On the short-maturity behaviour of the implied volatility skew for random strike options and applications to option pricing approximation

In this paper, we propose a general technique to develop first- and second-order closed-form approximation formulas for short-maturity options with random strikes. Our method is based on a change of numeraire and on Malliavin calculus techniques, which allow us to study the corresponding short-maturity implied volatility skew and to obtain simple closed-form approximation formulas depending on the derivative operator. The numerical analysis shows that these formulas are extremely accurate and improve some previous approaches for two-asset and three-asset spread options such as Kirk’s formula or the decomposition method presented in Alòs et al. [Energy Risk, 2011, 9, 52–57]. This methodology is not model-dependent, and it can be applied to the case of random interest rates and volatilities.     

A new perspective on dynamic portfolio policies

The paper starts from the preceeding paper by L. Peccati in this issue. The original model is enriched with corporate taxes and reinvestment possibilities.The decomposition of NPV is used to study an optimal dynamic reinvestment policy.A generalization of the model is outlined and a numerical example is provided in an appendix.     

Rovina,assicurazione e scambi di attività finanziarie

Viene fornita la soluzione in forma chiusa di un problema di ottimizzazione dinamica stocastica, consistente nella scelta ottimale tra consumo e risparmio e nella composizione ottimale di portafoglio, in presenza di possibilità di rovina assicurabile.Dal punto di vista della teoria assicurativa, il lavoro amplia alcuni modelli recenti sull'assicurazione ottima, poiché segue un approccio del tipo «equilibrio generale» con due tipi di agenti eterogenei anziché parziale.Dal punto di vista della teoria di portafoglio, esso si discosta dai modelli tradizionali perché giustifica l'esistenza di scambi sui mercati finanziari e ne spiega l'entità.In questo senso il lavoro amplia alcuni contributi recenti sui flussi di capitale includendovi la possibilità di rovina e l'esistenza di una assicurazione contro di essa.

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Summary This paper provides an analytical solution for a multiperiod stochastic optimization problem, namely consumption and portfolio choice with partial risk insurance.An opposed to some recent optimal-insurance models a general-equilibrium approach —with two classes of heterogeneous agents—is adopted.Furthermore, the paper departs from traditional portfolio analysis in that it emphasises the dynamics of financial markets and justifies the existence of market trading.In this sense, it widens some recent general-equilibrium results on capital flows by including bankruptcy risk and insurance.

     

Can individuals’ beliefs help us understand nonadherence to malaria test results? Evidence from rural Kenya

In malaria‐endemic countries about a quarter of test‐negative individuals take antimalarials (artemisinin‐based combination therapies [ACTs]). ACT overuse depletes scarce resources for subsidies and contributes to parasite resistance. As part of an experiment in Kenya that provided subsidies for rapid diagnostic test and/or for ACTs conditionally on being positive, we studied the association between beliefs on malaria status (prior and posterior the intervention) and decisions to get tested and to purchase ACTs. We find that prior beliefs do not explain the decision of getting tested (conditional on the price) and nonadherence to a negative test. However, test‐negative individuals who purchase ACTs report higher posterior beliefs than those who do not, consistent with a framework in which the formers revise beliefs upward, while the latters do not change or revise downward. We also do not find evidence that prior beliefs on ACT effectiveness and trust in test results play any major role in explaining testing or treatment behavior. Further research is needed to improve adherence to malaria‐negative test results.     

Impact of funding sources on innovation: evidence from Brazilian software companies

This paper aims to investigate the impacts of different sources of innovation funding on company performances in the context of an emerging economy. Brazilian software companies are selected as a case for this investigation. Data – related to the types of funding support received and eight types of company performances measured in binary scales – was collected through an online survey from 188 companies located across Brazil. A multivariate probit model was estimated to assess the impacts of different funding schemes on company performances – controlling for other confounding effects. The findings confirmed the critical importance of public innovation funding, and revealed that companies that: (1) Used public funds were more likely to become nationally competitive; (2) Used loans from commercial banks were less likely to become nationally and internationally competitive; (3) Reinvested revenues were more likely to gain market share, and help in increasing the number of employees; (4) Not aware of public funding schemes were less likely to invest on research, development, and innovation. The overall findings suggest the positive impacts of innovation funds on company performance. They can serve as a policy guide to develop targeted performance strategy to determine which funding scheme would be effective to foster what outcomes.     

A simulation study of Basel II expected loss distributions for a portfolio of credit cards

Credit scoring models have been used traditionally as the basis of decisions to reject or accept credit applications. They are also used to categorize applicants or existing accounts into risk groups. Based on estimates of probability of default (PD), the risk groups may seem well separated. However, by considering distributions on risk elements such as model estimation uncertainty, exposure at default and loss given default, a simulation approach is used to compute Basel II expected loss distributions for a portfolio of credit cards. These show that discrimination between risk groups is not as clear as is immediately suggested simply by PD estimates. Based on these distributions, we also show that measuring extreme credit risk with Value at Risk can lead to considerable underestimation if distributions on these risk elements are not entered into the computation.     

A note on the implied volatility of floating strike Asian options

Decisions in Economics and Finance - In this paper, we study the short-time behavior of the implied volatility for short-time floating strike Asian options. Our method is based on Malliavin...     

Making a first impression as a start-up: Strategies to overcome low initial trust perceptions in digital innovation adoption

High failure rates of digital innovations by start-ups indicate that consumers' initial trust perceptions are make-or-break for their survival. Hence, start-ups have to design adequate business models to manage consumers' initial trust perceptions of digital innovations. Five experiments explore how start-ups can signal trustworthiness in order to overcome low initial trust perceptions and boost adoption. We find three specific design strategies of start-ups' digital business models – customer ratings, benefit communication, and revenue model – to be effective to overcome low initial trust perceptions and to increase adoption of digital innovations. The findings demonstrate that initial trust serves as a critical mediator in the relationship between these design strategies and consumers' adoption intentions. Additionally, the chosen revenue model has differential effects on privacy concerns, which mediate the relationship between revenue model and initial trust. The present empirical insights help start-ups to craft business model design strategies for successful digital innovation launch.     

International business and human rights: A research agenda

The discussion on business responsibilities for human rights is thriving – although, surprisingly, predominantly outside of the International Business (IB) field. This article introduces business and human rights (BHR) as a research area with great potential for IB scholars. IB scholarship has much to offer when it comes to better understanding the relation between multinational enterprises (MNEs) and human rights. BHR, on the other hand, is a field that can no longer be ignored by IB research if the field is to remain at the forefront of scholarship in globalization-related issues concerning MNEs. Therefore, this perspective article aims at providing guidance to IB scholars interested in engaging in BHR research by tracing common themes and overlaps, and outlining a research agenda that addresses some of the research gaps and open questions in both fields.     

Distributive impact of structural change: Does environmental degradation matter?

Vulnerability to reduction of natural capital depends on defensive substitution possibilities that, in turn, are affected by the availability of other productive factors. However in several developing countries asset distribution tends to be highly skewed. Taking into account these elements, this paper proposes a model considering an economy polarized into two classes (the rich and the poor) and characterized by the following stylized facts: income and productivity of the rural poor is highly dependent on natural resources; labour remuneration in rural sector represents the opportunity cost for wage labour; the rich can partially substitute natural capital with physical capital and wage labour. In this context, agents differ for feed back mechanisms and interactions between their choices of production and environmental dynamics. Moreover environmental depletion may trigger economic transition, but the structural change is likely to result regressive.