forecasting metal prices do forecasters herd abstract we analyze more than 20 000 forecasts of nine metal prices at four different forecast horizons we document that forecasts are heterogeneous and report that anti herding appears to be a source of this heterogeneity forecaster anti herding reflects strategic interactions among forecasters that foster incentives to scatter forecasts around a consensus forecast

50th anniversary article option pricing valuation models and applications this paper surveys the literature on option pricing from its origins to the present an extensive review of valuation methods for european and american style claims is provided applications to complex securities and numerical methods are surveyed emphasis is placed on recent trends and developments in methodology and modeling

women s access to credit does it matter for household efficiency studies that assess the impact of credit constraints on farm households efficiency have largely used the household as the unit of analysis this can be problematic when there are gender based market imperfections and asymmetries in how rights resources and responsibilities are distributed within the household constraints on women matter in addition to the efficiency loss associated with the husbands credit constraints when women are unable to meet their needs for capital their households experienced an additional 11 drop in efficiency this suggests that there are efficiency based arguments for enhancing women s access to capital and that studies based only on the household s head may significantly underestimate the true economic impact of credit constraints copyright 2008 oxford university press

factorization of european and american option prices under complete and incomplete markets abstract in a standard option pricing model with continuous trading and diffusion processes this paper shows that the price of one european style option can be factorized into two intuitive components one robust x 0 which is priced by arbitrage and a second 0 which depends on a risk orthogonal to the traded securities this result implies the following 1 in an incomplete market these parts represent the price of a hedging portfolio which is unique and a premium which depends only on the risk premiums associated with the residual risk respectively 2 in a complete market it allows factoring the contribution of the different sources of risk to the final option price for example in a stochastic volatility model we can quantify the impact on the option price of volatility risk relative to market risk 0 and x 0 respectively hence certain misspricings in option markets can be directly related to the premium 0 3 moreover these results extend to american securities which have a third component an additional early exercise premium

farm household production efficiency evidence from the gambia this article investigates the economic efficiency of farm households with an application to the gambia the efficiency analysis is conducted not at the farm level but at the household level thus capturing the importance of off farm activities output based measures of technical allocative and scale efficiency are generated using nonparametric measurements an econometric analysis of factors affecting the efficiency indexes is then conducted using a tobit model technical efficiency is fairly high indicating that access to technology is not a severe constraint for most farm households the cost of scale inefficiency is modest allocative inefficiency by contrast is found to be important for the majority of farm households on the basis of the tobit results imperfections in markets for financial capital and nonfarm employment contribute to significant allocative inefficiency

electricity market integration decarbonisation and security of supply dynamic volatility connectedness in the irish and great britain markets abstract this study investigates the volatility connectedness between the irish and great britain electricity markets and how it is driven by changes in energy policy institutional structures and political ideologies we assess various aspects of this volatility connectedness including static unconditional vs dynamic conditional symmetric vs asymmetric characteristics between 2009 and 2018 we find that the volatility connectedness is time varying and it is significantly affected by important events policy reforms or market re designs such as brexit oil price slump an increasing share of renewables and fluctuations in the exchange rates our asymmetric analysis shows that magnitude of the good volatility connectedness is marginally larger than that of the bad volatility connectedness our result suggests that good volatility levels would be even higher once the irish market adopts the carbon price floor therefore supporting renewable generation by setting an appropriate price of carbon in interconnected wholesale electricity markets will improve market integration

clearly irrational financial market behavior evidence from the early exercise of exchange traded stock options this paper analyzes the early exercise of exchange traded options by different classes of investors over the 1996 to 1999 period a large number of exercises are identified as clearly irrational without invoking any model of market equilibrium customers of discount brokers and customers of full service brokers both engage in a significant number of irrational exercises while traders at large investment houses exhibit no irrational early exercise behavior rational and irrational exercise is triggered for discount and full service customers by the underlying stock price attaining its highest level over the past year and by high returns on the underlying stock it is well known that in the absence of market frictions it is irrational to exercise american call options early except in some circumstances just before the underlying stock goes ex dividend even in the presence of market frictions it is possible to identify without the imposition of any model of market equilibrium call exercises that are clearly irrational in this paper we employ a previously unavailable data set to analyze the rationality of early exercises of chicago board option exchange cboe calls over the 1996 to 1999 period by customers of discount brokers discount customers customers of full service brokers full service customers and traders at large investment houses trading for their firms own accounts firm proprietary traders our first main finding is that there are a large number of early exercises that can be definitively identified as irrational and irrational exercise activity is not evenly distributed across the investor classes discount customers and full ser

period specific volatility spillover based connectedness between oil and other commodity prices and their portfolio implications abstract this paper analyses the changing impact of oil price shocks on a bouquet of metal and agro prices and their implications for investment decisions during different oil price regimes separated by structural breaks endogenously identifying the structural breaks we use network analysis to decipher the nature and extent of such shock transfer across different sub periods we suggest optimal portfolios based on conditional variance estimates to hedge oil shocks during each period this is the first study to analyse the portfolio decisions during specific oil price regimes the results are of significant interest to investors and policy makers

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

early and late calls of convertible bonds theory and evidence many convertible bonds are called too early or too late relative to the perfect markets decision rule of ingersoll 1977a and ingersoll 1977b we re examine the convertible call decision under corporate taxation and possible default prior to maturity our model predicts that early calls will be associated with high coupon and low call premium dividend income volatility tax rate and interest rate and late calls will be associated with high call premium dividend income tax rate and interest rate and low coupon and volatility these implications are supported by empirical tests carried out with five years of convertible call data

allocable fixed inputs as a cause of joint production a cost function approach the multiproduct cost concepts of baumol panzar and willig are used to explore the contention of shumway pope and nash that allocable fixed inputs cause joint production allocable fixed inputs may create an interdependence in the short run cost function when none exists in the long run however this will not necessarily lead to joint production for joint production to occur in the short run either the short run cost function must exhibit economies of scope or stand alone production of one of the commodities must exhibit diseconomies of size the issue of whether allocable fixed inputs cause joint production is an empirical question

china and the relationship between the oil price and the dollar abstract we study cointegration and causality between the real price of oil and the real price of the dollar over the 1974 2004 period our results suggest that a 10 rise in the oil price coincides with a 4 3 appreciation of the dollar in the long run and that the causality runs from oil to the dollar through the development of a theoretical model we then investigate possible reasons why this relationship could be reversed in the future due to the emergence of china as a major player on both the oil and the foreign exchange markets

an improved least squares monte carlo valuation method based on heteroscedasticity longstaff schwartz s least squares monte carlo method is one of the most applied numerical methods for pricing american style derivatives we examine the algorithms regression step demonstrating that the ols regression is not the best linear unbiased estimator because of heteroscedasticity we prove the existence of heteroscedasticity for single asset and multi asset payoffs numerically and theoretically and propose weighted least squares mc valuation method to correct for it an extensive numerical study shows that the proposed method produces significantly smaller pricing bias than the longstaff schwartz method under several well known price dynamics an empirical pricing exercise using market data confirms the advantages of the improved method

normal inputs and joint production with allocatable fixed factors when jointness is caused by allocatable fixed factors in the normal case the marginal cost of any output increases as any other output increases the supply of any output decreases as any other output price increases and an input price increase may cause the supply of some outputs to increase

the analytic valuation of american options no analytic solutions exists for the valuation of american options written on futures contracts and foreign currencies for which early exercise may be optimal this article formulates the american option valuation problem in economically and mathematically meaningful ways this enables us to derive valuation formulas for american options the properties associated with the optimal exercise boundary are examined and a numerical technique to implement the valuation formulas is presented article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

child labor and schooling responses to anticipated income in south africa abstract forward looking unconstrained households make child labor and schooling decisions considering their permanent income and weighing the relative returns to child time in various potential activities the timing of anticipated changes in income should have no effect on child labor and schooling in a setting where households can borrow against permanent income however this study documents large increases in schooling attendance and declines in total hours worked when black south african families become eligible for fully anticipatable social pension income as an explanation the data are most consistent with liquidity constraints for black elder males forcing rural families into less schooling for boys than they would choose absent the constraint perhaps because of schooling costs

the sensitivity of american options to suboptimal exercise strategies the value of american options depends on the exercise policy followed by option holders market frictions risk aversion or a misspecified model for example can result in suboptimal behavior we study the sensitivity of american options to suboptimal exercise strategies we show that this measure is given by the gamma of the american option at the optimal exercise boundary more precisely if b is the optimal exercise price but exercise is either brought forward when or delayed until a price b has been reached the cost of suboptimal exercise is given by b b b 2 where b denotes the american option gamma therefore the cost of suboptimal exercise is second order in the bias of the exercise policy and depends on gamma this result provides new insights on american options

rational prepayment and the valuation of mortgage backed securities this article presents a new model of mortgage prepayments based on rational decisions by mortgage holders these mortgage bolders face beterogeneous transaction costs which are explicitly modeled the model is estimated using a version of hansen s 1982 generalized method of moments and is sbown to capture many of the empirical features of mortgage prepayment estimation results indicate that mortgage holders act as tbougb tbey face transaction costs tbat far exceed tbe explicit costs usually incurred on refinancing they also wait an average of more than a year before refinancing even when it is optimal to do so the model fits observed prepayment behavior as well as thee recent empirical model of schwartz and torous 1989 implications for pricing mortgage backed securities are discussed

convertible bonds are not called late starting with ingersoll 1977b the academic literature has repeatedly sought to explain why convertible bonds are called late the findings here demonstrate there is no call delay to explain this paper finds that most convertible bonds given their call protection are called as soon as possible for those that are not there are significant cash flow advantages to delaying the median call delay for all convertible bonds is less than four months if a safety premium is desired to assure the conversion value will exceed the call price at the end of call notice period the median call period is less than a month the question of what is the optimal call policy for convertible bonds has attracted considerable attention since brennan and schwartz 1977 and ingersoll s 1977a seminal work that work suggests that the optimal call policy is to call the bond when the conversion value first exceeds the call price since forcing conversion eliminates the bondholders premium or option value however empirical studies e g ingersoll 1977b and constantinides and grundy 1987 claim that firms consistently deviate from this call policy and delay calls this claim is based on ingersoll s finding that firms wait on average until the conversion value exceeds the call price by 43 9 a result confirmed in mikkelson 1985 trying to explain this call delay phenomenon has generated an impressive literature to date however no one has actually documented whether there is a delay or measured how long the delay is in addition the existing empirical work has focused either on a subsample of called bonds or on a subsample of bonds remaining uncalled at a given point in time these partial samples are not adequate to empirically determine average call delays for convertible bonds or to distinguish between the various hypotheses proposed for call

optimal exercise of executive stock options and implications for firm cost this paper conducts a comprehensive study of the optimal exercise policy for an executive stock option and its implications for option cost average life and alternative valuation concepts the paper is the first to provide analytical results for an executive with general concave utility wealthier or less risk averse executives exercise later and create greater option cost however option cost can decline with volatility we show when there exists a single exercise boundary yet demonstrate the possibility of a split continuation region we also show that for constant relative risk averse utility the option value does not converge to the black and scholes value as the correlation between the stock and the market portfolio converges to one we compare our model s option cost with the modified black and scholes approximation typically used in practice and show that the approximation error can be large or small positive or negative depending on firm characteristics

analyzing the welfare improving potential of land in the former homelands of south africa this article contributes to the debate on the role of land in reducing poverty in rural south africa it uses the year of arrival in the former homelands as an instrument for land access and size this identification strategy is based on the fact that african households were forcibly relocated to the homelands during the apartheid due to increasing population pressure later arrivals were less likely to be assigned land the results show that land has a large positive effect on household welfare because the homelands are relatively disadvantaged areas these results provide a lower bound for the positive effects of land on household welfare

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

pension transfers and farm household technical efficiency evidence from south africa this article analyzes the effect of entitlements from the old age pension program of south africa on household technical efficiency using a sample of farm households in south africa s kwazulu natal province the analysis is at the household level and off farm activities are considered as additional outputs in a nonparametric estimation of technical efficiency this approach captures the jointness between farm and off farm activities the pension s effect is identified by exploiting the age eligibility criteria in the pension program results show a positive effect of the pension and suggest that this large cash transfer can improve households ability to make use of the best available technologies

the interaction between food prices and oil prices this paper provides a statistical methodology to estimate the impact of oil price uncertainty on food prices in doing so it examines the joint impact of oil price and food price uncertainties and their correlation on the food price also the theoretical model was applied to the oil based trinidad and tobago and the empirical results confirm the theoretical predictions the empirical results indicate that a higher oil price increases food price also a higher oil price volatility yields a higher food price moreover an increase in the oil supply reduces the food price

large cash transfers to the elderly in south africa we examine the social pension in south africa where large cash sums about twice the median per capita income of african households are paid to people qualified by age but irrespective of previous contributions we present the history of the scheme and use a 1993 nationally representative survey to investigate the redistributive consequences of the transfers documenting who receive the pensions their levels of living and those of their families we also look at behavioural effects particularly the effects of the cash receipts on the allocation of income to food schooling transfers and savings in south africa a large social pension about twice the median per capita income of african households is paid in cash to people qualified by age irrespective of previous contributions we present the history of the scheme and explain how such large transfers could come about in an economy in which the recipients were not only politically weak but without any political representation whatsoever we then use a 1993 nationally representative survey to investigate the redistributive consequences of the transfers documenting who receive the pensions their levels of living and those of their families we also look at behavioural effects particularly the effects of the cash receipts on the allocation of income to food schooling transfers and savings the pressing policy issue for south africans is whether it makes sense to target seven billion rand nearly 2 billion of social expenditure through the current pension schemes our analysis contributes to the discussion by documenting the redistributive and behavioural effects of the transfers we find that at least as far as immediate incidence is concerned and without allowance for behavioural effects the social pension is an effective tool of redistribution and that the households it reaches are predominantly poor because so many of the elderly among south africa s african population live with children the social pension is also effective in putting money into house

allocatable fixed inputs and jointness in agricultural production implications for economic modeling allocatable fixed inputs such as land are a potentially important source of jointness in agriculture as with other causes of jointness they necessitate multiple product systems for modeling product supply and input demand in other important ways however their analytical implications are very different from other causes of jointness model specification differs demand functions for the quantities of each input used in the production of individual commodities can be derived if a primal approach is used but such allocation equations cannot in general be identified from a dual specification available allocation data are not even useful in such dual estimations

throwing away a billion dollars the cost of suboptimal exercise strategies in the swaptions market abstract this paper studies the costs of applying single factor exercise strategies to american swap options when the term structure is actually driven by multiple factors using a multifactor string market model of the term structure we find that even when single factor models are recalibrated to match the market at every exercise date the exercise strategies they imply can be suboptimal based on estimates of notional amounts outstanding the total present value costs of following single factor strategies could be several billion dollars these results illustrate the importance of using well specified term structure models

can exchange rates forecast commodity prices we show that commodity currency exchange rates have surprisingly robust power in predicting global commodity prices both in sample and out of sample and against a variety of alternative benchmarks this result is of particular interest to policy makers given the lack of deep forward markets in many individual commodities and broad aggregate commodity indices in particular we also explore the reverse relationship commodity prices forecasting exchange rates but find it to be notably less robust we offer a theoretical resolution based on the fact that exchange rates are strongly forward looking whereas commodity price fluctuations are typically more sensitive to short term demand imbalances

options on the spot and options on futures this paper analyzes and compares the valuation of two types of options that relate to the same asset options on the asset itself and options on the futures on the asset the early exercise privilege plays a central role in explaining the differences between the values of the two options it is shown that in the case of a cash instrument that does not make interim payments such as gold the value of a call option on the spot is smaller than the call option on the futures contract the opposite is true for put options the early exercise boundaries which characterize when it pays to exercise are also compared and analyzed the financial markets have recently witnessed a proliferation of various types of listed options on commodities and on financial assets commencing with call options on individual common stocks recent innovations have included call and put options on treasury bonds metals foreign currencies and stock market

do private transfers displace the benefits of public transfers evidence from south africa abstract this paper investigates whether government transfer programs displace or crowd out private support focusing on a large increase in state old age pensions in south africa using data spanning the period of the expansion we find that each rand of public pension income to the elderly leads to a 0 25 0 30 rand reduction in private transfers from children living away from home however despite the large increase in income there were no significant changes in migration labor supply or household composition we also show that evaluations of the distributional effects of the pension are overstated when crowding out is ignored

linkages between the farm and nonfarm sectors at the household level in rural ghana a consistent stochastic distance function approach this article explores the effects within households of an expanding rural nonfarm rnf sector in ghana we ask whether the growing rnf sector allows for economies of diversification within farms how it affects household input demands and whether it has measurable effects in overall household production efficiency we explore the intrahousehold linkages between agricultural and rnf activities first assuming perfectly competitive input and output markets and then with market failures in particular missing labor and credit markets we then measure these linkages using a household level input distance function finding high levels of inefficiency in ghanaian farms also there are cost complementarities between the rnf sector and the agricultural sector particularly with food crops in which the poorest tend to specialize the expansion of the rnf sector increases demand for most inputs including agricultural land finally we show that smaller farms tend to be more efficient and that rnf output is helping the farm household to become more efficient but the latter result is not robust

on the suboptimality of single factor exercise strategies for bermudan swaptions abstract this paper resolves the disagreement between longstaff et al 2001 journal of finance economics 62 39 66 and andersen and andreasen 2001 journal of financial economics 62 3 37 over the effectiveness of the common business practice of using best fit single factor term structure models to deduce exercise strategies of bermudan swaptions i examine the cost of using recalibrated single factor models to determine the exercise strategy for bermudan swaptions in a multifactor world i show that single factor exercise strategies applied in a multifactor world only give rise to economically insignificant losses furthermore i find that the conditional model risk as defined in longstaff et al 2001 journal of finance economics 62 39 66 is statistically insignificant given the number of observations additional tests using the primal dual algorithm of andersen and broadie 2004 management science 50 9 indicate that losses found in longstaff et al 2001 journal of finance economics 62 39 66 cannot as claimed be ascribed to the number of factors

tight bounds on american option prices in contrast to the constant exercise boundary assumed by broadie and detemple 1996 broadie m detemple j 1996 american option valuation new bounds approximations and comparison of existing methods review of financial studies 9 1211 1250 we use an exponential function to approximate the early exercise boundary then we obtain lower bounds for american option prices and the optimal exercise boundary which improve the bounds of broadie and detemple 1996 with the tight lower bound for the optimal exercise boundary we further derive a tight upper bound for the american option price using the early exercise premium integral of kim 1990 kim i j 1990 the analytic valuation of american options review of financial studies 3 547 572 the numerical results show that our lower and upper bounds are very tight and can improve the pricing errors of the lower bound and upper bound of broadie and detemple 1996 by 83 0 and 87 5 respectively the tightness of our upper bounds is comparable to some best accurate efficient methods in the literature for pricing american options moreover the results also indicate that the hedge ratios deltas and gammas of our bounds are close to the accurate values of american options

commodity currencies and the real exchange rate abstract this paper examines whether the real exchange rates of commodity exporting countries and the real prices of their commodity exports move together over time using international monetary fund imf data on the world prices of 44 commodities and national commodity export shares we construct new monthly indices of national commodity export prices for 58 commodity exporting countries over 1980 2002 evidence of a long run relationship between national real exchange rate and real commodity prices is found for about one third of the commodity exporting countries the long run real exchange rate of these commodity currencies is not constant as would be implied by purchasing power parity based models but is time varying being dependent on movements in the real price of commodity exports

poverty livelihood and class in rural south africa abstract using data from a national living standards survey undertaken in late 1993 this paper disaggregates and explores the economics of livelihood generation and class in rural south africa in an effort to contribute to the ongoing and vociferous debate in south africa about poverty and its alleviation pursuant to the suggestion of participants in a recent participatory poverty assessment this paper analyzes what might be termed the class structure of poverty after exploring the range of claiming systems and livelihood tactics available in rural south africa the paper offers a first look at who the poor are by disaggregating the rural population into discrete livelihood strategy classes non parametric regression methods are used to then estimate and graphically explore the nature of the livelihood mapping between endowments and real incomes in addition to identifying those endowment combinations that map to consumption levels below the poverty line the asset basis of poverty the topography of the estimated livelihood mapping helps identify the constraints that limit household s ability to effectively utilize their assets and endowments these results suggest that poverty is a matter of not only having few assets but also of constraints which limit the effectiveness with which those assets are used and poverty and livelihood policy needs to be designed accordingly

the rationality of early exercise decisions evidence from the s p 100 index options market this study provides a comprehensive empirical analysis of the early exercise bistoty of sp but we show that a substantal number of these decisions are clearly irratonal since it would bave been possible to realize a larger riskless net cash jlow by seuling unlike p us studies of early exercise our tests of efflciency and the rationat decions tbatpresumably lead to eficient markets are model independet we also provide evidence concerning the relatve significance of dividends and the wild card to index optonpricing models and introduce and document the importance of the opton to exercise and avoid the indirect costs oftbe spread we alsofind evidence of a significant day of tbe week exercise effect and present some likely explanations for that effect

the empirical relationship between energy futures prices and exchange rates abstract this paper investigates the interaction between energy futures prices and exchange rates results are presented to show that futures prices for crude oil heating oil and unleaded gasoline are co integrated with a trade weighted index of exchange rates this is important because it means that there exists a long run equilibrium relationship between these four variables granger causality results for both the long and short run are presented evidence is also presented that suggests exchange rates transmit exogenous shocks to energy futures prices

estimation of limited dependent variable models with dummy endogenous regressors applied economists have long struggled with the question of how to accommodate binary endogenous regressors in models with binary and nonnegative outcomes i argue here that much of the difculty with limited dependent variables comes from a focus on structural parameters such as index coefcients instead of causal effects once the object of estimation is taken to be the causal effect of treatment several simple strategies are available these include conventional two stage least squares multiplicative models for conditional means linear approximation of nonlinear causal models models for distribution effects and quantile regression with an endogenous binary regressor the estimation strategies discussed in the article are illustrated by using multiple births to estimate the effect of childbearing on employment status and hours of work

assessing the effect of oil price on world food prices application of principal component analysis the objective of this paper is to investigate the co movement of food prices and the macroeconomic index especially the oil price by principal component analysis to further understand the influence of the macroeconomic index on food prices we examined the food prices of seven major products eggs meat milk oilseeds rice sugar and wheat the macroeconomic variables studied were crude oil prices consumer price indexes food production indexes and gdp around the world between 1961 and 2005 we use the scree test and the proportion of variance method for determining the optimal number of common factors the correlation coefficient between the extracted principal component and the macroeconomic index varies between 0 87 for the world gdp and 0 36 for the consumer price index we find the food production index has the greatest influence on the macroeconomic index and that the oil price index has an influence on the food production index consequently crude oil prices have an indirect effect on food prices

commodity prices interest rates and the dollar this paper sheds light on recent fluctuations in commodity prices we investigate whether a decline in real interest rates and the us dollar contributes to higher commodity prices and whether commodity prices display overshooting behavior in response to changes in real interest rates we analyze the behavior of real prices of crude oil food metals and industrial raw materials the analysis is based on structural var models estimated on quarterly data over the period 1990q1 2007q4 our results suggest that commodity prices increase significantly in response to reductions in real interest rates moreover oil prices and prices of industrial raw materials tend to display overshooting behavior in response to such interest rate changes the evidence also suggests that a weaker dollar leads to higher commodity prices shocks to interest rates and the dollar are found to account for substantial shares of fluctuations in commodity prices

public policy and extended families evidence from pensions in south africa how are resources allocated within extended families in developing economies this question is investigated using a unique social experiment the south african pension program under that program the elderly receive a cash transfer equal to roughly twice the per capita income of africans in south africa the study examines how this transfer affects the labor supply of prime age individuals living with these elderly in extended families it finds a sharp drop in the working hours of prime age individuals in these households when women turn 60 years old or men turn 65 the ages at which they become eligible for pensions it also finds that the drop in labor supply is much larger when the pensioner is a woman suggesting an imperfect pooling of resources the allocation of resources among prime age individuals depends strongly on their absolute age and gender as well as on their relative age the oldest son in the household reduces his working hours more than any other prime age household member

employee stock option exercises an empirical analysis this paper describes the exercise behavior of over 50 000 employees who hold longterm options on employer stock at eight corporations employees typically exercise options years before expiration commonly sacrificing half of the black scholes value exercise is strongly associated with recent stock price movements the market to strike ratio proximity to vesting dates time to maturity volatility and the employee s level within the company these findings have implications for compensation planners the fasb as it develops a new accounting standard for options and financial statement users and preparers who apply and interpret the new fasb standard

market imperfections liquidity and farm household labor allocation the case of rural south africa asset endowments and market imperfections shape households labor allocation decisions and lead to different production regimes within rural farm households in south africa this article uses a farm household model to explain the presence of three main household groups determined on the basis of the labor regime adopted small peasants working both on and off farm self cultivators autarkic in labor and hiring in households a partial generalized ordered logit is used to test the main predictions of the model and a brant test on threshold constancy is performed to identify the household specific factors affecting labor market participation the results show that liquidity constraints and market imperfections matter in the choice of the labor strategy adopted liquidity constrained households are more likely to sell labor off farm while access to information facilitates the hiring in of workers

an improved method for pricing and hedging long dated american options abstract the majority of quasi analytic pricing methods for american options are efficient near maturity but are prone to larger errors when time to maturity increases we introduce a new methodology to increase the accuracy of almost any existing quasi analytic approach in pricing long maturity american options the new methodology called the extension method relies on an approximation of the optimal exercise price near the beginning of the contract combined with existing pricing approaches so that the maturity range for which small errors are attainable is extended our method retains the quasi analytic nature of the methods it improves generic quasi analytic formulae for the price of an american put as well as for its hedging parameter are derived our scenarios based numerical study indicates that our method considerably improves both the pricing and the hedging performance of a number of established approaches for a wide range of maturities the superiority of this approach is illustrated with real financial data by considering s p 100 tm leaps options traded from january 2008 to may 2015

does euro or dollar pegging impact the real exchange rate the case of oil and commodity currencies the aim of this paper is to investigate the equilibrium exchange rates for commodity and oil currencies as well as the discrepancies of their observed exchange rates to these equilibriums to this end first we estimate a long term relationship between the real effective exchange rate and economic fundamentals including the commodity terms of trade the estimation relies on panel cointegration techniques and covers annual data from 1980 to 2007 our results show that real exchange rates co move with commodity prices in the long run and respond to oil price somewhat less than to commodity prices second we assess the degree of misalignment of these currencies as the gap between their observed exchange rate and the estimated equilibrium exchange rate we show that these misalignments are not significantly related to the exchange rate regimes adopted by the countries either pegged or floating however for pegged currencies the size of misalignments significantly depends on the anchor currency either the euro or the dollar a comparison of misalignments of pegged commodity and oil currencies across different periods confirms these results during periods of dollar euro overvaluation currencies pegged to the dollar euro tend to be overvalued the reverse being true when the dollar euro is undervalued consequently pegged currencies are often driven away from their equilibria by wild fluctuations in the key currencies on which they are anchored

on the valuation of american call options on stocks with known dividends both the roll and the geske equations for the valuation of the american call option on a stock with known dividends are incorrectly specified this note presents the corrected valuation formula explains the misspecifications and provides a numerical example

the implication of missing the optimal exercise time of an american option the optimal exercise policy of an american option dictates when the option should be exercised in this paper we consider the implications of missing the optimal exercise time of an american option for the put option this means holding the option until it is deeper in the money when the optimal decision would have been to exercise instead we derive an upper bound on the maximum possible loss incurred by such an option holder this upper bound requires no knowledge of the optimal exercise policy or true price function this upper bound is a function of only the option holder s exercise strategy and the intrinsic value of the option we show that this result holds true for both put and call options under a variety of market models ranging from the simple black scholes model to complex stochastic volatility jump diffusion models numerical illustrations of this result are provided we then use this result to study numerically how the cost of delaying exercise varies across market models and call and put options we also use this result as a tool to numerically investigate the relation between an option holder s risk preference levels and the maximum possible loss he may incur when adopting a target payoff policy that is a function of his risk preference level

the sensitivity of tests of the intertemporal allocation of consumption to near rational alternatives suppose a consumer sets consumption equal to income each period rather than following the optimal permanent income decision rule how much utility does he lose this paper finds that the answer is typically less than 10 cents 1 per quarter in environments specified by popular tests on aggregate data it includes calculations of the costs of excess sensitivity and excess smoothness to income and interest rate changes and the costs of ignoring information it concludes that the theory does not make predictions for aggregate tests that are robust to small costs such as information or transactions copyright 1989 by american economic association

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

valuation of american futures options theory and empirical tests this paper reviews the theory of futures option pricing and tests the valuation principles on transaction prices from the s p 500 equity futures option market the american futures option valuation equations are shown to generate mispricing errors which are systematically related to the degree the option is in the money and to the option s time to expiration the models are also shown to generate abnormal risk adjusted rates of return after transaction costs the joint hypothesis that the american futures option pricing models are correctly specified and that the s p 500 futures option market is efficient is refuted at least for the sample period january 28 1983 through december 30 1983 futures option contracts now trade on every major futures exchange and on a wide variety of underlying futures contracts the chicago mercantile exchange the chicago board of trade the new york futures exchange and the commodity exchange now collectively have more than twenty options written on futures contracts where the underlying spot commodities are financial assets such as stock portfolios bonds notes and eurodollars foreign currencies such as west german marks swiss francs and british pounds precious metals such as gold and silver livestock commodities such as cattle and hogs and agricultural commodities such as corn and soybeans moreover new contract applications are before the commodity futures trading commission and should be actively trading in the near future with the markets for these new contingent claims becoming increasingly active it is appropriate that the fundamentals of futures option valuation be reviewed and tested black 5 provides a framework for the analysis of commodity futures options although his work is explicitly directed at pricing european options on forward contracts it applies to european futures contracts as well if the riskless rate of interest is constant during the futures option life 1 the options currently

real exchanges rates in commodity producing countries a reappraisal commodity price booms as those recorded in the last decade may have a significant economic impact in small commodity exporting developing countries whether the impact on output is positive or negative is still unclear it depends on various factors notably on the impact that commodity prices can have on the real exchange rate of the commodity exporting countries two recent papers show that the real exchange rate appreciates when commodity prices increase our analysis produces new estimates of this relationship by focusing on a large sample of developing countries which are specialized in the export of one leading commodity by using non stationary panel techniques robust to cross sectional dependence we find that the price of the dominant commodity has a significant long run impact on the real exchange rate when the exports of the leading commodity have a share of at least 20 percent in the country s total exports of merchandises our results also show that the larger this share the larger the size of the impact

futures options and the volatility of futures prices assuming nonstochastic interest rates european futures options are shown to be european options written on a particular asset referred to as a futures bond consequently standard option pricing results may be invoked and standard option pricing techniques may be employed in the case of european futures options additional arbitrage restrictions on american futures options are derived the efficiency of a number of futures option markets is examined assuming that at the money american futures options are priced accurately by black s european futures option pricing model the relationship between market participants ex ante assessment of futures price volatility and the term to maturity of the underlying futures contract is also investigated empirically

dynamic spillover between commodities and commodity currencies during united states q e abstract this paper comprehensively discusses the dynamic relationship between commodities and commodity currencies particularly during the u s quantitative easing qes by integrating the generalized spillover index into a fractionally integrated var fivar model our empirical analyses reach the following conclusions first the static return and volatility spillovers analyses show that the food is the only net receiver among all the commodity price indices second the dynamic total return and volatility spillover accelerated growth in term of the index by roughly between 15 and 25 for four regional groups during the initiation of the qe1 and subsequently remained across the first two rounds of the u s qe nevertheless both the total return and volatility spillover declined in the midst of the qe3 as the u s federal reserve signaled the qe tapering due to the anticipated u s economic recovery third the energy and metals components were the largest net transmitters of return and volatility spillovers during the u s qes a possible interpretation is that demand for energy and metals increase associated with an increase in economic activity that is triggered by the u s qes last almost all the sample commodity currencies acted as net receivers of return and volatility spillovers during the u s qes supporting the pass through of commodities to commodity currencies

robust pricing of the american put option a note on richardson extrapolation and the early exercise premium this paper presents a detailed analysis of the numerical implementation of the american put option decomposition into an equivalent european option plus an early exercise premium kim 1990 jacka 1991 carr et al 1992 it subsequently introduces a new algorithm based upon this decomposition and richardson extrapolation this new algorithm is based upon a the derivation of the correct order for the error term when applying richardson extrapolation which is used to control the error of the extrapolated prices b an innovative adjustment of kim s 1990 discrete time early exercise premium so that these premiums monotonically converge and therefore it is appropriate to use them in extrapolation and c the optimal exercise frontier can be quickly computed through newton s method permitting the efficient implementation of the decomposition formula in practice numerical experiments show that this new algorithm is accurate efficient easy to implement and competitive in comparison with other methods finally it can also be applied to other american exotic securities

the price of gold and the exchange rate abstract this paper examines the theoretical relationship between the major exchange rates and the prices of internationally traded commodities in the empirical section the case of gold is analyzed using forecast error data among other things it is found that since the dissolution of the bretton woods international monetary system floating exchange rates among the major currencies have been a major source of price instability in the world gold market and as the world gold market is dominated by the european currency bloc appreciations or depreciations of european currencies have strong effects on the price of gold in other currencies