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.     

This Little Piggy Went to Market with a Passport: The Impacts of U.S. Country of Origin Labeling on the Canadian Pork Sector

This paper examines the potential impacts of U.S. mandatory country of origin labeling. North American hog and pork markets are represented as vertically related in a partial equilibrium non-spatial model. A synthetic model is calibrated to historic data and then used to trace the program's added costs as they are passed through the market to determine who wins and who loses. The transactions costs reduce the welfare of all agents in the United States. Canadian welfare depends primarily on whether mixed supply chains continue to be accepted in the United States and trade in hogs continues. A closed border significantly reduces the welfare of Canadian hog producers and increases the welfare of Canadian pork processors.
Le présent article porte sur les répercussions éventuelles de l'étiquetage obligatoire du pays d'origine réclamée par les États‐Unis. Les marchés nord-américains du porc vivant et de la viande de porc sont représentés comme étant verticalement liés dans un modèle non spatial d'équilibre partiel. Un modèle synthétique est étalonné avec des données historiques et est ensuite utilisé pour déterminer les coûts supplémentaires qu'occasionne le programme à mesure qu'ils sont répartis sur le marché pour déterminer les gagnants et les perdants. Les coûts de transaction diminuent le bien‐être de tous les agents aux États‐Unis. Le bien-être au Canada dépend principalement de l'acceptation ou non des chaînes d'approvisionnement mixtes et de la continuité ou non du commerce du porc vivant. La fermeture des frontières diminue considérablement le bien-être des producteurs de porcs canadiens et augmente celui des transformateurs de porcs canadiens.     

How Does a Development Moratorium Affect Development Timing Choices and Land Values?

This paper investigates how a development moratorium affects choices of development timing and land values in a framework where both the value of developed property evolves stochastically and the development costs are fully irreversible. We assume that a regulator initially announces that land is not allowed to be developed during a finite period of time in the future. A developer, thus, must decide whether to develop land before the timing ordinance is imposed, or after it expires. The development moratorium reduces the developer’s option value from waiting and, thus, accelerates development. We also use simulation analysis to demonstrate how the other factors that relate to the demand and supply conditions of the real estate market affect this accelerating effect.     

Managers’ Corporate Entrepreneurial Actions and Job Satisfaction

Through the development and extension of theories and scholars’ subsequent empirical analyses of significant, theoretically grounded research questions, the knowledge about corporate entrepreneurship (CE) and its successful use continues to advance. Moreover, the literature suggests important relationships between the corporate environment, managers’ entrepreneurial behavior and successful implementation of corporate entrepreneurship actions. In an attempt to test some of those relationships, we describe an empirical study of 523 managers that examines the relationships among the antecedents to managers’ entrepreneurial behavior, a decision to implement entrepreneurial actions, and resulting job satisfaction and reinforcement practices.     

Structuring Corporate Headquarters: An Investigation of Franchising

This article focuses on the structuring of the corporate headquarters in a franchise organization. Four essential issues that are related to franchisors organizational structure are discussed—homogeneity and heterogeneity of franchisors structure, company-owned and franchise arrangement, the dynamics between strategy and structure, and performing innovative and administrative functions simultaneously in the headquarters. Propositions are given for each issue. The results of qualitative analysis associated with each issue are discussed.     

University Students’ Attitudes Towards Entrepreneurship: A Two Countries Comparison

There is general agreement that attitudes towards the entrepreneur, entrepreneurial activity, and its social function are determinant factors for university students to decide an entrepreneurial career.This empirical study aims at assessing and comparing the attitudes of university students towards entrepreneurship and enterprise formation in Catalonia and Puerto Rico, using a sample of 837 and 435 students, respectively.Results reveal a positive entrepreneur’s image. Both samples have a favorable perception of desirability of new venture creation, although the perception of feasibility is by far not so positive and only a small percentage has the firm intention to create a new company.     

Managerial actions and stock transactions during financial distress: Some empirical evidence

Should the current managers remain in control of the firm during financial distress? We address this issue by examining whether managers who take value-maximizing actions also refrain from abnormal selling of their own shares in the firm. Our empirical results show that managers in the action firms do not engage in abnormal selling even during periods of frequent earnings losses. These managers exhibit higher net purchases than the nonaction managers. Thus, trading behavior of the managers and the actions taken during poor performance both appear to be consistent with stockholder interests.