The Price of Options Illiquidity

The purpose of this paper is to examine the effect of illiquidity on the value of currency options. We use a unique dataset that allows us to explore this issue in special circumstances where options are issued by a central bank and are not traded prior to maturity. The value of these options is compared to similar options traded on the exchange. We find that the nontradable options are priced about 21 percent less than the exchange-traded options. This gap cannot be arbitraged away due to transactions costs and the risk that the exchange rate will change during the bidding process.     

"Flexible" Work Practices and Occupational Safety and Health: Exploring the Relationship Between Cumulative Trauma Disorders and Workplace Transformation

This article matches establishment-level data on workplace transformation (e.g., quality circles, work teams, and just-in-time production) with measures of cumulative trauma disorders at these same establishments to explore the relationship between "flexible" workplace practices and workplace health and safety. The results reveal a positive, statistically significant, and quantitatively sizable relationship between cumulative trauma disorders and the use of quality circles and just-in-time production.     

The stop-loss start-gain paradox and option valuation: a new decomposition into intrinsic and time value

The downside risk in a leveraged stock position can be eliminatedby using stop-loss orders. The upside potential of such a positioncan be captured using contingent buy orders. The terminal payoffto this stop-loss start-gain strategy is identical to that ofa call option, but the strategy costs less initially. This articleresolves this paradox by showing that the strategy is not self-financingfor continuous stock-price processes of unbounded variation.The resolution of the paradox leads to a new decomposition ofan option's price into its intrinsic and time value. When thestock price follows geometric Brownian motion, this decompositionis proven to be mathematically equivalent to the Black-Scholes(1973) formula.     

The effect of information releases on the pricing and timing of equity issues

With time-varying adverse selection in the market for new equityissues, firms will prefer to issue equity when the market ismost informed about the quality of the firm. This implies thatequity issues tend to follow credible information releases.In addition, if the asymmetric in information increases overtime between information releases, the price drop at the announcementof an equity issue should increase in the time since the lastinformation release. Using earning releases as a proxy for informativeevents, we find evidence supporting these propositions.     

WHY SOCIETY NEEDS "IRRATIONAL EXUBERANCE"—AND WHAT THIS MEANS FOR VALUATIONS AND MONETARY POLICY

Despite all the talk of a New Economy and the revolutionary import of the Internet, this article suggests that there is nothing really new under the sun. When Christopher Columbus was building the ships for his expeditions to the East Indies, only the vaguest estimates could be made of their potential value. At this stage, nobody knew if Columbus would be able to manage the crossing, when the ships would return, and what cargo they would eventually carry. In this sense, Columbus's venture bears a striking resemblance to many of today's Internet stocks. This paper raises and attempts to answer a number of interesting questions. For example, how do risky ventures with very high fixed (startup) costs but very low expected variable costs raise the capital necessary to fund the fixed costs? What role should government (and, in particular, monetary) policy play in encouraging (or discouraging) funding for such ventures? And how does one establish the value of such ventures when there is little or no revenue and, in some cases, no clearly defined product? The answer to the first question is investor enthusiasm–or, in Alan Greenspan's terms, “irrational exuberance.” Irrational exuberance plays a very important economic role in giving entrepreneurs access to the cheap financing necessary to fund ventures with heavy startup costs. Indeed, “irrational exuberance” may be the best solution for financing large fixed costs, not only because it is a private (as opposed to a government‐financed) solution, but because it gives investors direct access to the risks and rewards of promising investment opportunities. Before the recent “democratization” of capital markets, such ventures would have been funded by large corporations if not government agencies. As for the third question, this paper suggests there is only one useful way to estimate the value of ventures without revenues or products. The author provides a back‐of‐the‐envelope, “Fermitype” valuation method that is based on the principle of “human capital arbitrage.” For those Internet startups that lure top executives away from established firms with large grants of stock options but relatively low salaries, there is a “breakeven level” for the future stock price that can be calculated using a fairly modest amount of information about the executive's past and current compensation plans. For outside investors, such movements of human capital provide what is perhaps the most reliable basis for estimating the value of the firm.     

收购旧设备及更新计划

<正> 南方公司是美国东南部5间受控管制公用电之控股公司,并为美国最大之电力生产商。南方电力是南方公司其中一间附属公司,在世界各地从事电力发展业务。其子公司亚洲电力发展有限公司发展项目遍布中国、菲律宾及亚洲其他地区。南电收购State Line发电设备的项目是更新旧电厂以提高效率、减低烟气排放及延长机组寿命的好例子。     

Can evolutionary algorithms describe learning processes?

Evolutionary algorithms have attracted more and more the attention of economists in recent years. Repeatedly it is claimed that they are an adequate tool to describe learning processes within a population of individuals. The present paper examines this claim. To this end, a learning model is set up that contains the three elements of variation, elimination, and imitation that are claimed to correspond with the processes of mutation, selection, and replication of biological evolution. Subsequently, this model is compared with a formulation of evolutionary algorithms. The comparison reveals that although both processes have a similar structure there are crucial differences between the two dynamics.