Pricing basket and Asian options under the jump‐diffusion process

This study derives approximate valuation formulas for basket options and Asian options under the jump‐diffusion process. To obtain an approximation for options prices under the jump‐diffusion process, we extend the Taylor expansion method developed by Ju N. ( 2002 ) under the diffusion process. We show that the Taylor expansion method, suggested in this study, provides better pricing performance as compared to log‐normal or four‐moment methods. The performance improvement using the Taylor expansion method increases as the time to maturity increases. In addition, our numerical analysis shows that jump effects become significant when the expected jump sizes take large negative values. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark 31:830–854, 2011     

Advertising and Investor Recognition of Banking Firms: Evidence from Taiwan

This study examines the effect of advertising expenditure on strengthening a firm’s intangible capital and firm value by attracting the public on the firm’s visibility and then investigates the role of advertising expenditures on a banking firm’s market value, liquidity, and breadth of ownership. The empirical results find that the advertising has a significantly positive effect on banking firm’s share value, liquidity, and institutional holdings. Consequently, this study concludes that advertising benefits banking firms through increased investor perceptions of such firms. In particular, the findings provide additional support for the home bias phenomena, in which investors prefer to invest in familiar stocks.     

Tempered stable structural model in pricing credit spread and credit default swap

In this paper, we explore the features of a structural credit risk model wherein the firm value is driven by normal tempered stable (NTS) process belonging to the larger class of Lévy processes. For the purpose of comparability, the calibration to the term structure of a corporate bond credit spread is conducted under both NTS structural model and Merton structural model. We find that NTS structural model provides better fit for all credit ratings than Merton structural model. However, it is noticed that probabilities of default derived from the calibration of the term structure of a bond credit spread might be overestimated since the bond credit spread could contain non-default components such as illiquidity risk or asymmetric tax treatment. Hence, considering CDS spread as a reflection of the pure credit risk for the reference entity, we calibrate it in order to obtain more reasonable probability of default and obtain valid results in calibration of the market CDS spread with NTS structural model.     

Corporate social responsibility,credit rating,and private debt contracting: new evidence from syndicated loan market

We examine the impact of corporate social responsibility (CSR) activities on loan spreads of syndicated bank loans, with a particular interest in how CSR and credit ratings are interrelated as a joint determinant of loan spreads. Focusing on private debt contracts, we show that both CSR strengths and concerns are related to their loan spreads. CSR strengths work to lower firm risk, hence reducing the loan spread, whereas CSR concerns increase firm risk, thus increasing the loan spread. Once we include detailed credit rating information in the models, however, CSR concerns lose significance, but CSR strengths remain significantly related to the loan spread. We also find that both CSR strengths and CSR concerns are related to loan spread for non-rated firms, but the CSR concern effect is stronger than the CSR strength effect for these firms. A further test shows that firm risk measured by stock return volatility plays as a direct channel through which a firm’s CSR activities affect loan spreads, whose result lends further support to our main results. Overall, our results provide strong evidence that CSR matters to the pricing of loan contracts beyond credit rating information and the results remain robust to the possible firm size effect and the endogeneity issues.     

The economics of online television: Industry development,aggregation, and “TV Everywhere”

Although still dominated by standard television, the online TV industry is growing rapidly. Entrants employ a range of business models, and we identify a prevalent tendency for leading providers to aggregate programming from a variety of different content owners. We focus on one form of content aggregation by multi-channel programming distributors (MPVDs) widely known as “TV Everywhere (TVE).” Following a brief taxonomy of TVE systems, we develop an economic model to show how this “free-with-authentication” (of MVPD subscribership) bundling practice can be explained as a price discrimination device intended to slow MVPD disconnections. We show that TVE bundling could also deter entry into the online TV market. We discuss the potential roles of horizontal and vertical integration of MVPDs and ISPs in online TV industry development, again focusing on TVE, and conclude with policy implications.     

Dollarization,Seigniorage, and Prices: The Case of North Korea

This study employs a general equilibrium monetary search model to examine the effects of the recent dollarization in North Korea on seigniorage and prices. Maximum seigniorage is generated at a high rate of money growth when dollarization is mild. However, under a high degree of dollarization seigniorage declines sharply when the money growth rate is high. Accordingly, seigniorage can be increased by de-dollarizing the economy through lowering the money growth rate. This finding implies that the post-2013 price stabilization may be a result of the restriction on printing of money with the aim of increasing seigniorage. This finding also recognizes that the North Korean authorities have little room for maneuver on monetary policy under the conditions of widespread dollarization.     

On the complete monotonicity of the compound geometric convolution with applications in risk theory

We prove that the complete monotonicity is preserved under mixed geometric compounding, and hence show that the ruin probability, the Laplace transform of the ruin time, and the density of the tail of the joint distribution of ruin and the deficit at ruin in the Sparre Andersen model are completely monotone if the claim size distribution has a completely monotone density.     

Industrial brand value and relationship performance in business markets — A general structural equation model

This paper develops a general model of industrial brand value and relationship performance in business-to-business markets from the perspectives of consumer and industrial marketing literature. The structural equation model integrates the analysis of industrial brand value and relationship performance. The model describes the extent to which supplier-buyer transaction performance is influenced by the eight important factors: supplier competence, purchasing value, customer satisfaction, switching cost, brand trust and loyalty, relationship quality, commitment, and transactional performance.The general model is applied to organizational buyer groups of comprehensive industrial markets (Electronics, Chemicals, Equipment, etc). The analysis finds that supplier competence directly affects purchasing value and customer satisfaction, and via purchasing value and customer satisfaction, it indirectly affects commitment, switching cost, brand trust and loyalty. The managerial implications of the study results are also discussed.     

The Effects of Changes in Property Tax Rates and School Spending on Residential and Business Property Value Growth

In this article, we examine the effects of changes in property tax rates and school spending on residential and business property value growth in southeast Michigan. We use panel data for 152 communities in the five counties surrounding Detroit between the years 1983 and 2002, a period during which state government mandated major changes to school finance. Using the mandated changes to identify causality, we find that: (1) residential property values are more responsive to school spending changes than property tax rate changes; (2) business property values are more responsive to tax rate changes than school spending changes; and (3) business property values are more sensitive to changes in tax rates as compared to residential property. We also examine tax competition effects on property value growth, showing that tax competition plays an important role in property value growth in the southeast Michigan region.