Factor Models for Option Pricing

Options on stocks are priced using information on index options and viewing stocks in a factor model as indirectly holding index risk. The method is particularly suited to developing quotations on stock options when these markets are relatively illiquid and one has a liquid index options market to judge the index risk. The pricing strategy is illustrated on IBM and Sony options viewed as holding SPX and Nikkei risk respectively.     

Integration of South Asian Economies: an exercise in frustration?

This paper examines the factors underlying the slow progress towards economic integration between the countries of the South Asian region, and discusses the worth and likelihood of an effective agreement. It is argued that substantial integration will only take place after further economic growth leads to increased complementarity in their economic structures.     

Trade liberalization and industrial growth in Pakistan: a cointegration analysis

Using the framework of an endogenous growth model, this study empirically analyses the relationship between trade policies and industrial growth in Pakistan during the period 1973–1995. The cointegration and error correction modelling approaches have been applied. The empirical results suggest that there exists a unique long-run relationship among the aggregate growth function of industrial value added and its major determinants of the real capital stock, the labour force, real exports, the import tariff collection rate and the secondary school enrolment ratio. The short-term dynamic behaviour of Pakistan's growth function of industrial value added has been investigated by estimating an error correction model in which the error correction term has been found to be correctly signed and statistically significant.     

Consumers' waiting in queues: The role of first‐order and second‐order justice

Past research on queuing has identified social justice as an important determinant of consumers' waiting experiences. In queuing settings, people's perception of social justice is affected by whether the principle of first in and first out (FIFO) has been violated. However, even when service follows the FIFO principle, waiting time may still differ from one consumer to another for various reasons. For instance, a consumer who happens to arrive in the queue after a large group of people may have to wait longer than average. In this research, it is argued that, aside from and independent of the FIFO principle, consumers also care about whether everyone spends an approximately equal amount of time waiting before availing of the product or service. When consumers perceive that they have spent more time waiting than others and when they can attribute this injustice to the service provider, they will be less satisfied with the waiting experience. It is also proposed that adherence to the FIFO principle is a more salient concern to consumers (thus termed “first‐order” justice), and equal waiting time (”second‐order” justice) matters only when first‐order justice is not an issue. Three studies support the predictions. © 2008 Wiley Periodicals, Inc.     

Evolving Aspirations and Cooperation

A 2×2 game is played repeatedly by two satisficing players. The game considered includes the Prisoner's Dilemma, as well as games of coordination and common interest. Each player has anaspirationat each date, and takes an action. The action is switched at the subsequent period only if the achieved payoff falls below aspirations; the switching probability depends on the shortfall. Aspirations are periodically updated according to payoff experience, but are occasionally subject to trembles. For sufficiently slow updating of aspirations and small tremble probability, it is shown that both players must ultimately cooperate most of the time.Journal of Economic LiteratureClassification Numbers C72, D83.