly large for small firms. The present paper argues that a reduction of the corporate tax rate below the personal tax rate is an optimal tax policy if there are problems of asymmetric information between investors and firms in the capital market. The reduction of the corporate tax rate below the personal tax rate encourages equity financing and thus mitigates the excessive use of debt financing induced by asymmetric information. Our main theoretical result stands in marked contrast to the traditional view of corporate taxation and corporate finance theory, according to which there is a tax disadvantage to equity financing. More recent empirical evidence on this issue, however, is in line with our result.     

Static versus dynamic hedges: an empirical comparison for barrier options

We conduct an empirical comparison of static versus dynamic hedges of barrier options. Using more than five years of data, we compare a number of static hedges from the literature with dynamic hedges based on the local volatility model. The main result is that the variability of profit-and-loss distributions from certain static hedges is significantly smaller than that of dynamic hedges and robust to changing market scenarios. Furthermore, these static hedges are able to provide a robust tracking of barrier options’ sensitivities. This article reflects the authors’ personal opinion and not necessarily the opinion of their employers.     

Urban agglomerations,knowledge-intensive services and innovation: establishing the core connections

This paper investigates how resources available in urban agglomerations influence the organizational form, innovation activity and collaborative linkages of knowledge-intensive business services (KIBS) firms. Compared with their counterparts elsewhere, KIBS located in Norwegian large city labour market regions are more likely to be independent of multi-establishment business organizations and thus reliant on resources available externally, in their locations. This is most pronounced in the central and Western business districts of the capital, wherein independent KIBS exhibit high turnover of professionals and are less inclined to engage actively in innovation. Yet, those that do engage use the capital region economy as a platform for engaging with both domestic and international collaboration partners. Only by consecutively analysing these aspects and accounting for the selection processes involved is the empirical analysis able to uncover contrasting firm-level responses to the same urban economy resource base.