stochastic equilibria existence spanning number and the no expected financial gain from trade hypothesis stochastic equilibria under uncertainty with continuous time security trading and consumption are demonstrated in a general setting a common question is whether the current price of a security is an unbiased predictor of the future price of the security plus intermediate dividends this is the hypothesis of no expected financial gains from trade the relevance of this hypothesis in multi good economies is called into question by the following demonstrated fact for each set of probability assessments there exists a corresponding equilibrium one with the original agents original equilibrium allocations and no expected financial gains from trade under the given probability assessments the spanning number of the economy is defined as the fewest number of security markets required to sustain a complete markets equilibrium in a dynamic sense made precise in the paper the spanning number is linked directly to agent primitives in particular the manner in which new information resolves uncertainty over time the spanning number is shown to be invariant under bounded changes in expectations several examples are given in which the spanning number is finite even though the number of potential states of the world is infinite

computing the constant elasticity of variance option pricing formula this paper expresses the constant elasticity of variance option pricing formula in terms of the noncentral chi square distribution this allows the application of well known approximation formulas and the derivation of a whole class of closed form solutions in addition a simple and efficient algorithm for computing this distribution is presented this paper shows that the constant elasticity of variance cev formula can be expressed as a function of the noncentral chi square distribution a simple and efficient algorithm for computing this distribution is presented approximations to this distribution can be used to estimate accurately the cev formula when the computation of the exact solution is problematic section i discusses theories and some evidence on the association between volatility and price level section ii presents the particular kind of relationship assumed by the cev model and reviews empirical evidence on the model section iii shows that the cev formula can be expressed in terms of the noncentral chisquare distribution a simple algorithm for computing this distribution is derived in section iv section v presents some special closed form solutions to this distribution finally section vi shows that an approximation to the cev formula can be used when the exact solution converges slowly i relationship between volatility and price level several theoretical arguments imply an association between stock price and volatility geske 11 black 3 and christie 5 consider the effects of financial leverage on the variance of the stock an increase in the stock price reduces the debt equity ratio of the firm and therefore reduces the variance of the stock s returns black hypothesizes that price changes may also affect volatility through their impact on operating leverage in addition he proposes a reverse causal relationship whereby an increase in the volatility of stocks causes prices to fall in rubinstein s 171 displaced diffusion model the relation between price and volatility of returns depends on the firm s asset mix and debt equity ratio empirical evidence supports the hypothesis that volatility changes with stock price schmalensee and trippi 19 examining just over a year of weekly data on six stocks find a strong negative relationship between stock price changes and changes in implied volatility black 3 using over ten years of data on thirty stocks finds that a given proportional increase decrease in stock price is

measuring the energy savings from home improvement investments evidence from monthly billing data an important factor driving energy policy over the past two decades has been the energy paradox the perception that consumers apply unreasonably high hurdle rates to energy saving investments we explore one possible explanation for this apparent puzzle that realized returns fall short of the returns promised by engineers and product manufacturers using a unique data set we find that the realized return to attic insulation is statistically significant but the median estimate 9 7 is almost identical to a discount rate for this investment implied by a capm analysis we conclude that the case for the energy paradox is weaker than has previously been believed

building vintage and electricity use old homes use less electricity in hot weather abstract this paper studies whether electricity use in newer or older residential buildings rises more in response to high temperature in a region of southern california peak electricity demand occurs at the highest temperatures which are predicted to increase due to climate change understanding how newer buildings differ from older buildings improves forecasts of how peak electricity use will grow over time newer buildings are subject to stricter building energy codes but are larger and more likely to have air conditioning hence the cumulative effect is ambiguous this paper combines four large datasets of building and household characteristics weather data and utility data to estimate the electricity temperature response of different building vintages estimation results show that new buildings 1970 2000 have a statistically significantly higher temperature response i e use more electricity than old buildings pre1970 auxiliary regressions with controls for tiered electricity prices number of bedrooms income square footage central air conditioning ownership and type of residential structure partially decompose the effect though california has had extensive energy efficiency building standards that by themselves would lower temperature response for new buildings the cumulative effect of new buildings is an increase in temperature response as new buildings are added aggregate temperature response is predicted to increase

new insights into smile mispricing and value at risk the hyperbolic model the authors investigate a new basic model for asset pricing the hyperbolic model which allows an almost perfect statistical fit of stock return data after a detailed introduction into the theory they use secondary market data to compare the hyperbolic model to the classical black scholes model the authors study implicit volatilities the smile effect and pricing performance exploiting the full power of the hyperbolic model they construct an option value process from a statistical point of view by estimating the implicit risk neutral density function from option data finally the authors present some new value at risk calculations leading to new perspectives to cope with model risk copyright 1998 by university of chicago press

the finite moment log stable process and option pricing we document a surprising pattern in s p 500 option prices when implied volatilities are graphed against a standard measure of moneyness the implied volatility smirk does not flatten out as maturity increases up to the observable horizon of two years this behavior contrasts sharply with the implications of many pricing models and with the asymptotic behavior implied by the central limit theorem clt we develop a parsimonious model which deliberately violates the clt assumptions and thus captures the observed behavior of the volatility smirk over the maturity horizon calibration exercises demonstrate its superior performance against several widely used alternatives

financial market models with levy processes and time varying volatility abstract asset management and pricing models require the proper modeling of the return distribution of financial assets while the return distribution used in the traditional theories of asset pricing and portfolio selection is the normal distribution numerous studies that have investigated the empirical behavior of asset returns in financial markets throughout the world reject the hypothesis that asset return distributions are normally distribution alternative models for describing return distributions have been proposed since the 1960s with the strongest empirical and theoretical support being provided for the family of stable distributions with the normal distribution being a special case of this distribution since the turn of the century specific forms of the stable distribution have been proposed and tested that better fit the observed behavior of historical return distributions more specifically subclasses of the tempered stable distribution have been proposed in this paper we propose one such subclass of the tempered stable distribution which we refer to as the kr distribution we empirically test this distribution as well as two other recently proposed subclasses of the tempered stable distribution the carr geman madan yor cgmy distribution and the modified tempered stable mts distribution the advantage of the kr distribution over the other two distributions is that it has more flexible tail parameters for these three subclasses of the tempered stable distribution which are infinitely divisible and have exponential moments for some neighborhood of zero we generate the exponential levy market models induced from them we then construct a new garch model with the infinitely divisible distributed innovation and three subclasses of that garch model that incorporates three observed properties of asset returns volatility clustering fat tails and skewness we formulate the algorithm to find the risk neutral return processes for those garch models using the change of measure for the tempered stable distributions to compare the performance of those exponential levy models and the garch models we report the results of the parameters estimated for the s p 500 index and investigate the out of sample forecasting performance for those garch models for the s p 500 option prices

pricing and hedging path dependent options under the cev process much of the work on path dependent options assumes that the underlying asset price follows geometric brownian motion with constant volatility this paper uses a more general assumption for the asset price process that provides a better fit to the empirical observations we use the so called constant elasticity of variance cev diffusion model where the volatility is a function of the underlying asset price we derive analytical formulae for the prices of important types of path dependent options under this assumption we demonstrate that the prices of options which depend on extrema such as barrier and lookback options can be much more sensitive to the specification of the underlying price process than standard call and put options and show that a financial institution that uses the standard geometric brownian motion assumption is exposed to significant pricing and hedging errors when dealing in path dependent options

energy consumption for space heating a discrete continuous approach energy demand for space heating is estimated using a discrete continuous choice model which focuses on the relationship between the choice of heating equipment and energy consumption the model is estimated on norwegian micro data and the two stages of the model are estimated simultaneously the capital cost and the operating cost of the heating systems are both found to have a significant impact on the choice of heating system furthermore the results show that household characteristics are important variables in residential energy models energy price elasticities and income elasticities are also estimated

the production of housing services and the derived demand for residential energy most studies of residential energy usage treat energy as a final consumer good this study explicitly considers the production of housing service flows from stocks of real estate and flows of operating inputs and considers the demand for residential energy as a factor input the empirical results based upon analysis of a sample of newly constructed dwellings and their occupants are used to evaluate the effects of energy price changes on the price of housing services and on the demand for housing and real estate thus indicating the extent of residential energy conservation in response to higher prices finally the results are used to analyze federal and state tax subsidies for residential energy conservation

pricing lookback and barrier options under the cev process this paper examines the pricing of lookback and barrier options when the underlying asset follows the constant elasticity of variance cev process we construct a trinomial method to approximate the cev process and use it to price lookback and barrier options for look back options we find that the technique proposed by babbs for the lognormal case can be modified to value lookbacks when the asset price follows the cev process we demon strate the accuracy of our approach for different parameter values of the cev process we find that the prices of barrier and lookback options for the cev process deviate sig nificantly from those for the lognormal process for standard options the corresponding differences between the cev and black scholes models are relatively small our results show that it is much more important to have the correct model specification for options that depend on extrema than for standard options

on the exploitation of additional duality relationships in consumer demand analysis abstract this paper advocates more extensive use of the frisch profit function in static consumer demand studies and intorduces its inverse the price of utility function paralleling the well known relationships between indirect utility and expenditure functions an examination of the relationship between these four functions suggests i a fourth system complementing marshallian hicksian and frisch demand systems and ii a fourth theorem complementing roy s identity shephard s theorem and hoteling s lemma

intertemporal substitution exogeneity and surprises estimating life cycle models for canada the authors estimate consumption and labor supply models for canada using u s variables as instruments instead of lagged canadian variables the results suggest that the endogeneity of lagged variables has not been a serious problem in previous studies they also develop estimation methods for use when the agents information sets are unknown and the model contains the realization and the innovation of an endogenous variable the authors use the approach to estimate a labor supply model combining intertemporal substitution and job search and to estimate the labor supply and consumption responses to marginal utility of income changes induced by wage price and interest rate surprises

evaluating callable and putable bonds an eigenfunction expansion approach abstract we propose an efficient method to evaluate callable and putable bonds under a wide class of interest rate models including the popular short rate diffusion models as well as their time changed versions with jumps the method is based on the eigenfunction expansion of the pricing operator given the set of call and put dates the callable and putable bond pricing function is the value function of a stochastic game with stopping times under some technical conditions it is shown to have an eigenfunction expansion in eigenfunctions of the pricing operator with the expansion coefficients determined through a backward recursion for popular short rate diffusion models such as cir vasicek 3 2 the method is orders of magnitude faster than the alternative approaches in the literature in contrast to the alternative approaches in the literature that have so far been limited to diffusions the method is equally applicable to short rate jump diffusion and pure jump models constructed from diffusion models by bochner s subordination with a levy subordinator

the fine structure of asset returns an empirical investigation we investigate the importance of diffusion and jumps in a new model for asset returns in contrast to standard models we allow for jump components displaying finite or infinite activity and variation empirical investigations of time series indicate that index dynamics are devoid of a diffusion component which may be present in the dynamics of individual stocks this leads to the conjecture confirmed on options data that the risk neutral process should be free of a diffusion component we conclude that the statistical and risk neutral processes for equity prices are pure jump processes of infinite activity and finite variation

an implicitly additive demand system the problem of endowing large applied general equilibrium models with numerical values for parameters is formidable for example a complete set of own and cross price elasticities of demands for the monash model of the australianeconomy involves in excess of 50000 items invoking the minimal assumptions that demand is generated by utility maximization reduces the load to about 26000 obviously still a number much too large for unrestrained econometric estimation to obtain demand systems estimates for a dozen or so generic commodities at a top level of aggregation categories like food clothing and footwear etc typically johansen s lead has been followed and directly additive preferences imposed upon the underlying utility function with the move beyond one step linearized solutions of applied general equilibrium models the functional form of the demand system adopted becomes an issue the most celebrated of the additive preference demand systems the linear expenditure system les has one

demand for space heating in apartment blocks measuring effects of policy measures aiming at reducing energy consumption abstract panel data covering the period 1984 1995 on energy consumption and technical characteristics of apartment blocks from denmark are analysed in order to measure effects of policy measures aimed at reducing the consumption of energy for space heating results indicate that building regulations have been important in reducing energy consumption in new buildings furthermore conditional price responses are estimated to be relatively small or non existent indicating small short run effects of fuel taxes on energy consumption in apartment blocks finally a consultancy scheme implemented with the purpose of improving knowledge about the potential for energy savings is found to have had moderate effects

the economics of green building we analyze the economics of green building finding that recent increases in the supply of green buildings and the volatility in prop erty markets have not affected the returns to green buildings we then analyze a large cross section of office buildings demonstrating that eco nomic returns to energy efficient buildings are substantial finally we relate the economic premiums for green buildings to their relative effi ciency in energy use the attributes rated for thermal efficiency as well as sustainability contribute to premiums in rents and asset values among green buildings increased energy efficiency is fully capitalized into rents and asset values

pure jump models for pricing and hedging vix derivatives abstract recent non parametric statistical analysis of high frequency vix data todorov and tauchen 2011 reveals that vix dynamics is a pure jump semimartingale with infinite jump activity and infinite variation to our best knowledge existing models in the literature for pricing and hedging vix derivatives do not have these features this paper fills this gap by developing a novel class of parsimonious pure jump models with such features for vix based on the additive time change technique proposed in li et al 2016a li et al 2016b we time change the 3 2 diffusion by a class of additive subordinators with infinite activity yielding pure jump markov semimartingales with infinite activity and infinite variation these processes have time and state dependent jumps that are mean reverting and are able to capture stylized features of vix our models take the initial term structure of vix futures as input and are analytically tractable for pricing vix futures and european options via eigenfunction expansions through calibration exercises we show that our model is able to achieve excellent fit for the vix implied volatility surface which typically exhibits very steep skews comparison to two other models in terms of calibration reveals that our model performs better both in sample and out of sample we explain the ability of our model to fit the volatility surface by evaluating the matching of moments implied from market vix option prices to hedge vix options we develop a dynamic strategy which minimizes instantaneous jump risk at each rebalancing time while controlling transaction cost its effectiveness is demonstrated through a simulation study on hedging bermudan style vix options

an empirically oriented demand system with improved regularity properties while the almost ideal demand system has received increasing attention in empirical studies of consumer demand the fact that the underlying piglog cost function is not globally regular has often led to violation of negative semidefiniteness in the estimated slutsky matrix this paper suggests a modification to the piglog class of preferences termed mpiglog which preserves regularity in a wider region of expenditure price space in an empirical section the almost ideal demand system special case of piglog is compared with the analogous special case of mpiglog which the authors term maids the comparison demonstrates the improved regularity features of maids

are energy efficiency standards justified abstract this paper develops an analytical framework for comparing the welfare effects of energy efficiency standards and pricing policies for reducing gasoline electricity and nationwide carbon emissions the model is parameterized with us data and includes key externalities in the energy transportation sectors and possible underinvestment in energy efficiency due to misperceptions over energy savings even with large misperceptions the extra welfare gains from complementing efficient pricing policies with energy efficiency standards are zero for reducing gasoline and 5 percent for reducing electricity and when viewed as substitutes these standards forgo 60 percent or more of the potential welfare gains from corresponding pricing policies a combination of energy efficiency and emissions standards is more than three times as costly as carbon pricing when there is no misperception over energy savings and even with large misperceptions combining carbon pricing with gasoline electricity taxes is better than combining it with energy efficiency standards

an empirical examination of the variance gamma model for foreign currency options we apply the variance gamma vg option pricing model to currency options the model is a pure infinite activity jump model we examine whether and to what extent this new model can improve the pricing quality for currency options over the existing modified black scholes model and the merton jump diffusion jd model we find that the vg model yields better out of sample pricing performance than the modified black scholes model or the jd model in addition a cross entropy analysis shows that the vg model is more consistent with the general criterion of utility maximization and optimal portfolio selection

invisible parameters in option prices this paper characterizes contingent claim formulas that are independent of parameters governing the probability distribution of asset returns while these parameters may affect stock bond and option values they are invisible because they do not appear in the optiqn formulas for example the black scholes 1973 formula is independent of the mean of the stock return this paper presents a new formula based on the log negative binomial distribution in analogy with cox ross and rubinstein s 1979 log binomial formula the log negative binomial option price does not depend on the jump probability this paper also presents a new formula based on the log gamma distribution in this formula the option price does not depend on the scale of the stock return but does depend on the mean of the stock return this paper extends the log gamma formula to continuous time by defining a gamma process the gamma process is a jump process with independent increments that generalizes the wiener process unlike the poisson process the gamma process can instantaneously jump to a continuum of values hence it is fundamentally unhedgeable if the gamma process jumps upward then stock returns are positively skewed and if the gamma process jumps downward then stock returns are negatively skewed the gamma process has one more parameter than a wiener process this parameter controls the jump intensity and skewness of the process the skewness of the log gamma process generates strike biases in options in contrast to the results of diffusion models these biases increase for short maturity options thus the log gamma model produces a parsimonious option pricing formula that is consistent with empirical biases in the black scholes formula

performance standards and optimal incentives abstract this paper analyzes incentive design when agents effort influences an uncertain output governed by a random process with semi heavy tails we find that the second best incentive contract pays an output increasing but bounded fee with a shape resembling performance standard contracts that pay a fixed salary plus a capped bonus in this contract the pay performance sensitivity around the standard increases decreases with the frequency with which performance is measured and with the kurtosis volatility parameter of the performance probability distribution we also find that the optimal maximum bonus increases with volatility but decreases with the kurtosis parameter of the performance distribution

constant rebound effects in domestic heating developing a cross sectional method policymakers are increasingly concerned about rebound effects which lead to lower savings than expected when energy efficiency increases there are difficulties in making coherent comparisons between magnitudes of rebound effects in different sectors such as home heating industry and transport a barrier to this in domestic heating is the conceptual difficulty of estimating rebound effects as energy efficiency elasticities since the large stepwise increases in energy efficiency through thermal retrofits fit uneasily with differential calculus this paper offers a solution firstly it develops a cross sectional method in which elasticity based rebound formulae are used to estimate implied average rebound effects in large datasets of energy consumption and energy efficiency it then shows how a simple power curve can model these datasets simplifying the mathematics giving constant rebound effect results that are immediately meaningful and extending compatibility to rebound effect modelling in other sectors the method is then extended to case studies of thermal retrofits of individual dwellings here the inherent inaccuracy of using linear approximations in rebound effect formulas is also illustrated the cross sectional constant rebound effect methodology is offered for wider use in estimating rebound effects in case studies and in domestic heating as more datasets of energy consumption and efficiency become available

model complexity and out of sample performance evidence from s p 500 index returns abstract we apply a range of out of sample specification tests to more than forty competing stochastic volatility models to address how model complexity affects out of sample performance using daily s p 500 index returns model confidence set estimations provide strong evidence that the most important model feature is the non affinity of the variance process despite testing alternative specifications during the turbulent market regime of the global financial crisis of 2008 we find no evidence that either finite or infinite activity jump models or other previously proposed model extensions improve the out of sample performance further applications to value at risk demonstrate the economic significance of our results furthermore the out of sample results suggest that standard jump diffusion models are misspecified

barriers to energy efficiency a comparison across the german commercial and services sector abstract based on a large sample for the german commercial and services sector this paper econometrically assesses the relevance of various types of barriers to energy efficiency at the sectoral level and across fifteen sub sectors the results at the level of entire sectors suggest that the lack of information about energy consumption patterns and about energy efficiency measures lack of staff time priority setting within organizations and in particular the investor user dilemma are all relevant barriers allowing for sector specific differences in the relevance of these individual barriers yields a more heterogeneous picture the numbers and types of relevant barriers vary across sub sectors and the majority of sub sectors are subject to relatively few barriers the statistically most significant barriers are found for the sub sector of public administrations these findings are robust independent of whether the definition of an organization s energy efficiency performance includes only measures that have actually been realized or also those that are being planned for planned projects however organizations appear to underestimate internal priority setting as a barrier to energy efficiency

the variance gamma v g model for share market returns a new stochastic process termed the variance gamma process is proposed as a model for the uncertainty underlying security prices the unit period distribution is normal conditional on a variance that is distributed as a gamma variate its advantages include long tailedness continuous time specification finite moments of all orders elliptical multivariate unit period distributions and good empirical fit the process is pure jump approximable by a compound poisson process with high jump frequency and low jump magnitudes applications to option pricing show differential effects for options on the money compared to in or out of the money copyright 1990 by the university of chicago

interpreting the results of empirical analyses of intertemporal allocation an identification problem abstract empirical analyses of household behaviour often find that behaviour is intertemporally non additive in the sense that past state variables affect current behaviour this may be because preferences are nonadditive because of habits or satiation or because budgets are non additive for example because of human capital formation or imperfections in credit markets in this note i show that there is a fundamental identification problem in that we cannot infer from observed quantities and prices whether any nonadditivity in behaviour is coming from the budget constraint or the utility function

toward a new conception of the environment competitiveness relationship accepting a fixed trade off between environmental regulation and competitiveness unnecessarily raises costs and slows down environmental progress studies finding high environmental compliance costs have traditionally focused on static cost impacts ignoring any offsetting productivity benefits from innovation they typically overestimated compliance costs neglected innovation offsets and disregarded the affected industry s initial competitiveness rather than simply adding to cost properly crafted environmental standards can trigger innovation offsets allowing companies to improve their resource productivity shifting the debate from pollution control to pollution prevention was a step forward it is now necessary to make the next step and focus on resource productivity

dynamic incentives of environmental regulations the effects of alternative policy instruments on technology diffusion abstract we develop a framework for comparing empirically the effects of alternative environmental policy instruments on the diffusion of new technology market based and command and control approaches can he quantitatively compared by estimating the economic penalty that firms through their actions reveal to be associated with violation of standards in the context of concerns about global climate change we empirically examine the likely effects of pigouvian taxes technology adoption subsidies and technology standards we employ state level data on the diffusion of thermal insulation in new home construction comparing the effects of energy prices insulation cost and building codes

systematic equity based credit risk a cev model with jump to default we use equity as the traded primitive for a detailed analysis of systematic default risk default is parsimoniously represented by equity value hitting the zero barrier so that unlike in reduced form models the explicit linkage to the firm s capital structure is preserved but unlike in structural models restrictive assumptions on the structure are avoided default risk is either jump like or diffusive the equity price can jump to default in line with recent empirical evidence on the jump to default risk price we highlight how reasonable choices of the pricing kernel can imply remarkable differences in the equity price dependent status between the objective default intensity and the risk neutral intensity as equity returns experience negative diffusive shocks their cev type local variance increases and boosts the objective and risk neutral probabilities of diffusive default a parsimonious version of our general model simultaneously enables analytical credit risk management and analytical pricing of credit sensitive instruments easy cross asset hedging ensues

time series analysis for financial market meltdowns abstract there appears to be a consensus that the recent instability in global financial markets may be attributable in part to the failure of financial modeling more specifically it is alleged that current risk models have failed to properly assess the risks associated with large adverse stock price behavior in this paper we first discuss the limitations of classical time series models for forecasting financial market meltdowns then we set forth a framework capable of forecasting both extreme events and highly volatile markets based on the empirical evidence presented in this paper our framework offers an improvement over prevailing models for evaluating stock market risk exposure during distressed market periods

a recovery that we can trust deducing and testing the restrictions of the recovery theorem how reliable is the recovery theorem of ross 2015 we explore this question in the context of options on the 30 year treasury bond futures allowing us to deduce restrictions that link the physical and risk neutral return distributions our empirical results undermine the implications of the recovery theorem first we reject an implicit assumption of the recovery theorem that the martingale component of the stochastic discount factor is identical to unity second we consider the restrictions between the physical and risk neutral return moments when the recovery theorem holds and reject them in both forecasting regressions and generalized method of moments estimations received november 7 2016 editorial decision july 24 2017 by editor stijn van nieuwerburgh authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

pricing options on scalar diffusions an eigenfunction expansion approach this paper develops an eigenfunction expansion approach to pricing options on scalar diffusion processes all contingent claims are unbundled into portfolios of primitive securities calledeigensecurities eigensecurities are eigenvectors eigenfunctions of the pricing operator present value operator all computational work is at the stage of finding eigenvalues and eigenfunctions of the pricing operator the pricing is then immediate by the linearity of the pricing operator and the eigenvector property of eigensecurities to illustrate the computational power of the method we develop two applications pricing vanilla single and double barrier options under the constant elasticity of variance cev process and interest rate knock out options in the cox ingersoll ross cir term structure model

evaluating density forecasts with applications to financial risk management density forecasting is increasingly more important and commonplace for example in financial risk management yet little attention has been given to the evaluation of density forecasts the authors develop a simple and operational framework for density forecast evaluation they illustrate the framework with a detailed application to density forecasting of asset returns in environments with time varying volatility finally the authors discuss several extensions copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

towards a more general approach to testing the time additivity hypothesis a new procedure is proposed for re examining the assumption of additivity of preferences over time which although untenable is usually maintained in intertemporal analyses of consumption and labour supply the method is an extension of a famous work by browning however it is more general in permitting the estimation of intertemporal demand systems which are explicit in an unobservable variable price of utility but may lack a closed form representation in terms of observable variables such as prices and total outlay it also makes extensive use of duality theory to solve the endogeneity problem encountered in browning s study applying this method with an appropriate estimator to the australian aggregate data it is found that the time additivity hypothesis is decisively rejected which is consistent with browning s conclusion

short term market risks implied by weekly options we study short maturity weekly s p 500 index options which provide a direct way to analyze volatility and jump risks unlike longer dated options they are largely insensitive to the risk of intertemporal shifts in the economic environment adopting a novel seminonparametric approach we uncover variation in the negative jump tail risk which is not spanned by market volatility and helps predict future equity returns as such our approach allows for easy identification of periods of heightened concerns about negative tail events that are not always signaled by the level of market volatility and elude standard asset pricing models

optimal trading strategies for levy driven ornstein uhlenbeck processes this study derives an optimal pairs trading strategy based on a levy driven ornstein uhlenbeck process and applies it to high frequency data of the s p 500 constituents from 1998 to 2015 our model

towards a semigroup pricing theory in an arbitrage free economy there will always exist a set of linear operators which map future contingent dividends of securities into their current prices it happens that such operators will also form an evolution semigroup as a consequence of intertemporal analysis of the no arbitrage restriction this paper summarizes some of the major implications of the semigroup properties but avoids almost all of the technical discussion which underlies them instead several practical examples are presented some wellknown continuous time results are replicated by this alternative method and certain new developments are explored it is well known that in an arbitrage free economy there exists a nonnegative linear operator mapping dividend streams into current prices 1 what is less well known is that these operators as a consequence of intertemporal no arbitrage must additionally possess a semigroup property this paper is an overview of work in progress which deals with the semigroup features but which is contained in rather longer and more complicated papers 2 here i shall attempt to make the main results and prospective results in some cases accessible to a broader financial economics readership at first blush the terminology itself is intimidating we shall be dealing with the apparently difficult notions of 1 linear operators 2 infinitesimal generators and 3 evolution semigroups these terms become less daunting when it is realized that almost everyone has encountered a simple example of each via the discounting of future payments consider a world of certainty where the discount function between dates t and t is given as tqt that is if the current time is t and a future payment is to be received at time t in the amount a then the present value of the future payment would be given as vt tq a we see that tq may be considered an operator since it maps future payments into current values it is linear since two contemporaneous payments may be added together first and then discounted or discounted individually and added with the same result and finally it is nonnegative since no positive future payment can ever have a present value of less than zero thus the certainty discount function is an instance of a nonnegative linear operator the infinitesimal generator may be thought of as the time derivative of the operator in our certainty case the rate of change of the discount function in other words we

functional ross recovery theoretical results and empirical tests abstract recently ross 2015 showed that the real world probability distribution of a discrete markovian state variable can be recovered from observed option prices the so called recovery theorem follows from perron frobenius matrix theory when the pricing kernel is transition independent in this paper we generalize the recovery theorem to continuous state spaces using perron frobenius operator theory building on our theoretical results we devise a nonparametric approach to empirically estimate the recovered pricing kernel and probability density in closed form using s p 500 index options we analyze recovered pricing kernels empirically and find evidence that ross recovery is misspecified

supply demand and the value of green buildings attention to sustainability and energy efficiency rating schemes in the commercial property sector has increased rapidly during the past decade in the uk commercial properties have been certified under the breeam rating scheme since 1999 offering fertile ground to investigate the economic dynamics of green certification in the commercial property market this paper documents that over the 2000 09 period the expanding supply of green buildings within a given london neighbourhood had a positive impact on average rents and prices but reduced rents and prices for environmentally certified real estate the results suggest that there is a gentrification effect from green buildings however each additional green building decreases the marginal effect of certification in the rental and transaction markets by 2 per cent and 5 per cent respectively in addition controlling for lease contract features like contract length and the rent free period modifies the impact of environmental certification on

spectral expansions for asian average price options arithmetic asian or average price options deliver payoffs based on the average underlying price over a prespecified time period asian options are an important family of derivative contracts with a wide variety of applications in currency equity interest rate commodity energy and insurance markets we derive two analytical formulas for the value of the continuously sampled arithmetic asian option when the underlying asset price follows geometric brownian motion we use an identity in law between the integral of geometric brownian motion over a finite time interval 0 t and the state at timet of a one dimensional diffusion process with affine drift and linear diffusion and express asian option values in terms of spectral expansions associated with the diffusion infinitesimal generator the first formula is an infinite series of terms involving whittaker functionsm andw the second formula is a single real integral of an expression involving whittaker functionw plus for some parameter values a finite number of additional terms involving incomplete gamma functions and laguerre polynomials the two formulas allow accurate computation of continuously sampled arithmetic asian option prices

do greens drive hummers or hybrids environmental ideology as a determinant of consumer choice this paper uses several california data sets to test for differences in consumption patterns between greens and browns a person s environmentalism is rarely observed in consumer data sets in california a community s share of green party registered voters is a viable proxy for community environmentalism environmentalists are more likely to commute by public transit purchase hybrid vehicles and consume less gasoline than non environmentalists

relaxing intertemporal separability a rational habits model of labor supply estimated from panel data this article relaxes the assumption of separability of preferences over time that although implausible is usually maintained in life cycle labor supply models an empirically tractable rational habits model is specified and estimated on the basis of a 10 year sample of men from the michigan panel of income dynamics the effect of past hours of work in determining current hours decisions is found to be very important and well determined having allowed for permanent individual differences and for time effects

determinants of residential space heating expenditures in germany abstract we first examine the determinants of household expenditures on space heating and hot water supply in germany a number of socio economic characteristics of households are included along with building characteristics our analysis covers information on more than 12 000 households in germany for the years 1998 and 2003 the analysis continues by investigating whether different kinds of households are affected differently by increases in energy prices households in owner occupied properties are less affected compared to those in rented accommodation this could be because owners are more likely to have installed energy efficient heating and hot water supply systems and landlords have less of an incentive to improve the conditions of their rented accommodations an energy policy targeting especially the latter group might benefit not only households in rented accommodation but might also increase energy efficiency and reduce greenhouse gas emissions as well

pricing and static hedging of american style options under the jump to default extended cev model abstract this paper prices and hedges american style options through the static hedge approach shp proposed by chung and shih 2009 and extends the literature in two directions first the shp approach is generalized to the jump to default extended cev jdcev model of carr and linetsky 2006 and plain vanilla american style options on defaultable equity are priced the robustness and efficiency of the proposed pricing solutions are compared with the optimal stopping approach offered by nunes 2009 under both the jdcev framework and the nested constant elasticity of variance cev model of cox 1975 using different elasticity parameter values second the early exercise boundary near expiration is derived under the jdcev model

re evaluating the role of energy efficiency standards a behavioral economics approach abstract the economic models that prescribe pigovian taxation as the first best means of reducing energy related externalities are typically based on the neoclassical model of rational consumer choice yet consumer behavior in markets for energy using durables is generally thought to be far from efficient giving rise to the concept of the energy efficiency gap this paper presents a welfare analysis of energy policies that is based on a behavioral model of temptation and self control introduced by gul and pesendorfer 23 24 we find that in the presence of temptation i pigovian taxes alone do not yield a first best outcome ii when viewed as substitutes energy efficiency standards can dominate pigovian taxes and iii a policy combining standards with a pigovian tax can yield higher social welfare than a pigovian tax alone implying that the two instruments should be viewed as complements rather than substitutes

the rebound effect microeconomic definitions limitations and extensions abstract the rebound effect results in part from an increased consumption of energy services following an improvement in the technical efficiency of delivering those services this increased consumption offsets the energy savings that may otherwise be achieved if the rebound effect is sufficiently large it may undermine the rationale for policy measures to encourage energy efficiency the nature and magnitude of the rebound effect is the focus of long running dispute with energy economics this paper brings together previous theoretical work to provide a rigorous definition of the rebound effect to clarify key conceptual issues and to highlight the potential consequences of various assumptions for empirical estimates of the effect the focus is on the direct rebound effect for a single energy service indirect and economy wide rebound effects are not discussed beginning with khazzoom s original definition of the rebound effect we expose the limitations of three simplifying assumptions on which this definition is based first we argue that capital costs form an important part of the total cost of providing energy services and that empirical studies that estimate rebound effects from variations in energy prices are prone to bias second we argue that energy efficiency should be treated as an endogenous variable and that empirical estimates of the rebound effect may need to apply a simultaneous equation model to capture the joint determination of key variables third we explore the implications of the opportunity costs of time in the production of energy services and highlight the consequences for energy use of improved time efficiency the influence of time costs on the rebound effect and the existence of a parallel rebound effect with respect to time each of these considerations serves to highlight the difficulties in obtaining reliable estimates of the rebound effect and the different factors that need to be controlled for we discuss the implications of these findings for econometric studies and argue that several existing studies may overestimate the magnitude of the effect

stars and standards energy efficiency in rental markets abstract evidence suggests that rental properties are often associated with lower levels of energy efficiency than owner occupied buildings policy makers are increasingly concerned about this energy efficiency gap in this paper we investigate the energy investments made and the market efficiency gains associated with different policy interventions at the point of lease we introduce key features of the housing rental market in the laboratory and examine four policy options mandatory information on energy efficiency voluntary information mandatory minimum standards and a cost share treatment i e landlords pay a share of the tenants energy bill we find that enabling landlords to post the energy efficiency of their properties increases investment in energy efficiency voluntary information achieves efficiency levels comparable to those under a mandatory programme but may lead to lower levels of tenant participation mandatory minimum standards lead to higher investments in energy efficiency but also reduce the number of properties available for lease cost sharing leads to low market efficiency levels perhaps due to the uncertainty landlords face regarding the energy bill of their tenants

electricity consumption and durable housing understanding cohort effects we find that households living in california homes built in the 1960s and 1970s had high electricity consumption in 2000 relative to houses of more recent vintages because the price of electricity at the time of home construction was low homes built in the early 1990s had lower electricity consumption than homes of earlier vintages because the price of electricity was higher the elasticity of the price of electricity at the time of construction was 0 22 as homes built between 1960 and 1989 become a smaller share of the housing stock average household electricity purchases will fall

polices for increasing energy efficiency thirty years of experience in oecd countries energy efficiency improvement was an important phenomenon in the global energy balance over the past 30 years without energy efficiency improvements the oecd nations would have used approximately 49 more energy than was actually consumed as of 1998 this paper first reviews energy intensity trends for the major oecd nations since 1973 considering how much of the overall reduction in e gdp was due to energy efficiency improvement and how much was due to structural change the bulk of the paper examines the energy efficiency policies and programs adopted in japan united states and western europe commenting on their effectiveness and energy savings impacts where possible the paper also reviews the energy efficiency policies and programs adopted in california this experience shows that well designed policies can result in substantial energy savings as demonstrated in the united states where nine specific policies and programs reduced primary energy use in 2002 by approximately 11 substantial energy savings also occurred in japan some european countries and in the electricity sector in california

american capped call options on dividend paying assets this article addresses the problem of valuing american call options with caps on dividendpaying assets since early exercise is allowed the valuation problem requires the determination of optimal exercise policies options with two types of caps are analyzed constant caps and caps with a constant growth rate for constant caps it is optimal to exercise at the first time at which the underlying asset s price equals or exceeds the minimum of the cap and the optimal exercise boundary for the corresponding uncapped option for caps that grow at a constant rate the optimal exercise strategy can be

vix derivatives hedging and vol of vol risk we study the empirical hedging performance of alternative vix option pricing models recent advances in the literature find evidence of asymmetric volatility of volatility similar to the leverage effect in equity markets stochastic mean reversion and jumps using such findings in our model framework we show that while sophisticated models have superior pricing performance and can explain a range of stylized facts in the vix derivatives market their hedging performance is inferior to a simple black model hedge we also study the empirical performance of regime dependent hedge ratio adjustments commonly applied in equity markets

using asset prices to measure the persistence of the marginal utility of wealth we derive a lower bound for the volatility of the permanent component of investors marginal utility of wealth or more generally asset pricing kernels the bound is based on return properties of long term zero coupon bonds risk free bonds and other risky securities we find the permanent component of the pricing kernel to be very volatile its volatility is about at least as large as the volatility of the stochastic discount factor a related measure for the transitory component suggest it to be considerably less important we also show that for many cases where the pricing kernel is a function of consumption innovations to consumption need to have permanent effects

returns of claims on the upside and the viability of u shaped pricing kernels abstract when the pricing kernel is u shaped then expected returns of claims with payout on the upside are negative for strikes beyond a threshold determined by the slope of the u shaped kernel in its increasing region and have negative partial derivative with respect to strike in the increasing region of the kernel using returns of i s p 500 index calls ii calls on major international equity indexes iii digital calls iv upside variance contracts and v a theoretical construct that we denote as kernel call we find broad support for the implications of u shaped pricing kernels a possible theoretical reconciliation of our empirical findings is explored through a model that accommodates heterogeneity in beliefs about return outcomes and short selling

pricing and static hedging of american style knock in options on defaultable stocks abstract this paper applies the static hedge portfolio approach shp of chung et al 2013 in two new directions first the shp approach is generalized from the constant elasticity of variance cev model of cox 1975 to the jump to default extended cev jdcev framework of carr and linetsky 2006 for this purpose the recovery value of the american style down and in put is hedged through the one attached to a european style plain vanilla contract whereas for an up and in put it is necessary to use the recovery component of the corresponding european style up and in option second the shp methodology is adapted from single to double barrier american style knock in options by matching the value of the hedging portfolio along both lower and upper barriers finally and to benchmark the accuracy of the novel shp pricing solutions the optimal stopping approach of nunes 2009 is also extended to price american style double knock in options under the jdcev framework such extension highlights the relevant credit derivative component embedded in american style knock in equity puts

multivariate fx models with jumps triangles quantos and implied correlation we propose an integrated model of the joint dynamics of fx rates and asset prices for the pricing of fx derivatives including quanto products the model is based on a multivariate construction for levy processes which proves to be analytically tractable the approach allows for simultaneous calibration to market volatility surfaces of currency triangles and also gives access to market consistent information on dependence between the relevant variables a successful joint calibration to real market data is presented for the particular case of the variance gamma process

pricing rainfall futures at the cme abstract many business people such as farmers and financial investors are affected by indirect losses caused by scarce or abundant rainfall because of the high potential of insuring rainfall risk the chicago mercantile exchange cme began trading rainfall derivatives in 2011 compared to temperature derivatives however pricing rainfall derivatives is more difficult in this article we propose to model rainfall indices via a flexible type of distribution namely the normal inverse gaussian distribution which captures asymmetries and heavy tail behaviour the prices of rainfall futures are computed by employing the esscher transform a well known tool in actuarial science this approach is flexible enough to price any rainfall contract and to adjust theoretical prices to market prices by using the calibrated market price of risk the empirical analysis is conducted with us precipitation data and cme futures data providing first results on the market price of risk for rainfall derivatives

the recovery theorem we can only estimate the distribution of stock returns but from option prices we observe the distribution of state prices state prices are the product of risk aversion the pricing kernel and the natural probability distribution the recovery theorem enables us to separate these to determine the market s forecast of returns and risk aversion from state prices alone among other things this allows us to recover the pricing kernel market risk premium and probability of a catastrophe and to construct model free tests of the efficient market hypothesis

california energy efficiency lessons for the rest of the world or not abstract since the 1970s california s residential electricity consumption per capita has stopped increasing while other states electricity use continued to grow steadily what accounts for california s apparent savings some credit the strict energy efficiency standards for buildings and appliances enacted by california in the mid 1970s they argue that the growing gap between california and other states demonstrates that other states and countries could replicate california s gains by adopting california style regulations and that california should build on its own success by tightening its standards further skeptics might point to three long run trends that differentiate california s electricity demand from other states 1 shifting of the u s population toward warmer climates of the south and west 2 relatively small income elasticity of energy demand in california s temperate climate and 3 evolving differences between the demographics of households in california and other states today differences in climate and demographics account for almost 90 percent of the difference between california s and other states residential electricity use that difference thus provides no lessons for other states or countries considering adopting or tightening their own energy efficiency standards

residential energy use and conservation economics and demographics energy consumption in the residential sector offers an important opportunity for conserving resources however much of the current debate regarding energy efficiency in the housing market focuses on the physical and technical determinants of energy consumption neglecting the role of the economic behavior of resident households in this paper we analyze the extent to which the use of gas and electricity is determined by the technical specifications of the dwelling as compared to the demographic characteristics of the residents our analysis is based on a sample of more than 300 000 dutch homes and their occupants the results indicate that residential gas consumption is determined principally by structural dwelling characteristics such as the vintage building type and characteristics of the dwelling while electricity consumption varies more directly with household composition in particular income and family composition combining these results with projections on future economic and demographic trends we find that even absent price increases for residential energy the aging of the population and their increasing wealth will roughly offset improvements in the energy efficiency of the building stock resulting from policy interventions and natural revitalization

improving the energy efficiency of buildings the impact of environmental policy on technological innovation abstract this paper investigates the impact of alternative environmental policy instruments on technological innovations aiming to improve energy efficiency in buildings the empirical analysis focuses on three main types of policy instruments namely regulatory energy standards in buildings codes energy taxes as captured by energy prices and specific governmental energy r d expenditures technological innovation is measured using patent counts for specific technologies related to energy efficiency in buildings e g insulation high efficiency boilers energy saving lightings the estimates for seven european countries over the 1989 2004 period imply that a strengthening of 10 of the minimum insulation standards for walls would increase the likelihood to file additional patents by about 3 in contrast energy prices have no significant effect on the likelihood to patent governmental energy r d support has a small positive significant effect on patenting activities

who buys and who sells options the role of options in an economy with background risk abstract in this paper we derive an equilibrium in which some investors buy call put options on the market portfolio while others sell them since investors are assumed to have similar risk averse preferences the demand for these contracts is not explained by differences in the shape of utility functions rather it is the degree to which agents face other non hedgeable background risks that determines their risk taking behavior in the model we show that investors with low or no background risk have a concave sharing rule i e they sell options on the market portfolio whereas investors with high background risk have a convex sharing rule and buy these options journal of economic literature classification numbers d52 d81 g11 g13

u s stock market crash risk 1926 2010 abstract this paper examines how well alternate time changed levy processes capture stochastic volatility and the substantial outliers observed in u s stock market returns over the past 85 years the autocorrelation of daily stock market returns varies substantially over time necessitating an additional state variable when analyzing historical data i estimate various one and two factor stochastic volatility levy models with time varying autocorrelation via extensions of the bates 2006 methodology that provide filtered daily estimates of volatility and autocorrelation the paper explores option pricing implications including for the volatility index vix during the recent financial crisis

how much energy do building energy codes save evidence from california houses regulations governing the energy efficiency of new buildings have become a cornerstone of us environmental policy california enacted the first such codes in 1978 and has tightened them every few years since i evaluate the resulting energy savings three ways comparing energy used by houses constructed under different standards controlling for building and occupant characteristics examining how energy use varies with outdoor temperatures and comparing energy used by houses of different vintages in california to that same difference in other states all three approaches yield estimated energy savings significantly short of those projected when the regulations were enacted

further results on the constant elasticity of variance call option pricing model the black scholes 4 call option model is a member of the class of constant elasticity of variance call option models proposed by cox 6 while the black scholes model assumes that the volatility or instantaneous variance of return is constant through time the other members of the class allow the volatility to change with the stock price this property is of interest because empirical evidence suggests that returns to common stock are heteroscedastic and also that volatilities implied from the black scholes model and market prices of call options are not constant

optimal consumption wealth relationships derived by consumer intertemporal profit maximisation abstract this paper proposes an artificial intertemporal consumer profit maximisation problem that is simple to solve the optimal consumption function which is consistent with intertemporal utility maximisation is then generated directly from a specification of the consumer s instantaneous profit function

the reliability of ml estimators of systems of demand equations evidence from oecd countries in large demand systems when the unknown error covariance matrix is approximated by its usual maximum likelihood estimator the coefficient estimates are known to suffer from two problems 1 the asymptotic standard errors severely understate the sampling variability of the estimates and 2 the efficiency of the maximum likelihood coefficient estimates is greatly impaired in this paper the author proposes an alternative estimator for the covariance matrix and evaluates its performance using time series data for oecd countries the author finds that there is a spectacular improvement copyright 1991 by mit press

optimal stopping and early exercise an eigenfunction expansion approach this paper proposes a new approach to solve finite horizon optimal stopping problems for a class of markov processes that includes one dimensional diffusions birth death processes and jump diffusions and continuous time markov chains obtained by time changing diffusions and birth and death processes with levy subordinators when the expectation operator has a purely discrete spectrum in the hilbert space of square integrable payoffs the value function of a discrete optimal stopping problem has an expansion in the eigenfunctions of the expectation operator the bellman s dynamic programming for the value function then reduces to an explicit recursion for the expansion coefficients the value function of the continuous optimal stopping problem is then obtained by extrapolating the value function of the discrete problem to the limit via richardson extrapolation to illustrate the method the paper develops two applications american style commodity futures options and bermudan style abandonment and capaci

errors in implied volatility estimation estimating implied volatility by inverting the black scholes formula is subject to considerable error when option characteristics are observed with plausible errors especially for options away from the money large changes in volatility produce small changes in option prices conversely small errors in option prices and other option characteristics produce large errors in implied volatilities in the presence of small measurement errors unobserved truncation of option prices that violate lower bounds for absence of arbitrage can also lead to systematic volatility smiles the paper proposes feasible gls estimators that reduce the noise and bias in implied volatility estimates

environmental regulation of households an empirical review of economic and psychological factors abstract the literature on sustainable consumption and environmental regulation of household behavior is dominated by conceptual and normative approaches as a result many suggestions lack a firm empirical basis to overcome this deficiency econometric studies in three areas of environmentally relevant activities of households are reviewed residential use of energy generation of solid waste and recycling and residential use of water next to price and income elasticities attention is devoted to individual socio economic features and psychological factors such as attitudes knowledge perceptions and values potential psychological determinants and related insights are further examined by discussing a range of representative and illustrative statistical psychological studies of environmental behavior one important general finding is that there are very few empirical studies that systematically combine socio economic and psychological determinants a range of insights for environmental policy is derived and research recommendations are offered

an fft network for levy option pricing abstract this paper develops a simple network approach to american exotic option valuation under levy processes using the fast fourier transform fft the forward shooting grid fsg technique of the lattice approach is then generalized to expand the fft network to accommodate path dependent variables this network pricing approach is applicable to all levy processes for which the characteristic function is readily available in other words the log value of the underlying asset can follow finite activity or infinite activity levy processes with the powerful computation of fft the proposed network has a negligible additional computational burden compared to the binomial tree approach the early exercise policy and option values in the continuation region are determined in a way very similar to that of the lattice approach numerical examples using american style barrier lookback and asian options demonstrate that the fft network is accurate and efficient

rational habit formation abstract this paper discusses consumer demand under rational habit formation if consumer tastes change endogenously through habit stocks depending on past consumption the rational consumer will make allowance of the future habit forming effects of current consumption a model with rational habit formation is made formally equivalent to an intertemporal consumer model without habit formation by redefining the cost of consumption and wealth the cost of consumption is obtained by adding the cost of future induced consumption to the rental price of the commodity the extended wealth concept is obtained by subtracting the cost of the initial stocks of habits and the cost of future physically necessary consumption from wealth the paper also investigates the implication of rational habit formation for constructing one period cost of living indices

the intertemporal allocation of expenditure on non durables services and durables this paper presents estimates of the parameters of a consumption function for u s quarterly seasonally unadjusted data on non durables services and durables the theoretical novelty in the approach we present is in the derivation of the consumption function from an underlying many goods allocation problem applying this model with an appropriate estimator to the data we find i the homogeneity restrictions suggested by theory are not rejected ii there is no evidence of excess sensitivity to income iii there is no evidence to suggest that agents cannot adjust their durable stocks as they would wish and iv the intertemporal substitution elasticity is not well determined

intertemporal substitution in import demand and habit formation to study non durable import demand we extend previous work done by clarida 1994 and ceglowski 1991 by considering a two good version of the lifecycle model in which we introduce time non separability in the households preferences the model is estimated using quarterly data for the usa and france using the information contained in the observed stochastic and deterministic trends we derive a cointegration restriction used to estimate curvature parameters of the instantaneous utility function the remaining parameters are estimated in a second step by gmm the constancy of the different parameters is investigated in both the long and the short run habit formation turns out to be an important factor of import demand c 1998 john wiley sons ltd

empirics on the long run effects of building energy codes in the housing market we study the effectiveness of building energy codes taking a long run perspective the focus is on regulation s impact on energy demand in both high and low quality residences in other words the diffusion and the entry of green buildings in the housing market we develop a measure for regulation intensity and apply this to a panel error correction regression model for energy requirements of a large sample of german apartment houses built between 1950 and 2005 we show that regulation is effective in saving energy in particular regulation pushes investors in the low quality housing market segment toward the technological frontier indirectly it also affects the high quality segment jel q41 r52