Conception intervals and the substitution of fertility over time

This paper applies the waiting-time regression methods of Olsen and Wolpin (1983) to an analysis of fertility. A utility maximizing model is set up and used to provide some guidance for an empirical analysis. The data are from an experimental guaranteed job program, the Youth Incentive Entitlement Pilot Project, aimed at young women 16 to 20 years old, from poverty-level families, and not yet high school graduates. The waiting-time regression method of estimation permits the youth in question to be used as her own control revealing how eligibility for the jobs program changes the durations of periods between live-birth conceptions. 3890 women surveyed had 1 birth, 429 had 2, 112 had 3, 26 had 4, and 7 had 5. Without this person specific control described here, the most important factors affecting fertility are number of siblings (negative effect), labor market attachment by parents, especially the father, and the presence of the natural father. With the person specific control, the results predicted from economic theory do emerge: even adolescent and young women consider the economic consequences of fertility reflected in effects of fertility when wages are high in favor of fertility with lower wages. Post program effects (taking place after youths lose eligibility for the program) are a rather rapid making up for foregone fertility, reducing likelihood of net reductions of total fertility.     

Nonlinear dynamics in economic modelling

Decisions in Economics and Finance -     

Delay two-sector economic growth model with a Cobb–Douglas production function

Decisions in Economics and Finance - This study demonstrates the possibility of cyclic capital accumulation in the case in which there are delays in capital implementation and estimation of capital...     

IFRS adoption,reporting incentives and financial reporting quality in private firms

This study examines financial reporting quality (FRQ) effects around voluntary International Financial Reporting Standards (IFRS) adoptions by German private firms across two important dimensions, earnings quality and disclosure practices. To capture differences in the motivations for IFRS adoptions, we identify four different types of IFRS adopting firms based on a comprehensive set of firm characteristics. We observe earnings quality improvements around IFRS adoptions primarily for one type of firm, which is young, fast growing and seeking access to public equity markets. Using a matched sample of private German GAAP and IFRS reporting firms, we find some evidence suggesting that IFRS also contribute to higher earnings quality. Recognizing that our earnings quality metrics are only incomplete measures of FRQ, we also compare the disclosure practices of IFRS and German GAAP firms. We find that all IFRS firm types disclose significantly more information in their financial reports and show a higher propensity to publish their financial reports voluntarily on the corporate website. Our findings indicate that failure to identify earnings quality changes around IFRS adoption cannot be automatically interpreted as IFRS adoption having no effect on the FRQ of (private) firms. Collectively, our results suggest that both incentives and accounting standards shape private firms’ FRQ.     

A general closed form option pricing formula

A new method to retrieve the risk-neutral probability measure from observed option prices is developed and a closed form pricing formula for European options is obtained by employing a modified Gram–Charlier series expansion, known as the Gauss–Hermite expansion. This expansion converges for fat-tailed distributions commonly encountered in the study of financial returns. The expansion coefficients can be calibrated from observed option prices and can also be computed, for example, in models with the probability density function or the characteristic function known in closed form. We investigate the properties of the new option pricing model by calibrating it to both real-world and simulated option prices and find that the resulting implied volatility curves provide an accurate approximation for a wide range of strike prices. Based on an extensive empirical study, we conclude that the new approximation method outperforms other methods both in-sample and out-of-sample.

     

Smooth and bid-offer compliant volatility surfaces under general dividend streams

Abstract

Given bid-offer quotes for a set of listed vanilla options, a fundamental need of option market makers is to interpolate and extrapolate the available quotes to a full arbitrage-free surface. We propose a methodology which directly controls the trade-off between smoothness and bid-offer compliance of the resulting volatility surface. Unlike previous literature, the method applies simultaneously to all listed maturities and aims to smooth the implied risk-neutral densities. Additionally, we consider asset dynamics which allow for general dividend streams—continuous, discrete yield and discrete cash—a modelling aspect of key importance in option markets.     

Neoclassical growth model with two fixed delays

“Delay” has been considered as one of destabilizing factors in economic dynamics for a long time. Dynamic macroeconomics is concerned with explaining growth and fluctuations. This paper shows how various dynamics involving cyclic fluctuations can emerge in the standard neoclassical growth model when two distinct delays, a delay in production and a delay in depreciation, are explicitly taken into account. We first confirm that the production delay has a stabilizing effect and the depreciation delay has a destabilizing effect in a one‐delay model. We then determine the stability switching curve analytically in the two delay model. It is shown that cyclic fluctuations emerge via Hopf bifurcation when stability is lost. It is also found that stability loss and gain repeatedly occur. Numerical examples verify the theoretical results when the Cobb‐Douglas production function is adopted.     

CHANGES IN DEMAND FUNCTION IN COURNOT OLIGOPOLY

Abstract.  The effects of change in the market (inverse) demand function are systematically analysed for Cournot oligopoly without product differentiation. The general comparative-static results are stated using the original data on firms' cost functions and inverse demand function. Three special models are examined in light of our results. The stability condition is shown to be insufficient for determinate comparative statics.