implied elasticities in some uk energy projections abstract this paper presents some estimates of price and income elasticities for the demand for total delivered energy to final users in the uk it compares these with the elasticities implicit in three energy projections for the uk and finds that the implicit elasticities in official projections are not obviously consistent with recent experience while the price elasticity implicit in an unofficial low energy projection is not obviously implausible these tentative but important conclusions are not in any way weakened by looking at other estimates

the informational content of implied volatility implied volatility is widely believed to be informationally superior to historical volatility because it is the markets forecast of future volatility but for s p 100 index options the most actively traded contract in the united states we find implied volatility in aggregate and across subsamples separated by maturity and strike price implied volatility has virtually no correlation with future volatility and it does not incorporate the information contained in recent observed volatility article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the distribution of foreign exchange price changes trading day effects and risk measurement this study investigates the nature of price changes in a variety of major and minor foreign exchange markets the results suggest that the log of price changes over one trading day intervals seems to follow a non normal stable distribution function different measures of location and to lesser extent scale are present for different days of the week dollar denominated price changes are high on mondays and wednesdays and low on thursdays and fridays for all currencies the wednesday thursday result is consistent with the settlement procedures used in foreign exchange transactions in the dollar the friday monday result is consistent with an increase in demand for the dollar prior to the weekend this study offers some previously unavailable results on the nature of price changes in a certain set of speculative markets in particular this is a study of the distributional characteristics of daily and weekly price changes for a number of major and minor foreign exchange markets the results document the existence of non normal stable distributions for price changes in foreign exchange markets these price change distributions differ by day of the week in ways that are only partly attributable to the institutional structure of the market the results of the study are interpreted within the context of understanding how foreign exchange markets operate and within the context of prior studies of stock market data concerned with summarizing the probability distribution of price changes for different intervals including days of the week since bachelier s 1 original treatise that contained the proposition that speculative market prices follow a process that could be described by a normal distribution there have been numerous alternative attempts to describe the stochastic processes which characterize speculative market prices these studies have not resulted in any generalized description of the probability distribution of price changes in such markets indeed the evidence suggests substantial differences in the process among various types of financial instruments the failure to achieve consensus can be traced to the lack of robustness in the statistical procedures employed to estimate processes and to differences in the underlying institutional or economic arrangements which are unique to that market the possibility of differences in the information set used to assess value or differences in technology for transmitting information makes it important to secure additional

rent control and misallocation rent control is still an important type of government regulation of housing markets in many countries and numerous researchers have studied its implications for allocation welfare and investments in housing the present paper aims to improve our understanding of the effect of second generation rent control when it is applied only to one sector of the rental market it is diagrammatically shown that the welfare effects are very different between a universal and a limited application of rent control studying the danish case of second generation rent control lower rents are found in controlled sectors and a minor increase of the rent in the uncontrolled sector using the area of living space in the dwelling as a measure for housing consumption evidence is also produced of both overallocation and underallocation of housing in the rent controlled sectors as envisaged by economic theory

the statistical distribution of exchange rates empirical evidence and economic implications the abundant evidence that changes in exchange rates have distributions with fatter tails than the normal distribution has led researchers to consider non normal distributions including the student the stable paretian and mixtures of distributions this paper compares the empirical fits of three non normal candidates and the normal distribution for daily changes in the logarithms of exchange rates using maximum likelihood estimation of the parameters and chi square goodness of fit tests the student and mixture of two normals provide the best fits but there is evidence that the distribution parameters may vary over time

corporate issues of foreign currency exchange warrants a case study of financial innovation and risk management abstract we argue that hedging and risk management activities of modern corporations arise as a direct consequence of attempts to create shareholder wealth through financial innovation we formalize this argument by examining in detail corporate issues of foreign currency exchange warrants we then focus on one multiple issuer to demonstrate how the foreign exchange risk created by the sale of the warrants can be eliminated the use of off balance sheet risk management techniques to lock in the benefits of selling overpriced securities raises questions about the information content of innovative corporate financing decisions

the sensitivity of consumption of oil products to price changes an econometric investigation abstract this paper presents a small econometric model of the supply and demand of motor spirit diesel fuel oil and other gas diesel oil by modelling at this level of disaggregation it is possible to identify the dynamic structure of each market and estimate own price and cross price elasticities

hedging the risks from writing foreign currency options abstract this paper considers the ways in which banks and other financial institutions can hedge their risks when they write non exchange traded foreign currency options key factors affecting the performance of delta hedging are identified and hedging schemes involving the use of exchange traded options are analyzed the schemes are tested using both simulated data and data from trades on the philadelphia exchange between february 1983 and september 1984

the pricing of dollar denominated yen dm warrants abstract this paper investigates the pricing of dollar denominated cross currency warrants options traded in us markets in a black scholes setting we obtain closed form option pricing formulas for european warrants we describe the intuition behind the differences in the properties of these securities versus standard foreign currency options concentrating on parameter sensitivity as well as hedging aspects we show that us cross currency warrants can be hedged using three underlying assets although the fundamental pde involves only one asset this analytical framework is applied to observed prices for at t s nyse traded us yen dm cross currency warrant we examine and attempt to explain the deviations between model and observed prices uncovered by the empirical work we find evidence of misspecification in standard currency option pricing models jel f31

pricing foreign currency options under stochastic interest rates abstract in this paper we build a general framework to price contingent claims on foreign currencies using the heath et al 1987 model of the term structure closed form solutions are obtained for european options on currencies and currency futures assuming that the volatility functions determining the term structure are deterministic as such this paper provides an example of a bond price process for both the domestic and foreign economies consistent with grabbe s 1983 formulation of the same problem

elasticities science or fiction abstract apart from discrepancies in statistical data series the most frequent source of inconsistencies among elasticity estimates is the model specification and the interpretation of empirical results this paper investigates this issue and in particular highlights the misconception that elasticities can scientifically and uniquely be determined by econometric techniques however it is common knowledge that econometric methods constitute a very good tool for analysing the past thus the main message of this exercise is that in the absence of complete specification there are important trends in the elasticities themselves such trends are very crucial and need to be interpreted if elasticities are to be used for forecasting purposes

the impact of vat introduction on uk residential energy demand an investigation using the cointegration approach abstract over a two year period which started in april 1994 the real price of energy to uk households was expected to rise by 17 5 as a result of value added tax vat introduction the regressive nature of the tax forced the government to limit vat on residential fuel to 8 using a cointegration approach to take account of the non stationarity fuel consumption time series this paper estimates real energy and fuel specific price and income elasticities for the period 1974 1 1994 1 they suggest that natural gas has a positive real energy price elasticity indicating that as real price of energy rises households scrap inefficient heaters and invest in more efficient ones principally natural gas these estimates enable projections to be made of the impact of the introduction of vat and imply a rise in natural gas consumption as a result of the additional vat although at the expense of other less efficient fuels overall residential energy consumption however is unlikely to fall significantly from the tax suggesting that it is an inappropriate way of achieving environmental objectives

rent control and housing maintenance controls on the conditions of renting housing can take many different forms with different consequences for the market this paper contains analyses of the effects of different regulatory forms on in particular the maintenance decision we review and extend previous approaches and find that not all of the familiar predictions of the basic neoclassical model can be generated by a more sophisticated model others have extended the basic model focusing on the maintenance aspect but we cannot agree entirely with their conclusions a careful specification of the relationship between costs and quality is necessary to derive useful predictions about the effects of rent and eviction controls

the demand for energy in the uk a general equilibrium analysis abstract previous research into the demand for energy has treated economic activity as an explanatory variable however economic theory suggests that economic activity is not independent of energy prices and energy demand we explore the two way causality between energy demand and economic activity in the context of a macroeconometric model of the uk economy inter alia this study suggests that the demand for energy is more price elastic in general equilibrium than it is under the more conventional assumptions of partial equilibrium

time for revisionism on rent control economists traditional hostility to rent contols is based on models that treat the housing market as perfectly competitive and on the experience with hard controls in new york city and many european countries following world war ii the current soft rent control systems in north america are varied and qualitatively different from earlier hard controls the theoretical case against them is weak particularly when the housing market is viewed as imperfectly competitive the empirical case against them is weak too economists should reconsider their blanket opposition to current rent control systems and evaluate them on a case by case basis

valuation of american options on foreign currency abstract pricing models for american call and put options on foreign currency are derived herein these models are used to investigate the efficiency of the market for foreign currency options the evidence presented here indicates that market prices for these options deviate substantially from their corresponding model prices in addition it is shown that a hedging strategy executed at transaction prices can be used to translate an observed deviation of market from model prices into positive excess profits however these profits are eliminated if the strategy is executed at bid and offer prices

nonparametric tests of alternative option pricing models using all reported trades and quotes on the 30 most active cboe option classes from august 23 1976 through august 31 1978

the pricing of call and put options on foreign exchange this paper derives pricing equations for european puts and calls on foreign exchange the call and put pricing formulas are unlike the black scholes equations for stock options in that there are two relevant interest rates interest rates are stochastic and boundary constraints differ in addition it is shown that both american call and put options have values larger than their european counterparts

the effects of partial coverage rent control on the price and quantity of rental housing abstract rent control is widely used but its effects are little understood a two sector model is provided that predicts the effects of rent control on both the price and quantity of rental housing and allows estimates of the size of these effects with limited amounts of data from jurisdictions which have controlled and uncontrolled sectors among other things the model indicates the relationship between the price of rental housing in the absence of rent control and controlled and uncontrolled rent levels under a partial coverage regime

on resolving the dilemma of rent control this research examines the motivations for adopting rent control and discusses a policy alternative designed to respond to the political appeal of rent control while minimising the investment distortion capricious redistribution and administrative complexity of most controls the policy involves limiting regulation to those rents paid by households in the tenant population that are deemed unable to afford adequate housing all rental units in a jurisdiction register their rents with the relevant authority and are assigned a controlled rent landlords must charge the controlled rent only for eligible households but receive the difference between that rent and the market rent from the government the analysis considers the design of such a policy its behavioural incentives and some administrative implications there is also consideration of the appeal of this policy relative to both conventional controls and policies more popular in the literature such as a housing allowance

option values under stochastic volatility theory and empirical estimates abstract this paper numerically solves the call option valuation problem given a fairly general continuous stochastic process for return volatility statistical estimators for volatility process parameters are derived and parameter estimates are calculated for several individual stocks and indices the resulting estimated option values do not differ dramatically from black scholes values in most cases although there is some evidence that for longer maturity index options black scholes overvalues out of the money calls in relation to in the money calls

energy consumption and economic activity in industrialized countries the dynamic aggregate time series relationship abstract most econometric studies suggest that the income elasticity of demand for energy is approximately unity for the developed market economies it is shown that over the period 1950 1978 the long run income elasticity is substantially higher than unity in terms of a ces energy demand function this result reflects the application of a generalized dynamic estimation methodology where serial correlation is regarded as a diagnostic guide to distributed lag fitting price elasticities are also estimated but these are in line with conventional estimates

rent control its rationale and effects this paper discusses the rationale behind rent control and analyses its effects using a capital theory framework in combination with traditional bid rent analysis the experience in hong kong and o

the demand for electricity in israel quarterly data for israel are used to compare and contrast three dynamic econometric methodologies for estimating the demand for electricity by households and industrial companies these are the dynamic regression model and two approaches to cointegration ols and maximum likelihood since we find evidence of seasonal unit roots in the data we also test for seasonal cointegration we find that the scale elasticities are similar in all three approaches but the ols price elasticities are considerably lower moreover ols suggests non cointegration the paper concludes by stochastically simulating the drms to calculate upside risk in electricity demand

statistical tests of contingent claims asset pricing models abstract a new methodology for statistically testing contingent claims asset pricing models based on asymptotic statistical theory is proposed it is introduced in the context of the black scholes option pricing model for which some illustrative estimation inference and simulation results are also presented the proposed methodology is then extended to arbitrary contingent claims by first considering the estimation problem for general ito processes and then deriving the asymptotic distribution of a general contingent claim which depends upon such ito processes