Promoting justice by treating people unequally: an experimental study

Which inequalities among individuals are considered unjust? This paper reports the results of an experiment designed to study distributive choices dealing with arbitrarily unequal initial endowments. In a three-person distribution problem where subjects either know or do not know their endowments, we find impartial behavior to be a stable pattern. Subjects either compensate for initial inequalities fully or not at all in both conditions, and they do so more often when they do not know their endowment than when they know it. Moreover, the type and the size of the good to be distributed also affect the frequency of impartial behavior.     

Robust min–max portfolio strategies for rival forecast and risk scenarios

We consider an extension of the Markowitz mean–variance optimization framework to multiple return and risk scenarios. It is well known that asset return forecasts and risk estimates are inherently inaccurate. The method proposed provides a means for considering rival representations of the future. The optimal portfolio is computed, simultaneously with the worst case, to take account of all rival scenarios. This is a min-max strategy which is essentially equivalent to a robust pooling of the scenarios. Robustness is ensured by the noninferiority of min–max. For example, a basic worst-case optimal return is guaranteed in view of multiple return scenarios. If robustness happens to have too high a cost, guided by the min–max pooling, it is also possible to explore other pooling alternatives. A min–max algorithm is used to solve the problem and illustrate the robust character of min–max with return and risk scenarios. We study the properties of the min–max risk–return frontier and compare with the potentially suboptimal worst-case where the investment strategy and the worst case are computed separately.     

On the cost of delayed currency fixing announcements

In Foreign Exchange Markets vanilla and barrier options are traded frequently. The market standard is a cutoff time of 10:00 a.m. in New York for the strike of vanillas and a knock-out event based on a continuously observed barrier in the inter bank market. However, many clients, particularly from Italy, prefer the cutoff and knock-out event to be based on the fixing published by the European Central Bank on the Reuters Page ECB37. These barrier options are called discretely monitored barrier options. While these options can be priced in several models by various techniques, the ECB source of the fixing causes two problems. First of all, it is not tradable, and secondly it is published with a delay of about 10–20 min. We examine here the effect of these problems on the hedge of those options and consequently suggest a cost based on the additional uncertainty encountered.