Generalizations of Ho–Lee’s binomial interest rate model I: from one- to multi-factor

In this paper a multi-factor generalization of Ho–Lee model is proposed. In sharp contrast to the classical Ho–Lee, this generalization allows for those movements other than parallel shifts, while it still is described by a recombining tree, and is a process with stationary independent increments to be compatible with principal component analysis. Based on the model, generalizations of duration-based hedging are proposed. A continuous-time limit of the model is also discussed. This research was supported by Open Research Center Project for Private Universities: matching fund subsidy from MEXT, 2004–2008 and also by Grants-in-Aids for Scientific Research (No. 18540146) from the Japan Society for Promotion of Sciences.     

Rising marginal cost and concavity of the production function

Suppose a production function, f, is continuous, quasi-concave and weakly monotone on the non-negative orthant of Euclidean n-space. Let c(·, ·) be the associated cost function. Then it is shown that f is concave if and only if for each w, c(w, ·) is convex.     

Can financial literacy reduce anxiety about life in old age?

This study examines the role of financial literacy in reducing anxiety about life in old age. We hypothesize that financial literacy increases preparedness for old age through better savings and investment decisions, leading to the accumulation of more assets and earning more income, which enhances financial capacity and reduces anxiety. Using data from a nationwide panel survey in Japan, we provide evidence that financial literacy can reduce anxiety about life in old age by making people capable of accumulating more assets and earning more income. Moreover, the interaction of financial literacy with age and spouse reduces anxiety, while living with children increases anxiety about life during old age. We check the robustness of our results using an alternative measure of financial literacy, changing composition of the sample, controlling for residents’ geographical dispersion, and testing for endogeneity bias. The major findings remain unchanged after considering these factors.     

Asymptotic expansions of the distributions of the structural variance estimators in a simultaneous equations system

Asymptotic expansions of three alternative classes of structural variance estimators associated with the k-class estimators of structural coefficients are derived for two parameter sequences: a sequence in which the non-centrality parameter increases while the sample size stays fixed (called large-μ or small-disturbance sequence), and that in which the number of observations increases. The accuracy of approximations to small-sample distributions are numerically examined with help of Monte Carlo studies. Properties of the sum of squared residuals of an estimated structural equation are also found from our study.     

Principles for Sustainable Insurance: Risk Management and Value

Some of the largest global insurers are actively pursuing the recently enacted Principles for Sustainable Insurance (PSI). While the concept of sustainability is often associated with a governance design that promotes stakeholder value, the PSI do not appear to be a call for stakeholder‐focused insurers. Rather, the PSI appear to be about internalizing tacit claims in the operations of insurers. Conceptual and empirical literature on shareholder value maximization suggests that when an insurer honors its tacit claims the value to shareholders increases. A key insight from practice is that a sincere pursuit of the PSI will expand the scope of corporate risk management.     

USING EL NIÑO-SOUTHERN OSCILLATION CLIMATE DATA TO IMPROVE FOOD POLICY PLANNING IN INDONESIA

Despite the impact of El Niño-Southern Oscillation (ENSO) events on climate in the Indo-Pacific region, models linking ENSO-based climate variability to Indonesian cereal production are not well developed. This study measures connections among sea-surface temperature anomalies (SSTAs), rainfall, and Indonesian rice and corn production from 1971 to 1998. Year-to-year August SSTA fluctuations explain about half the interannual variance in paddy production during the main (wet) season. These effects are cumulative for rice: during strong El Niño years, wet season production shortfalls are not made up subsequently. For corn, the cumulative area sown is actually higher in El Niño years than La Niña years. Indonesia's paddy production varies on average by 1.4 million tons for every 1°C change in August SSTAs. The paper illustrates how an SSTA model might assist policy makers with budgetary processes, and private sector cereal traders with framing production expectations.     

Road traffic injury among child motorcyclists in Vientiane Capital,Laos: a cross-sectional study using a hospital-based injury surveillance database

This study investigated the distribution of motorcyclists, including drivers and passengers, who were involved in road traffic crashes and admitted to hospital in Vientiane Capital, Laos. The focus was on child motorcycle drivers and passengers under 15 years. A hospital-based injury surveillance database in Vientiane Capital was used. The surveillance was performed in two hospitals. From 1 September to 31 December 2009, 3968 patients were admitted to the participating hospitals with road traffic injuries. Patients under 15 years accounted for 10.8% (427/3968). The majority of patients under 15 years were motorcycle drivers or passengers (71.7%, 306/427). Child motorcyclists including drivers and passengers were less likely to wear a helmet than adults (adjusted odds ratio [OR], 0.3, 95% confidence interval [CI], 0.2–0.5, for children 10–14 years; adjusted OR: 0.1, 95% CI, 0.05–0.4, for children under 10 years). It is suggested that stricter regulation enforcement for child motorcycle drivers and passengers may be needed. In addition, barriers against wearing helmets for motorcycle drivers and passengers in Laos should also be examined in further studies.     

Granger Causality Between Money and Income for the Japanese Economy in the Presence of a Structural Change

This paper examines Granger causality between money and income in the Japanese economy based upon a bivariate VAR model with a structural change in the trend function. We employ a stratified testing strategy incorporating preliminary tests for a unit root and for the order of cointegration rank. Our study reveals that the choice of either trend stationarity or difference stationarity, as well as the order of cointegration rank, crucially affect the test results for Granger causality. It is found that the causality from money to income was strong before 1980 but weakened or virtually disappeared after 1980; the opposite causality existed weakly before 1980 but not after 1980. The result confirms the claim by the Bank of Japan (1992) and Honda et al . (1995) among others that the role of money as a leading indicator for predicting movements in income has weakened or even disappeared in the 1980s.
JEL Classification Numbers: C32, E40