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.     

From growth to basic needs

Despite growing hostility and basic misconceptions, the concept of "basic human needs" has superseded former approaches, including concentration on growth, creation of employment, and redistribution of benefits to the poor, as the approach by which mass deprivation may be reduced. The new approach can be defined briefly as one which is designed to improve, first, the income earning opportunities for the poor; second, the public services that reach the poor; third, the flow of goods and services to meet the needs of all members of the household; and fourth, participation of the poor in the ways in which their needs are met. All four pillars must be built on a sustainable basis. In addition, basic needs must be met in a shorter period and at a lower level of earned income per capita than has generally been true in the past, or than would have been achieved via the income expansion associated with growth alone. The basic needs approach is concerned with particular goods and services directed at particular, identified human beings. Another advantage of the basic needs approach is that it is a more positive concept than the double negatives of eliminating or reducing unemployment, alleviating poverty, or reducing inequality. The basic needs approach spells out in considerable detail human needs in terms of health, food, education, water, shelter, transport, simple household goods, as well as non-material needs like participation, cultural identity, and a sense of purpose in life and work, which interact with the material needs.     

Arthur Lewis distinguished lecture what’s left of what’s left? or: What does it mean to be a socialist today?

After a few reminiscences about Arthur Lewis, several questions on what socialism is not about are raised. Neither public ownership, nor welfare services nor central planning are considered essential to it. The view that the distinction capitalism-socialism is obsolete is briefly discussed. It is argued that many important distinctions cut across the divide. The United States is held up as a socialist country. Changes in the socialist creed in the last century are noted. An alternative window of looking at the private-public sector distinction is discussed. And the essence of socialism as the democratization of political and civil society and private firms is advanced. A final plea for pedantic utopianism is made.