Pricing futures on geometric indexes: A discrete time approach

Several futures contracts are written against an underlying asset that is a geometric, rather than arithmetic, index. These contracts include: the US Dollar Index futures, the CRB-17 futures, and the Value Line geometric index futures. Due to the geometric averaging, the standard cost-of-carry futures pricing formula is improper for pricing these futures contracts. We assume that asset prices are lognormally distributed, and capital markets are complete. Using the concepts of equivalent martingale measure and the risk-neutral valuation relationships in conjunction with discrete time methodology, we derive closed-form pricing formulas for these contracts. Our pricing formulas are consistent with the ones obtained via a continuous time paradigm.

On the network topology of variance decompositions: Measuring the connectedness of financial firms

We propose several connectedness measures built from pieces of variance decompositions, and we argue that they provide natural and insightful measures of connectedness. We also show that variance decompositions define weighted, directed networks, so that our connectedness measures are intimately related to key measures of connectedness used in the network literature. Building on these insights, we track daily time-varying connectedness of major US financial institutions’ stock return volatilities in recent years, with emphasis on the financial crisis of 2007–2008.     

Hospital staff shortage: the role of the competitiveness of pay of different groups of nursing staff on staff shortage

Shortages of nursing staff in OECD countries have been a preoccupation for policy makers. Shortages of staff may be the consequence of uncompetitive pay. In the private sector, employers in different regions can offer different pay rates to reflect local amenities and cost of living. Hospitals in the UK however cannot set the pay for their employees, and as a result they might therefore incur staff shortages. Moreover, occupational groups do not operate in isolation. Shortages of staff may also be the consequence of the competitiveness of pay of an alternative group of staff. This is investigated using two distinct groups of nursing staff: assistant nurses (ANs) and registered nurses (RNs) working in English hospitals in 2003–2005 using national-level data sets. We find that an increase by 10% of the pay competitiveness of RNs decreases the shortage of both the RNs and of ANs by 0.6% and 0.4%, respectively.     

Audit Office Reputation Shocks from Gains and Losses of Major Industry Clients

Our study reports evidence on the dynamic effects of client switches on auditor reputations and fee premia. Offices of large accounting firms that lose (gain) major industry clients experience a reputation shock leading to more same‐industry client losses (gains) over the next two years. There is also a shift in audit fees charged to other same‐industry clients when a major client loss (gain) results in an audit office losing (gaining) city‐level industry leadership. A major client loss or gain also creates a short‐term capacity shock to an audit office's ability to supply high‐quality audits. However, there is no evidence of reputation spillovers to other‐industry clients in the audit office, or to clients in other offices of the accounting firm.     

Dodd–Frank's impact on community-bank investment models: A Bayesian structural time series analysis

We use Bayesian structural time series (BSTS) methodology to test whether the Wall Street Reform and Consumer Protection Act of 2010 (DF) caused changes in community bank business models. The BSTS methodology uses the pre-DF period to create synthetic counterfactuals for community-bank dependent variables of interest. In the post-DF period, the counterfactuals become predictions of the dependent variables had DF not been enacted. Comparing post-DF predicted versus actual dependent variables allows us to estimate the causal impact of DF on these variables of interest. We find that relative to assets, community banks significantly reduce their lending activities and significantly increase investment in securities and excess reserves.     

Enhancing claim classification with feature extraction from anomaly-detection-derived routine and peculiarity profiles

Usage-based insurance is becoming the new standard in vehicle insurance; it is therefore relevant to find efficient ways of using insureds' driving data. Applying anomaly detection (AD) to vehicles' trip summaries, we develop a method allowing to derive a “routine” and a “peculiarity” anomaly profile for each vehicle. To this end, AD algorithms are used to compute a routine and a peculiarity anomaly score for each trip a vehicle makes. The former measures the anomaly degree of the trip compared with the other trips made by the concerned vehicle, while the latter measures its anomaly degree compared with trips made by any vehicle. The resulting anomaly scores vectors are used as routine and peculiarity profiles. Features are then extracted from these profiles, for which we investigate the predictive power in the claim classification framework. Using real data, we find that features extracted from the vehicles' peculiarity profile improve the classification.     

Sterling's farewell symphony: The end of the Sterling Area revisited

When and why did Sterling Area countries stop holding sterling as the majority of their foreign exchange reserves? This paper takes a comparative approach to examine the relative importance of various determinants of adherence to sterling in its declining years as an international currency. Using an original cross-national panel dataset covering the period 1965–79, we conduct survival analysis which systematically evaluates a comprehensive set of economic and political factors, at the country level as well as in international relations, about when and why countries chose to diversify their reserves away from sterling. Our results highlight the significance of international transactional factors in influencing adherence to sterling, while the effects of British geopolitical retrenchment, Commonwealth cultural ties, and distributional issues were more ambiguous and sensitive to local conditions. We also find that domestic political and historical factors, such as democracy and imperial legacy, played a role in sterling's international unravelling. Finally, we use our results to examine the experience of individual sterling countries and their decisions to diversify.     

Correction to: Reformulating prospect theory to become a von Neumann–Morgenstern theory

Review of Quantitative Finance and Accounting - The authors regret the following errors occurred in the original publication of the article. The corrected text has been presented with this erratum.     

Forward-Looking Belief Elicitation Enhances Intergenerational Beneficence

Environmental and Resource Economics - One of the challenges in managing the Earth’s common pool resources, such as a livable climate or the supply of safe drinking water, is to motivate...     

Some Opening Words for The Special Issue

Review of Industrial Organization -