The Pricing Formula for Commodity-Linked Bonds with Stochastic Convenience Yields and Default Risk

At the maturity, the owner of a commodity-linked bond has the right to receive the face value of the bond and the excess amount of spot market value of the reference commodity bundle over the prespecified exercise price. This payoff structure is an important characteristic of the commodity-linked bonds. In this paper, we derive closed pricing formulae for the commodity-linked bonds. We assume that the reference commodity price and the value of the firm (bonds' issuer) follow geometric Brownian motions and that the net marginal convenience yield and interest rate follow Ornstein–Uhlenbech processes. In the appendix, we derive pricing formulae for bonds which are the same as the above commodity-linked bonds, except that the reference commodity price in the definition of the payoff at the maturity is replaced by the value of a special asset which depends on the convenience yield. This revised version was published online in August 2006 with corrections to the Cover Date.     

International trade and terrestrial open-access renewable resources in a small open economy

Abstract .  In this paper, I investigate the effects of trade liberalization and policies on deforestation by extending a small open economy model with open-access renewable resources developed by Brander and Taylor (1997a) . I endogenize the carrying capacity of the resource. I find, unlike Brander and Taylor, that trade liberalization may increase the forest stock in the resource-abundant country and may decrease the forest stock in the resource-scarce country. Moreover, the policies primarily aimed at protecting forests, such as import restrictions by importing countries and forest certification for well-managed forests, may have perverse effects on the forest stock.     

Correlated Pollutants, Interregional Redistribution and Labor Attachment in a Federation

We examine the efficiency of federal policies in a federation characterized by decentralized leadership, imperfect labor mobility and transboundary pollution. Selfish regional governments regulate correlated pollutant emissions by choosing pollution tax and abatement levels in anticipation of the center’s redistributive policy. The center’s objective function obeys a proportional equity principle, which implies that its choice of interregional transfer satisfies the equalization of weighted regional welfare levels. Regional and central governments make their choices subject to migration incentives. We show that the subgame perfect equilibrium for the sequential game played by regional and central governments yields socially optimal policies. An erratum to this article can be found at     

Stationary and Non-stationary Simultaneous Switching Autoregressive Models with an Application to Financial Time Series

A common observation among economists on many economic time-series, including major financial time-series, is the asymmetrical movement between the downward phase and the upward phase of their sample paths. Since this feature of time irreversibility cannot be described by the Gaussian ARMA, ARIMA or ARCH time-series models, we propose stationary and non-stationary simultaneous switching autoregressive (SSAR) models, which are nonlinear switching time-series models. We discuss some properties of these time-series models and the estimation method for their unknown parameters. The asymmetrical conditional heteroscedasticity can be easily incorporated into the SSAR models. We also report a simple empirical result on Nikkei 225 Spot and Futures indices by using a non-stationary SSAR model.
JEL Classification Numbers: C22, C32.     

Effects of Jumps and Small Noise in High-Frequency Financial Econometrics

Several new statistical procedures for high-frequency financial data analysis have been developed to estimate risk quantities and test the presence of jumps in the underlying continuous-time financial processes. Although the role of micro-market noise is important in high-frequency financial data, there are some basic questions on the effects of presence of noise and jump in the underlying stochastic processes. When there can be jumps and (micro-market) noise at the same time, it is not obvious whether the existing statistical methods are reliable for applications in actual data analysis. We investigate the misspecification effects of jumps and noise on some basic statistics and the testing procedures for jumps proposed by Ait-Sahalia and Jacod (Ann Stat 37–1:184–222 2009; 38–5:3093–3123 2010) as an illustration. We find that their first test (testing the presence of jumps as a null-hypothesis) is asymptotically robust in the small-noise asymptotic sense against possible misspecifications while their second test (testing no-jumps as a null-hypothesis) is quite sensitive to the presence of noise.     

Do deeper regional trade agreements enhance international technology spillovers?

We examine whether regional trade agreements (RTAs) enhance international technology spillovers using a panel of patent citation data for 114 countries/regions for the period 1991–2007. We use patent citations as a proxy for technology spillovers. The focus of this study is on whether the depth of regional integration matters for technology spillovers among member countries/regions of RTAs. The depth of integration is measured by the extent to which an RTA includes legal obligations outside the current mandate of the World Trade Organization. We find that the depth of integration actually influences technology spillovers and that a deeper integration in a broad sense has a greater impact on technology spillovers than do technology‐related provisions.     

Target Costing Performance Based on Alternative Participation and Evaluation Methods: A Laboratory Experiment

This paper deals with the motivational impacts of alternative participation and performance-evaluation methods on the cost- reduction performance of product designers in the product development process. Alternative participation methods for establishing the target cost consist of the participative and the nonparticipative approaches. Also, the alternative performance-evaluation methods include evaluations based on only the controllable item measure and on both controllable and uncontrollable items measures. To test the hypothesis which are proposed with respect to the above impacts, a laboratory experiment was conducted on 120 subjects. When participation and performance evaluation factors are considered separately, the cost-reduction performance of product designers is improved if they can participate in the target-setting process and are evaluated by their controllable item information. In investigating their joint influence, it is found that the combination of the participative method and controllable item and nonparticipative and uncontrollable item information have improved cost-reduction performance. Among all the independent variables, controllable item information is the most dominant variable as it has the strongest influence on cost reduction. © 1997 John Wiley & Sons, Ltd.     

Comparative statics for oligopoly: A generalized result

We perform comparative statics for a general model of asymmetric oligopoly and derive a concise formula for the response of one firm to a marginal change in its rival’s strategic variable, taking into account the responses of all other firms. We obtain the conditions under which the sign of this response coincides with that of the mixed second-order partial derivative of the firm’s payoff function. We then propose a distinction between gross and net strategic relationships (i.e., strategic substitute and complement).