An analysis of option pricing under systematic consumption risk using GARCH

An issue in the pricing of contingent claims is whether to account for consumption risk. This is relevant for contingent claims on stock indices, such as the FTSE 100 share price index, as investor’s desire for smooth consumption is often used to explain risk premiums on stock market portfolios, but is not used to explain risk premiums on contingent claims themselves. This paper addresses this fundamental question by allowing for consumption in an economy to be correlated with returns. Daily data on the FTSE 100 share price index are used to compare three option pricing models: the Black–Scholes option pricing model, a GARCH (1, 1) model priced under a risk-neutral framework, and a GARCH (1, 1) model priced under systematic consumption risk. The findings are that accounting for systematic consumption risk only provides improved accuracy for in-the-money call options. When the correlation between consumption and returns increases, the model that accounts for consumption risk will produce lower call option prices than observed prices for in-the-money call options. These results combined imply that the potential consumption-related premium in the market for contingent claims is constant in the case of FTSE 100 index options.     

Dynamics of photosynthetic pigments in an Andean lake in Colombia

Guatavita Lake is a small, sheltered tropical high mountain lake located in the Colombian Andes, with a closed watershed and a maximum depth of 25 m. It is the freshwater source for human consumption in nearby small towns, as well as being a site of cultural value for the country, as it was a sacred place to indigenous peoples until about five centuries ago. As the structure and function of this aquatic ecosystem is poorly understood, this study provides initial knowledge on its phytoplankton biomass dynamics, which should be useful in designing efficient management plans with environmental baseline information for similar lakes elsewhere. Physical and chemical data, and photosynthetic pigment concentrations, were measured for the period November 1999–November 2000 at the central vertical axis of Guatavita Lake. The vertical profile of the chlorophyll‐a concentration was closely related to the dissolved inorganic nitrogen concentrations and the thermal stratification characteristics. The maximum chlorophyll‐a concentration in the metalimnion was recorded for the thermal stratification period (November 1999–June 2000). Deepening of the maximum chlorophyll‐a concentration began in February, continuing to June, when it reached its lowest value at the 15 m depth. The phytoplankton biomass values showed an increment within the entire water column at the beginning of the mixing period (July). The relation between the metalimnetic peak of chlorophyll‐a and the dissolved inorganic nitrogen concentration suggests the growth of the phytoplankton community is limited mainly by the availability of nitrogen.     

RESISTANCE TO CHANGE: A PSYCHOANALYTIC CRITIQUE OF ARGYRIS AND SCHON'S CONTRIBUTIONS TO ORGANIZATION THEORY AND INTERVENTION

The purpose of this essay is to examine psychoanalytically Argyris and Schon's contributions to organization theory and intervention. The author focuses his attention on the problem of individual and organizational resistance to change in the light of Argyris and Schon's cognitive psychological assumptions about learning, reasoning, and effectiveness.     

Comparison of nutrient cycling in a surface-flow constructed wetland and in a facultative pond treating secondary effluent.

There is a growing interest in the possibilities offered by combinations of waste stabilisation ponds (WSP) and constructed wetlands (CW). The purpose of our study was to compare treatment performances and nutrient cycling in a surface-flow wetland (SFW) and in a WSP treating secondary effluent. In the period between 2000 and 2003, a pilot SFW and a pilot WSP were constructed at the outlet of the wastewater treatment plant and their performance monitored while both were active under the same conditions. The SFW was planted with Phragmites australis and Eichhornia crassipes, while in the WSP development of algae was spontaneous. Performance efficiency was monitored by means of evaluation of physical and chemical parameters in water, by measurement of plant productivity and by analysis of N and P contents in biomass. The SFW with macrophytes proved more efficient in decreasing the suspended solids (64.6%), settleable solids (91.8%), organic N (59.3%), total N (38%), COD (67.2%) and BOD5 (72.1%) than the WSP. The WSP with algae was more efficient in treatment of ammonia nitrogen (48.9%) and ortho-phosphate (43.9%). The results of this study provide data that are of help in optimising combinations of SFW and WSP.     

Free cash flow, debt-monitoring and managers' LIFO/FIFO policy choice

This paper explores the explanatory power of Jensen's free cash flow hypothesis in managers' choice of LIFO versus FIFO. The association between FCF, and choice of inventory methods is based on the assumption that there is a potential conflict of interest between managers and shareholders when LIFO is the tax minimization method and that non-value-maximizing managers of firms with the FCF problem have incentives to choose FIFO, an income increasing method, in order to increase their compensation. However, since debt can act as a monitoring device and mitigate the agency problems of FCF, managers of firms with high FCF and high debt are less likely to choose FIFO than managers of firms with high FCF and low debt. The evidence is consistent with this expectation.