Revisiting the Tourinho real options model: outstanding issues 30 years later

This article presents and extends the first known model in real options, proposed in Tourinho (1979), and provides thoughts on addressing issues that are still outstanding 30 years later. It discusses the need to ensure the existence of market equilibrium when applying real options valuation to price assets, once all agents behave as suggested by the solution to the pricing equation. It argues that this can be achieved by using a stochastic process for the price that is sufficiently general to respond to supply and demand imbalances in the market for the resource. Once the individual decision rules are derived, the parameters of the process must be determined to ensure market equilibrium exists. For reserves of natural resources, this can be done by using a mean-reverting process for the price of the commodity and ensuring that the long-term price to which it reverts equals the trigger price for development of the marginal reserve.     

Pricing credit default swaps with bilateral value adjustments

The aim of this work is to examine the influence of mutual fund flows on market timing models, thus providing unbiased timing coefficients. However, as this control is motivated by the existing relationship between mutual fund flows and market returns, we first analyse this relationship, considering previous and concurrent market returns. However, unlike existing studies, we do not consider future returns, since investors do not observe them when making investment decisions. Thus, we feel it is more appropriate to consider expected market returns. We construct the expected market returns by running an AR model and considering the available public information about the macro-economy. The relationship is analysed under different conditions, considering a variety of different mutual fund flow measures, and considering (or not) the sensitivity of mutual fund flows to positive and negative market returns. We also propose different controls for the traditional timing models, and we further analyse the reverse-causality problem. The study demonstrates, for a sample of equity mutual funds registered for sale in the USA, that the poor market timing performance found in this and other prior studies can be completely attributed to the perverse effect of the fund managers’ liquidity service.     

Utility Theory and reciprocal pairwise comparisons: The Eigenvector Method

The criticisms of Utility Theory focus on either its axioms or the construction of utility functions. Here we present a method which avoids the problems of uniqueness encountered in the construction of utility functions when using either the certainty equivalence method or the probability equivalence method. The method is based on the construction of ratio scale value functions from reciprocal pairwise comparisons and Saaty's Eigenvector Method. We show that under the assumption of cardinal consistency utility functions are a particular case of these ratio scales. Reciprocal pairwise comparisons allow decision makers to relax the transitivity assumption and help to derive a unique scaling of preferences.     

Financial and intangible factors in fleet lease or buy decision

We show that there is no single “best solution” in the leasing versus company ownership problem for the fleet administration industry as a whole. Because of the different styles and traditions of firms and because of the emphasis on intangibles beyond economics, a unifying framework of reference including the variety of factors is developed as a hierarchy and evaluated for priorities serving as a useful tool to guide each company to make its decision whether to lease or to buy. This appears to be an effective way for assessing tradeoffs previously regarded beyond the realm of measurement.     

Estimation of Crop Yields and Insurance Premiums Using a Shrinkage Estimator

We explore the estimation of crop yields and insurance premiums using a hierarchical Bayes small area estimator. The estimator is evaluated for Area Yield Production (AYP) policy using quasi-simulated corn yields in the United States. Its performance in producing reliable mean county yield and premium estimates is compared to that of a naive estimator. We also investigate the impact of these efficiency improvements on the residual losses between a farm-level policy and AYP. The proposed estimator is found to be substantially more efficient and less biased than the naive estimator.     

Untere Einkommensgruppen noch gezielter entlasten

Wirtschaftsdienst - Prices for energy and food are currently rising extraordinarily sharply. Households with low net incomes in particular are being burdened by the price increases, in some cases...     

Can we find the right balance in cause‐related marketing? Analyzing the boundaries of balance theory in evaluating brand‐cause partnerships

Cause‐related marketing (CRM) refers to the phenomenon where brands partner with causes, such as nonprofit organizations. Consumers may see some CRM partnerships as less compatible than others, however the level of perceived compatibility differs from one consumer to another. We know a great deal about how perceptions of compatibility affect attitude and behavior toward CRM partnerships, but we know less about how to predict a consumer's perception of compatibility. Therefore, our purpose was to investigate the boundaries in which balance theory could be used to make predictions about consumers’ responses to CRM partnerships. This is the first study to consider the construct of attitude strength (vs. attitude alone) when considering balance theory. We found that a consumer's attitude toward a brand, along with their attitude toward a cause, predicts their perceptions of CRM compatibility. We also found that CRM triadic balance could be predicted when attitude strength was included in the models, and that balance theory allowed us to observe preliminary evidence of attitude and attitude strength spillover effects in CRM triads. Practitioners can use these insights to determine which organizations to partner with, as well as determine how advertising these partnerships may affect acceptance of these partnerships.     

The Marisol case: Challenges of international growth for a successful Brazilian designer apparel firm

Marisol has forged a successful legacy in Brazil in the market for clothes with a sophisticated, stylish look. Success in Brazil enabled the firm to garner overseas customers. The establishment of subsidiaries in Argentina, Italy and Mexico, as well as sales operations in several countries – including Chile, Colombia, Spain, and the USA, among others – represented important steps in Marisol's internationalization. Marisol's executives have to decide on several issues: how to consolidate their position in the USA market and in other countries? What modes of operation – own stores, franchisees, multi-brand stores, private label supply – to use in which countries? Which brands to launch abroad and whether to adapt them to local tastes, while exploiting the image of Brazilianness?     

Portugal–EU Convergence Revisited: Evidence for the Period 1960–2003

This paper uses the stochastic approach to convergence to investigate whether real per capita GDP in Portugal has been converging to the EU15 average. The estimation accounts for conditional convergence, transitional dynamics and up to two structural breaks. It is found that per capita GDP in Portugal has indeed converged to the EU15 average, but the pace of convergence has not been uniform along time. In particular, a slow down in the convergence process is identified in 1974. This result depends, however, as to whether the choice of this break-date is viewed as uncorrelated with the data. No evidence of acceleration in the speed of convergence is found after EC accession, in 1986.An earlier version of this paper was presented at the Fifty-Ninth International Atlantic Economic Conference, London, England, March 9–13, 2005. Helpful suggestions from the conference participants and Luis Catela Nunes are acknowledged. The author expresses his gratitude for the financial support of the Portuguese Foundation for Science and Technology (FCT), under research grant POCI/EGE/55423/2004 (partially funded by FEDER).