Understanding the Implied Volatility Surface for Options on a Diversified Index

This paper describes a two-factor model for a diversified index that attempts to explain both the leverage effect and the implied volatility skews that are characteristic of index options. Our formulation is based on an analysis of the growth optimal portfolio and a corresponding random market activity time where the discounted growth optimal portfolio is expressed as a time transformed squared Bessel process of dimension four. It turns out that for this index model an equivalent risk neutral martingale measure does not exist because the corresponding Radon-Nikodym derivative process is a strict local martingale. However, a consistent pricing and hedging framework is established by using the benchmark approach. The proposed model, which includes a random initial condition for market activity, generates implied volatility surfaces for European call and put options that are typically observed in real markets. The paper also examines the price differences of binary options for the proposed model and their Black-Scholes counterparts. Mathematics Subject Classification: primary 90A12; secondary 60G30; 62P20 JEL Classification: G10, G13     

A Comparison of Two Quadratic Approaches to Hedging in Incomplete Markets

This paper provides comparative theoretical and numerical results on risks, values, and hedging strategies for local risk-minimization versus mean-variance hedging in a class of stochastic volatility models. We explain the theory for both hedging approaches in a general framework, specialize to a Markovian situation, and analyze in detail variants of the well-known Heston (1993) and Stein and Stein (1991) stochastic volatility models. Numerical results are obtained mainly by PDE and simulation methods. In addition, we take special care to check that all of our examples do satisfy the conditions required by the general theory.     

Unique but integrated: The role of individuation and assimilation processes in teen opinion leadership

Opinion leaders propel the diffusion of innovation and exert a significant influence on the marketplace. This influence is especially pronounced during adolescence, a period marked by increasing reliance on peers and the emergence of a tension between two countervailing needs: assimilation and individuation. A survey of 1142 adolescents reveals that these developmental needs affect adolescent opinion leadership in the critical clothing market. Adolescent opinion leadership relies on a balance between desires for assimilation (i.e., centrality within the peer network) and individuation (i.e., need for uniqueness); adolescents' susceptibility to peers' normative influence and gender moderate these relationships. Adolescents who occupy central positions within their peer network tend to be opinion leaders, though only if they are not susceptible to normative influence. Position within the peer network is a key for girls, whereas need for uniqueness is a key for boys. These differences implicate different approaches for managers targeting adolescent males and females.     

An Adversarial Ethic for Business: or When Sun-Tzu Met the Stakeholder

In the economic literature on the firm, especially in the transaction–cost tradition, a sharp distinction is drawn between so-called “market transactions” and “administered transactions.” This distinction is of enormous importance for business ethics, since market transactions are governed by the competitive logic of the market, whereas administered transactions are subject to the cooperative norms that govern collective action in a bureaucracy. The widespread failure to distinguish between these two types of transactions, and thus to distinguish between adversarial and non-adversarial relations, has led many business ethicists to develop a “uniform” moral code. Yet in market transactions, the checks and balances built into the system of commercial exchange are such as to permit more instrumental forms of behavior. In administered transactions, by contrast, these checks and balances are absent, and thus the institutional context calls for much greater exercise of moral restraint. In this paper, I begin the task of developing an adversarial ethic for business. According to this view, the competitive environment licenses a greater range of “self-interested” behavior, but also imposes its own constraints on the strategies that firms may adopt in the pursuit of their interests. Joseph Heath is Associate Professor in the Department of Philosophy and the Centre for Ethics at the University of Toronto. He is the author of three books: Communicative Action and Rational Choice (MIT Press, 2001), The Efficient Society (Penguin, 2001), and with Andrew Potter. The Rebel Sell (HarperCollins, 2004). His research focuses on practical rationality, normative economics, and critical theory.     

A Documentary Theory of States and Their Existence as Quasi-Abstract Entities

This article is concerned with the existence of states as a matter of fact, and it approaches that subject within the context of the ontology of social reality as a whole. It argues, first, that states do not have a place in the traditional Platonist duality of the concrete and the abstract. Second, that states belong to a third category – the quasi-abstract – that has received philosophical attention with a recently emerging theory of documentality. Documentality, derived from Austin’s theory of performative utterances, claims that documents acts can bring quasi-abstract objects, such as states into being. Third and finally, it argues that the existence of quasi-abstract states should not be rejected on the basis of the Principle of Parsimony, because geopolitical theories that recognise the existence of quasi-abstract states will have greater explanatory power than theories that deny their existence.     

野狼也温柔从创意到品牌大理想

故事发生在积雪覆顶的雪山上，一个迷路的旅行者在寒冷的暴风雪中苦苦寻找一个落脚点，沿途一直有野狼紧随其后、伺机而动。饥寒交迫中，他终于忍不住而晕倒在地。狼群奔向晕倒的旅行者，静静地依偎在他身上、为他取暖。“不是非要相识，才能相拥入怀。”     

An experimental test of brand insulation against competitor attacks: Effects of consumer heterogeneity and residual desire

Price discounts generally move consumers from lower‐quality brands to higher‐quality brands more than from higher‐quality brands to lower‐quality brands. This asymmetry can reverse, however, to favor the lower‐quality brand when improvements are made to product quality. Whether such variations exist when the goal is to retain rather than steal customers remains untested and constitutes the focus of this study. Experimental results indicate that customer retention strategies tend to favor higher‐quality brands. Higherquality brands are able to retain customers by matching the form of the lower‐quality brand's attack (price reduction or quality improvement). For lower‐quality brands, matching is effective only in the case of a price attack by a higher‐quality brand. Furthermore, higher‐quality brands are able to effectively retain customers with price reductions that are smaller than the discount offered by a lower‐quality competitor, whereas lower‐quality brands must match the magnitude of a discount by a higher‐quality brand to retain customers. The findings suggest that differences in customer retention across quality levels arise from (1) heterogeneity among consumers of different quality levels in the relative weightings of price and quality, and (2) switching decisions based on reasons that are biased toward continuing to purchase, or moving to, higher quality products. © 2008 Wiley Periodicals, Inc.     

The Campus Parking Game: A Demonstration of Price Discrimination and Efficiency

This article presents a classroom game that allows students to directly experience the welfare improvements that can result from price discrimination. The demonstration uses a very familiar decision-making scenario, campus parking, to introduce the concept of price discrimination as well as reinforce the concepts of opportunity cost, consumer surplus, and search costs. This game can be used in a variety of classes, including principles, intermediate theory, industrial organization, or environmental economics, and can be conducted in a 50-minute class period with follow-up discussion in the next class.     

The measurement of left-right and libertarian-authoritarian values: A comparison of balanced and unbalanced scales

In this paper we compare the performance of balanced and unbalanced Likert scales of two core dimensions of political attitudes: left-right and libertarian-authoritarian values. The balanced scales control for the effects of acquiescence response sets, whereas the unbalanced scales do not. Using data from two panel surveys, balanced and unbalanced scales are compared for reliability, stability and validity both with each other, and with other measures of political ideology and values (left-right self-placement and postmaterialism). Both balanced and unbalanced versions of the left-right and libertarian-authoritarian Likert scales are found to be more stable and strongly associated with social characteristics than are the other measures. The unbalanced scales have slightly higher reliability than the balanced scales; they are also orthogonal, whereas balanced left-right and libertarian-authoritarian scales are moderately correlated. Unbalanced scales also display a slightly stronger relationship with social characteristics, but they do not differ in their pattern of association with political preferences. Differences between balanced and unbalanced scales are attributed to the effects of acquiescence bias. This needs to be considered when using the scales for substantive analyses, but its effects are not problematic.