Pricing and static hedging of European-style double barrier options under the jump to default extended CEV model

This paper develops two novel methodologies for pricing and hedging European-style barrier option contracts under the jump to default extended constant elasticity of variance (JDCEV) model, namely: a stopping time approach based on the first passage time densities of the underlying asset price process through the barrier levels; and a static hedging portfolio approach in which the barrier option is replicated by a portfolio of plain-vanilla and binary options. In doing so, both valuation methodologies are extended to a more general set-up accommodating endogenous bankruptcy, time-dependent barriers and the commonly observed stylized facts of a positive link between default and equity volatility and of a negative link between volatility and stock price. The two proposed numerical methods are shown to be accurate, easy to implement and efficient under both the JDCEV model and the nested constant elasticity of variance model.     

The moderating effects of economic development on innovation and shadow entrepreneurship: grey or pink?

There is currently a renewed surge of interest in informal entrepreneurship around the world. One of the motives stems from how such entrepreneurship shapes and influences a substantial part of the global workforce. However, we may also verify how a major proportion of the research in this field focuses on developing economies and thus justifying the application of such analytical approaches to countries with different levels of economic development as is the case with Europe. Our research objectives, on the one hand, involve analysing the impact of R&D investment on informal entrepreneurship and, on the other hand, the moderating effect of the level of economic development on their innovative capacities and informal entrepreneurship results. To this end, and in accordance with Global Entrepreneurship Monitor, we divide the countries of Europe into two stages of development and may report that the higher the level of economic development, the greater the innovative capacity and, furthermore, the lower informal entrepreneurship becomes. The same holds for R&D investment with its increase being inversely proportionate to informal entrepreneurship. We, therefore, seek to contribute toward a better understanding of the problematic framework of informal entrepreneurship, in particular in the European context.     

Market illiquidity and bounds on European option prices

The paper analyses the impact of illiquidity of a stock paying no dividends on the pricing of European options written on that stock. In particular, it is shown how illiquidity generates price bounds on an option on this stock, even in the absence of other imperfections, such as transaction costs and trading constraints, or the assumption of stochastic volatility. Moreover, price bounds are shown to be asymmetric with respect to the option price under perfect liquidity. This fact explains, under some conditions, the appearance of a smile effect when the implied volatility is estimated from the mid-quote.     

Exploring sources and outcomes of trust and commitment to nonprofit organizations: The case of Amnesty International Portugal

The interactions between customers and organizations have been regarded as a core aspect in cocreating and developing new products and practices. The current study explores these interactions in the context of citizens and nonprofit organizations. The study comprises two parts: (a) a qualitative approach using interviews and the analysis of social networks to better understand the organization's social media marketing practices and corresponding outcomes and (b) a quantitative approach to analyze antecedents and outcomes of trust and being committed to participate in a nonprofit organization such as Amnesty International. From the qualitative approach, the findings highlight that Amnesty International uses social media (Facebook) to share information, and citizens tend to consider sharing posts, but they do not express new ideas or interact with the organization. These findings contribute to structure the model analyzed in the second stage of the research. Regarding the qualitative approach, the results show that organizational credibility is the most significant driver of trust followed by communicative ability. Affectively commitment to participation and relationship perception act as outcomes of overall commitment.     

Cross‐border mergers and acquisitions: The role of private equity firms

Research summary: We show that private equity ownership (“PE backing”) of the acquirer is a signal of deal quality in cross‐border takeovers. As such, PE‐backed acquirers experience higher announcement returns in cross‐border takeovers, but only if targets are in poor information environments. We show that PE backing is a positive market signal because of PE firms' experience and networks that result from prior deals in target countries. We document that the market correctly anticipates that operating performance of PE‐backed acquirers increases as a result of cross‐border mergers and acquisitions (M&A). Managerial summary: We study cross‐border acquisitions by acquirers that are partially owned by private equity firms (“PE backing”). Cross‐border acquisitions are challenging as acquirers often have little information about targets. We document that investors react positively to cross‐border deals of PE‐backed acquirers—their stock prices increase upon deal announcements. However, this is only the case if targets are in countries with poor information environments. This is because PE backing allows acquirers to access PE firms' deal experience and networks. This makes it easier to identify and evaluate good targets, making it more (less) likely that a deal eventually creates (destroys) value. Consistent with this, we find that earnings of PE‐backed acquirers increase after buying targets in poor information environments. Copyright © 2016 John Wiley & Sons, Ltd.     

Tourism and employment in the Gambia

In addition to providing formal wage labor in hotels, airports, and the service infrastructure, tourism is said to provide possibilities for independent indigenous enterprise in handicrafts, entertainment, transport, through which the Gambians may, in effect, economically “lift themselves up by their bootstraps.” Such is the theory. This paper analyzes the actual employment possibilities in The Gambia provided by its recent tourism investment. From the findings of an economic survey the author concludes that hopes of economic development being catalyzed by tourism are unfounded and misleading. This conclusion is supported by a structural analysis and a characterization of the tourist industry in The Gambia by an investigation into the economic forces at work in the country, and by direct observations made by informants and the author concerning the impact tourism has made in spheres non-economic: the moral, the social, and the family.     

Debts on debts

This paper studies the impact of mortgages on consumer debt and on debt on durable goods. Outstanding debt, representing mortgages, affects positively consumer debt, and the debt on durable goods. This hypothesis is empirically tested for the U.S. using PSID 2005 wave. Our results are striking. First, we find strong evidence supporting a positive association between mortgage loans and consumer debts, regardless of the measures used, the control variables used, and the methods used. The results remain unchanged when we address potential endogeneity and measurement error problems. Second, we find that the effects of mortgages on the debt on durable goods are in general smaller than the effects of mortgages on other types of debts. Third, our distributional analysis reveals an interesting pattern of the effects on consumer debt of mortgage over the distribution. Specifically, the effects monotonically decrease as the quantile increase, with the smallest effects being at the upper tail of the distribution. Finally, we also examine the short-run dynamics of the relation between mortgage and consumer debts. We find that there is no systematic relation between the growth rate of mortgage and the growth rates of consumer debts.