Pricing policy and coordination for a two-layer supply chain of duopolistic retailers and socially responsible manufacturer

This paper explores channel coordination and profit distribution in a two-layer socially responsible supply chain that consists of a manufacturer and two competitive retailers. In manufacturer-Stackelberg game setting, the manufacturer exhibits corporate social responsibility and the retailers play Cournot and Collusion games. Besides comparing the optimal decisions of the retailers two game behaviours, the paper analyses the effects of social responsibility on the optimal decisions. It is found that two-part tariff contract resolves channel conflict and provides win–win outcome for a specific range of the franchise fee and it is always possible to find a particular profit split using Nash bargaining product. With increasing social responsibility of the manufacturer, the coordinated wholesale prices of the manufacturer may be both decreasing or ‘U’ shaped and decreasing when the market potentials of the retailers are almost the same or significantly different. Also, at least one coordinated wholesale price is less than the manufacturer's marginal cost. The proposed model is illustrated by a numerical example.     

A NOTE ON THE PROPERTY RIGHTS THEORY AND THE EX ANTE VALUE OF INFORMATION

This paper examines the ex ante value of information in the property rights model where the possibility exists that an investing agent can be provided with relevant information before investments are undertaken. When contracts are incomplete, from an ex ante perspective, informing the investing agent does not necessarily increase the expected surplus resulting from a relationship between two economic agents. The paper highlights the fact that the second‐best nature of the problem that arises from contractual incompleteness can ensure this.     

A Characterization of Complete Security Markets On A Brownian Filtration1

This paper provides a characterization theorem for a complete securities market when security prices follow Itô processes on a multidimensional Brownian filtration. This characterization theorem is a special case of Harrison and Pliska (1983), and it clarifies a counterexample provided by Müller (1989).     

The Variance Gamma Process and Option Pricing

A three parameter stochastic process, termed the variance gammaprocess, that generalizes Brownian motion is developed as amodel for the dynamics of log stock prices. Theprocess is obtainedby evaluating Brownian motion with drift at a random time givenby a gamma process. The two additional parameters are the driftof the Brownian motion and the volatility of the time change.These additional parameters provide control over the skewnessand kurtosis of the return distribution. Closed forms are obtainedfor the return density and the prices of European options.Thestatistical and risk neutral densities are estimated for dataon the S&P500 Index and the prices of options on this Index.It is observed that the statistical density is symmetric withsome kurtosis, while the risk neutral density is negativelyskewed with a larger kurtosis. The additional parameters alsocorrect for pricing biases of the Black Scholes model that isa parametric special case of the option pricing model developedhere.     

Berry-Esséen rate in asymptotic normality for perturbed sample quantiles

In estimating quantiles with a sample of sizeN obtained from a distributionF, the perturbed sample quantiles based on a kernel functionk have been investigated by many authors. It is well known that their behaviour depends on the choices of “window-width”, sayw _N. Under suitable and reasonably mild assumptions onF andk, Ralescu and Sun (1993) have recently proven that lim _N→∞ N ^1/4w_N=0 is the necessary and sufficient condition for the asymptotic normality of the perturbed sample quantiles. In this paper, their rate of convergence is investigated. It turns out that the optimal Berry-Esséen rate ofO(N^?1/2) can be achieved by choosing the window-width suitably, sayw _N=O(N^?1/2). The obtained results, in addition to being explicit enough to verify the sufficient condition for the asymptotic normality, improve Ralescu's (1992) result of which the rate is of order (logN)N ^?1/2.     

Economic Consequences of IFRS Adoption: The Role of Changes in Disclosure Quality*

This study adopts a two‐step approach to highlight the disclosure quality channel that drives economic consequences of IFRS adoption. This approach helps address the identification challenge noted by prior research and offers direct evidence on the role of disclosure quality. In the first step, we document the impact of the IFRS mandate on changes in disclosure quality proxied by the granularity of line item disclosure in financial statements. We find that IFRS‐adopting firms provide more disaggregated information upon IFRS adoption, such as more granular disclosure of intangible assets and long‐term investments on the balance sheet and greater disaggregation of depreciation, amortization, and nonoperating income items on the income statement. In the second step, we link the observed disclosure changes to the benefits and costs of IFRS adoption. We show that greater disaggregated information due to IFRS adoption enhances market liquidity and decreases information asymmetry, but does not affect audit fees differentially. Our evidence has implications for standard setters as they evaluate cost‐benefit trade‐offs when considering disclosure changes in the future.     

Pricing options on mean reverting underliers

For mean reverting base probabilities, option pricing models are developed, using an explicit measure change induced by the selection of a terminal time and a terminal random variable. The models employed are the square root process and an OU equation driven by centred variance gamma shocks. VIX options are calibrated using the square root process. The OU equation driven by centred variance gamma shocks is applied in pricing options on the ratio of the stock price for J. P. Morgan Chase (JPM) to the Exchange Traded Fund for the financial sector with ticker XLF. For the purposes of calibrating the ratio option pricing model to market data, we indirectly infer the prices for stock options on JPM from the prices for options on the ratio, by hedging the conditional value of JPM options given XLF, using options on XLF. The implied volatilities for the options on the ratio are then indirectly observed to be fairly flat. This suggests that for JPM, the use XLF as a benchmark is a possibly good choice. It is shown to perform better than the use of the S&P 500 index. Furthermore, though the use of an unrelated stock price like Johnson and Johnson as a benchmark for JPM provides as a good fit as does the use of XLF, this comes at the cost of requiring a considerable smile for the implied volatilities on the ratio options and hence a more complex model for the implied distribution on the ratio.     

The Second Fundamental Theorem of Asset Pricing

This paper presents a resolution of the paradox proposed by the example of an economy with complette markets and a multiplicityof martingale measures constructed by Artzner and Heath (1995). The resolution lies in noting that completeness is with respect to a topology on the space of cash flows and is connected with uniqueness of the price functional in the topological dual space. Uniqueness may be lost outside the dual and this is what occurs in the counterexample of Artzner and Heath.     

Unifying Black–Scholes Type Formulae Which Involve Brownian Last Passage Times up to a Finite Horizon

The authors recently discovered some interesting relations between the Black–Scholes formula and last passage times of the Brownian exponential martingales, which invites one to seek analogous results for last passage times up to a finite horizon. This is achieved in the present paper, where Yuri’s formula, as originally presented in Akahori et al. (On the pricing of options written on the last exit time, 2008), is also derived.