Pricing Nikkei 225 Options Using Realized Volatility

This article examines option pricing performance using realized volatilities with or without handling microstructure noise, non‐trading hours and large jumps. The dynamics of realized volatility is specified by ARFIMA(X) and HAR(X) models. The main results using put options on the Nikkei 225 index are that: (i) the ARFIMAX model performs best; (ii) the Hansen and Lunde (2005a) adjustment for non‐trading hours improves the performance; (iii) methods for reducing microstructure noise‐induced bias yield better performance, while if the Hansen–Lunde adjustment is used, the other methods are not necessarily needed; and (iv) the performance is unaffected by removing large jumps from realized volatility.     

Determinants of Indonesian rural secondary school enrolment: gender,neighbourhood and school characteristics

In recent years the school enrolment rates of children aged 13–15 and 16–18 years have increased sharply in Indonesia, not only in urban but also in rural areas. Using various data sets spanning the years from 1993 to 2007, this paper investigates changes in factors associated with the enrolment of secondary school aged children in rural areas. It sheds light on the roles of gender and of neighbourhood and school characteristics, which have rarely been examined in the Indonesian context. The study finds that the disappearance of a gender gap in secondary enrolments between 1993 and 2007 contributed significantly to the rise in the overall enrolment rate. The findings also show that children living in wealthier communities and communities with a high proportion of enrolled children are more likely to attend school. Finally, various school characteristics are shown not to be strongly or consistently correlated with school enrolment.     

The Asymptotic Expansion Approach to the Valuation of Interest Rate Contingent Claims

We propose a new methodology for the valuation problem of financial contingent claims when the underlying asset prices follow a general class of continuous Itô processes. Our method can be applied to a wide range of valuation problems including complicated contingent claims associated with the term structure of interest rates. We illustrate our method by giving two examples: the valuation problems of swaptions and average (Asian) options for interest rates. Our method gives some explicit formulas for solutions, which are sufficiently numerically accurate for practical purposes in most cases. The continuous stochastic processes for spot interest rates and forward interest rates are not necessarily Markovian nor diffusion processes in the usual sense; nevertheless our approach can be rigorously justified by the Malliavin–Watanabe Calculus in stochastic analysis.     

Economic Development in Asian Countries, and the Effectof Trade in Asia on Employment and Wages in Japan

There is a controversy in the USA and several European countries on whether or not an increase in imports in manufacturing goods from low-wage developing countries has major effects on employment and wages in industrialized countries. This paper examines the issue for Japanese imports, paying a particular attention to the effect of manufacturing imports from Asian countries on employment and wages in Japan. It is found that the effect has not been large to date, but that there could be negative effects on employment and, in particular, wages if imports from China and India were to increase substantially.     

A Remark on a Singular Perturbation Method for Option Pricing Under a Stochastic Volatility Model

This paper studies the approximation accuracy of a singular perturbation method for option pricing up to the second order under a stochastic volatility model. First, numerical experiments confirm that the first order approximation provides sufficiently accurate option prices in a fast mean-reversion volatility case. On the other hand, it creates relatively large errors in a non-fast mean-reversion volatility environment. Then, the second order approximation formula is derived and the improvement of the approximation is investigated.     

Cross-linguistic validation of a unidimensional scale for cosmopolitanism

Consumers' positive dispositions relating to foreign countries, cultures, and products are an important yet under-researched topic, compared against the volume of research on consumers' negative dispositions towards the same. Cosmopolitanism, conceptualized as a general dispositional orientation reflecting an affinity for cultural diversity and the proclivity to master it, garners increasing attention as a variable for international market segmentation. Empirical studies on cosmopolitanism are scarce, principally due to the absence of scale demonstrating sufficient cross-cultural validity across languages. This research reports on such a validation, across four countries and five languages. Psychometric evaluations entailed a number of techniques, including multigroup confirmatory factor analysis. The results largely confirm the cross-lingual applicability of the cosmopolitanism scale.     

An Asymptotic Expansion Approach to Pricing Financial Contingent Claims

We propose a new methodology for the valuation problem of financial contingent claims when the underlying asset prices follow a general class of continuous Itô processes. Our method can be applicable to a wide range of valuation problems including contingent claims associated with stocks, foreign exchange rates, the term structure of interest rates, and even their combinations. We illustrate our method by discussing the Black-Scholes economy when the underlying asset prices follow the continuous diffusion processes, which are not necessarily time-homogeneous. The standard Black-Scholes model on stocks and the Cox-Ingersoll-Ross model on the spot interest rate are simple examples. Then we shall give a series of examples on the valuation formulae including plain vanilla options, average options, and other contingent claims. We shall also give some numerical evidence of the accuracy of the approximations we have obtained for practical purposes. Our approach can be rigorously justified by an infinite dimensional mathematics, the Malliavin-Watanabe-Yoshida theory recently developed in stochastic analysis.     

DOMESTIC COMPETITION POLICY AND TARIFF POLICY COMPARED*

M. Yano and F. Dei have demonstrated that, by controlling the degree of competition in a non‐tradables market (competition policy), a country can influence the terms of trade so as to increase its welfare, relative to free trade. Using their model, this study compares the extent of this effect with that of a tariff policy. It demonstrates that a competition policy can achieve a higher utility than a tariff policy if tariff rates are at levels currently tolerated in the real world. This demonstrates that domestic competition policy may play an important role as a substitute for tariff policy.     

Capital Movements, Intersectoral Resource Shifts, and the Trade Balance with Recursive Preferences

This paper examines interactions between internal resource shifts and the external balance. It sets up a simple infinite-period model with recursive preferences. It shows simple patterns between capital movements and trade balances and clarifies the resource shifts between traded goods and nontraded goods sectors when world interest rate changes and government spending changes are taking place.