Pricing Discrete Barrier Options Under Stochastic Volatility

This paper proposes a new approximation method for pricing barrier options with discrete monitoring under stochastic volatility environment. In particular, the integration-by-parts formula and the duality formula in Malliavin calculus are effectively applied in pricing barrier options with discrete monitoring. To the best of our knowledge, this paper is the first one that shows an analytical approximation for pricing discrete barrier options with stochastic volatility models. Furthermore, it provides numerical examples for pricing double barrier call options with discrete monitoring under Heston and λ-SABR models.     

A trend filtering method closely related to $$\ell _{1}$$ trend filtering

The filtering method developed by Kim et al. (SIAM Rev 51:339–360, 2009), \(\ell _{1}\) trend filtering, is attractive because it enables us to estimate a continuous piecewise linear trend. This paper introduces a new filtering method closely related to \(\ell _{1}\) trend filtering in order to contribute to the accumulation of knowledge on \(\ell _{1}\) trend filtering. We show that the piecewise linearity, which is the key feature of \(\ell _{1}\) trend filtering, is derived from the new filtering. For this reason, we refer to the filtering as ‘pure’ \(\ell _{1}\) trend filtering. We also demonstrate some other miscellaneous results concerning the new filtering.     

Why Tour Guiding is Important for Ecotourism: Enhancing Guiding Quality with the Ecotourism Promotion Policy in Japan

The Ecotourism Promotion Policy in Japan requires tour guiding to be employed, although it provides little rationale for it. This paper reviews the literature to illustrate why tour guiding is important for achieving policy and ecotourism goals in order to support this requirement. An overview of ecotourism policy in Japan is provided, contributions of tour guiding to achieving the policy and ecotourism goals are described, and approaches to strengthening current practices along with the policy are discussed. It is suggested that non-profit organizations offer training to impart knowledge about guiding roles and interpretation at a national level and that ecotourism promotion councils teach knowledge about ecotour products and tourists at a regional level.     

Rise and Fall of Multinational Enterprises in Vietnam: Survival Analysis Using Census Data during 2000–2011*

This study examined the survival of multinational enterprises (MNE) in Vietnam during 2000–2011 using Cox hazard models. The characteristics and ownership structure of firms and the nationality of foreign partners are found to be associated with the probability of firm exit, with a firm having greater capital share of foreign partners surviving longer. An efficient local government requiring less time for bureaucratic procedures and inspections is found to be associated with a lower probability of MNE exiting. Meanwhile, transparency in business regulations and predictability in implementing central government policies accelerate the survival of highly competitive MNE.     

Mechanism design for a solution to the tragedy of commons

We consider the problem of the tragedy of commons in cooperative production economies, and propose a mechanism to resolve this tragedy, taking into account that the coordinator cannot perfectly monitor each agent’s labor skill and each agent may have an incentive to overstate as well as understate his own skill. Even in such a situation, the mechanism implements the proportional solution (Roemer in Soc Philos Policy 6:74–92, 1989 and Roemer and Silvestre in J Econ Theory 59:426–444, 1993) in Nash and strong equilibria when it is played as a normal form game. Moreover, the mechanism triply implements the solution in Nash, subgame-perfect, and strong equilibria when it is played as a two-stage extensive form game. We are greatly thankful to Semi Koray, William Thomson, and an anonymous referee of this journal for their concrete and helpful comments on improving the paper. An earlier version of this paper was presented at the annual meeting of the Japanese Economic Association held at Hitotsubashi University in October 2001 and at the Conference on Economic Design held at NYU in July 2002. We are grateful to Takehiko Yamato for his useful comments in the former conference. We are also thankful to Tatsuyoshi Saijo, Kotaro Suzumura, and Yoshikatsu Tatamitani for their kind comments.     

ACHIEVING FISCAL BALANCE IN JAPAN*

Japan is aging and has the highest government debt‐to‐output ratio among advanced economies. In this article, we build a micro data‐based, large‐scale overlapping generations model for Japan in which individuals differ in age, gender, employment type, income, and asset holdings, and incorporate the Japanese pension rules. Using existing pension law, current fiscal policy, and medium variants of demographic projections, we produce future paths for government expenditures and tax revenues, with implications for government debt and the public pension fund. Additional pension reform, a higher consumption tax, and higher female labor force participation help achieve fiscal stability.     

Real interest rate equalization: some empirical evidence from the three major world financial markets

This article examines the linkage of real interest rates of the three major world financial markets (USA, Japan and the UK) with the use of cointegration methods. Unlike previous works, the investigation uses a trivariate vector autoregressive (VAR) model in which a constant term in the common stochastic trends space is excluded. Based on data generated after the liberalization of Japan's foreign exchange market at the end of 1980 (1981:1–1998:12), the article finds some empirical evidence indicating that the extent of the departure from the long-run real interest rate equalization (RIE) is not very large, although the null hypothesis of the long-run RIE is rejected in most cases.     

Application of Homotopy Analysis Method to Option Pricing Under Lévy Processes

Option pricing under the Lévy process has been considered an important research direction in the field of financial engineering, where a closed-form expression for the standard European option is available due to the existence of analytically tractable characteristic function according to the Lévy–Khinchin representation. However, this approach cannot be applied to exotic derivatives (such as barrier options) directly, although a large volume of exotic derivatives are actively traded in the current options market. An alternative approach is to solve the corresponding partial integro-differential equation (PIDE) numerically, which is, in fact, time-consuming and is not computationally tractable in general. In this paper, we apply the so-called homotopy analysis method (HAM) to solve the corresponding PIDE in a semi analytic form, being obtained from the following three steps: (1) Apply the Fourier transform to convert the PIDE to an ordinal differential equitation (ODE), and construct a differential system of ODEs. (2) Solve the system of ODEs, where each differential equation is shown to have an analytical solution. (3) Express the option price using the sum of infinite series, where each term may be expressed analytically and derived by applying Steps (1) and (2) recursively. To illustrate our technique more precisely, we take the variance gamma model as an example and provide the semi-analytic form. Numerical examples demonstrate a fast convergence of our proposed method to the prices of European and down-and-out call options with a few number of terms. Note that this method is easy to implement and can be applied to other types of options under general Lévy processes.     

A politically feasible social security reform with a two-tier structure

This paper investigates the welfare implications and political feasibility of social security reforms with a two-tier structure in Japan. We evaluate social security reforms from two points of view: (i) the ex-ante expected value of future generations, and (ii) whether current generations prefer reform to the status-quo system, which we call political feasibility. To evaluate the reforms, we use a large-scale overlapping generations model with idiosyncratic income risk and a two-tier structure. The first tier guarantees a basic pension and the second tier consists of the earnings-related part. Calibrating the parameters of the model to the Japanese economy, we compute the transition path and the two welfare criteria. We find that, given the two-tier structure in Japan, an increase in the basic pension and the abolition of the earnings-related part of the social security system improve the welfare of future generations, and ensures political feasibility when a consumption tax is the source of revenue.     

Bi-objective decision support system for routing and scheduling of hazardous materials

This paper presents a Pareto-based bi-objective optimization of hazardous materials vehicle routing and scheduling problem with time windows and shows its application to a realistic hazardous material logistics instance. A meta-heuristic solution algorithm is also proposed, which returns a set of routing solutions that approximate the frontier of the Pareto optimal solutions based on total scheduled travel time and total risk of whole transportation process. It works in a single-step fashion simultaneously constructing the vehicle route and selecting the optimal paths connecting the routed locations from a set of non-dominated paths obtained in terms of travel time and risk value.