Co-monotonicity of optimal investments and the design of structured financial products

We prove that, under very weak conditions, optimal financial products on complete markets are co-monotone with the reversed state price density. Optimality is meant in the sense of the maximization of an arbitrary preference model, e.g., expected utility theory or prospect theory. The proof is based on a result from transport theory. We apply the general result to specific situations, in particular the case of a market described by the Capital Asset Pricing Model or the Black–Scholes model, where we derive a generalization of the two-fund-separation theorem and give an extension to APT factor models and structured products with several underlyings. We use our results to derive a new approach to optimization in wealth management, based on a direct optimization of the return distribution of the portfolio. In particular, we show that optimal products can (essentially) be written as monotonic functions of the market return. We provide existence and nonexistence results for optimal products in this framework. Finally we apply our results to the study of bonus certificates, show that they are not optimal, and construct a cheaper product yielding the same return distribution.     

Values,value types and moral reasoning of MBA students

This study uses the Schwartz Values Questionnaire and version 2 of the Defining Issues Test to investigate the values, value types (clusters of related values) and level of moral reasoning of a sample of 108 MBA students in a Canadian university. There are no statistically significant differences in the levels of moral reasoning attributed to gender. Male and female MBA students rank ‘family security’ and ‘healthy’ as their two most important values. For males, hedonism, achievement and self‐direction are the three most important value types, while for females they are benevolence, hedonism and security, respectively. There are statistically significant gender differences for the value types hedonism, achievement, stimulation and power. Overall, however, there are more similarities than differences between the male and the female students. Regression analysis indicates a statistically significant positive association between the postconventional level of moral reasoning as measured by P‐scores and the value‐type universalism. The findings provide further evidence that value types affect the postconventional level of moral reasoning.     

From fork to farm: Impacts of more sustainable diets in the EU-27 on the agricultural sector

The implications of dietary changes for the environment and for human health are well documented, but the impacts on the agricultural sector are less well researched. We fill this gap by specifying scenarios in which European consumers' diets approximate the EAT-Lancet dietary recommendations to varying degrees and estimate the effects on agricultural production, incomes and emissions using an agro-economic modelling framework. The combination of different models allows for a detailed assessment of consequences for the agricultural sector from the global through European NUTS2 level to the farm level at different time scales. Shifting European consumption towards the EAT-Lancet recommendations leads to decreasing production of animal-based products, while production of fruits and vegetables increases sharply. The results indicate that the agricultural sector could benefit from a dietary shift, though the results are mixed at country, regional and farm levels. In particular, countries and regions that are highly specialised in animal farming are likely to lose income—at least in the short run—while regions with higher shares of vegetable and fruit farms can expect income gains. In Germany, pig and poultry farms may experience losses of up to 34% of their income, whereas farms with a high share of vegetables could gain more than 30% in income. Our results have implications for the policies to assist these extensive structural adjustments in response to widespread dietary changes.     

ALTERNATIVE PRODUCTION FRONTIER METHODOLOGIES AND DAIRY FARM EFFICIENCY

This paper estimates technical efficiency (TE) measures using four alternative production frontier models, and evaluates the sensitivity of the results to the choice of methodology. The Cobb-Douglas functional form along with data for 1982 and 1983 from 404 dairy farms located throughout six northeastern states in the US are used in the estimation. A general conclusion is that, broadly speaking, frontier function models are neutrally upwardly scaled versions of the OLS or average model. A second conclusion is that different models yield markedly different efficiency levels across firms. However, the correlation between the indexes from the various methods is high, which implies that the ordinal ranking of firms according to their measured level of technical efficiency appears to be independent of the method used for a given year. By comparison, the correlation between efficiency indexes for the same method across time, although positive, is much lower than the previous set of correlations. Correlation analysis of efficiency versus farm size and of efficiency versus returns over variable costs, based on the alternative models, yielded consistent results.     

Cumulative prospect theory and the St. Petersburg paradox

Summary. We find that in cumulative prospect theory (CPT) with a concave value function in gains, a lottery with finite expected value may have infinite subjective value. This problem does not occur in expected utility theory. The paradox occurs in particular in the setting and the parameter regime studied by Tversky and Kahneman [15] and in subsequent works. We characterize situations in CPT where the problem can be resolved. In particular, we define a class of admissible probability distributions and admissible parameter regimes for the weighting- and value functions for which finiteness of the subjective value can be proved. Alternatively, we suggest a new weighting function for CPT which guarantees finite subjective value for all lotteries with finite expected value, independent of the choice of the value function. Some of these results have already been found independently by Blavatskyy [4] in the context of discrete lotteries.Received: 14 October 2004, Revised: 6 May 2005, JEL Classification Numbers: C91, D81.We thank Pavlo Blavatskyy and Thorsten Hens for their helpful remarks regarding our paper. Moreover, we thank the referee for his constructive suggestions. This research was supported by the University Research Priority Program “Finance and Financial Markets” a research instrument of the University of Zürich.     

Directions in Delphi developments: Dissertations and their quality

The general question of whether Delphi users have learned from Delphi research of the past decade is addressed in this article. Within the wider context of Delphi expansion anddevelopment, specific attention is given to examining the nature and quality of the growing number of Delphi dissertations. Although there are some signs for encouragement, the findings from the sample of dissertationsexamined might also give cause for some concern. Findings raise continuing questions related to excellencein the execution of Delphi studies and also to the concentration of applications of the technique in certain fields. It appears that the future of Delphi could be brighter if users of the technique would be more careful in implementing “quality control.”     

Assessing the Economic Potential of Electric Vehicles to Provide Ancillary Services: The Case of Germany

The Vehicle-to-Grid (V2G) concept is a promising possibility for the integration of electric vehicles (EVs) into the power grid. This article presents an economic evaluation of EVs participating in the ancillary service market (primary, secondary and tertiary regulation) for the case of Germany, based on a price data set from 2011 and 2012. We examine the economic potential of nine general options to participate in the regulation market based on real-life EV specifications, connection powers and regulation energy prices. Results show that in the most profitable case a maximum average yearly profit of 730.31 € per vehicle is possible for negative regulation with payment direction TSO to provider in the secondary regulation market. Furthermore a sensitivity analysis is performed for all of the analyzed participation scenarios in order to identify crucial parameters for a possible V2G implementation. Major parameters for the successful implementation of V2G are the provided power per vehicle, the time an EV is available to the grid and the variable energy storage costs it incurs.