was the emergence of the international gold standard expected evidence from indian government securities abstract the emergence of the gold standard has for a long time been viewed as inevitable we analyze agents expectations using the spread between gold and silver bonds issued by the indian government we find that bimetallism was credible until france surprised markets by suspending domestic operation of bimetallism triggering a run away from silver thereafter markets began demanding a premium to hold silver bonds indicating their belief that silver would depreciate in the future as more countries moved on gold

decarbonizing residential building energy a cost effective approach abstract given the problem of climate change the world economy must eventually switch to carbon neutral energy in this study we present a cost effectiveness approach given a goal of decarbonization the objective is to accomplish this at minimum cost for residential building energy we show that total cost is minimized by equating marginal cost of building energy conserved with marginal cost of obtaining carbon free energy where we express costs of both in dollars per kwh we describe how the cost of solar photovoltaic energy provides an upper bound on the marginal cost of carbon free energy and thus an upper bound on marginal cost of conserved energy one should not necessarily spend more on energy conservation than the cost of photovoltaic energy though there are several caveats a case study from vermont usa illustrates these principles and implementation issues with marginal analysis of energy conservation from a policy perspective the principles presented suggest that either carbon taxes or carbon limits could be used to decarbonize building energy at minimum cost but that approaches using renewable energy subsidies or prescriptive building codes result in greater decarbonization costs to society this suggests that new policy approaches be adopted

evaluating leases with complex operating options abstract the paper deals with the numerical valuation of leasing contracts with a variety of embedded operating options unlike earlier work which either ignores such options or focuses on only one type of operating option in isolation this paper recognizes that leasing is a context in which complex options typically occur as well as the importance of using computational methods to quantify the interactions among several options present in combination it describes a contingent claims analysis cca of operating lease options and suggests a cca based numerical analysis method for valuing leasing contracts with multiple such options a numerical leasing example with the options to cancel the lease early extend its life and purchase the leased asset is presented for illustration

analytical upper bounds for american option prices american options require numerical methods namely lattice models to provide accurate price estimates the computations can become expensive when more than one state variable is involved analytical upper bounds can therefore provide a useful guideline for how high american values can reach in this paper we derive analytical closed form upper bounds for american option prices under stochastic interest rates stochastic volatility and jumps where american option prices are difficult to compute with accuracy in a stochastic volatility model heston 1993 and scott 1997 that has two random factors we demonstrate that the upper bound only takes a very small fraction of the time that the american option needs to compute

land degradation drought and food security in a less favoured area in the ethiopian highlands a bio economic model with market imperfections abstract this paper presents a bio economic model of andit tid a severely degraded crop livestock farming system with high population density and good market access in the highlands of ethiopia land degradation population growth stagnant technology and drought threaten food security in the area drought or weather risk appears to have increased in recent years the bio economic model is used to analyse the combined effects of land degradation population growth market imperfections and increased risk of drought on household production welfare and food security we find that the indirect effects of drought on household welfare through the impact on crop and livestock prices are larger than the direct production effects of drought provision and adoption of credit for fertiliser although risky in itself may lead to increased grain production and improved household welfare and food security provision of credit may have a negative effect on conservation incentives but this effect may be mitigated by linking a conservation requirement to the provision of credit for fertiliser

option pricing and timberland s land use conversion option reply thomson s response to my recent article zinkhan 1991 in this journal proposes an alternative approach for valuing a timberland land use conversion option the most significant distinction between the zinkhan model zm and the thomson model tm is the selection of different analogies for two black scholes option pricing model parameters the underlying asset price and the exercise price thomson defines the adjusted price of the alternative land use s in his response to be the underlying asset price the sum of the land expectation value for continuous forest production lev and the physical costs associated with converting from timber to the alternative land use cc is treated as the exercise price x in contrast the gap sadj in zinkhan between the price of the alternative land use pal to after adjustment and the highest bid received for the given tract poffo after adjustment serves as the underlying asset price in the zm zinkhan assumes that the exercise price x is the sum of two values as of the time of expiration of the option t cc and the absolute value of the negative impact on lev resulting from a deviation if any from the optimal rotation age i there are several serious problems associated with the tm first the tm does not recognize the landowner s forfeiture of the land use conversion option from timber production to some alternative use if the tract is converted thus the opportunity cost associated with conversion is underestimated given thomson s framework for estimating the land use conversion option s value a solution to the problem would be indeterminable if the exercise price was simply modified through the addition of an estimate of the land use conversion option a solution would be unattainable since exercise price is an input in the process of calculating the same land use conversion option zinkhan partially avoids this problem by utilizing poffo rather than levo when estimating sadj where a bid is considered by the landowner only if poff levo poffo which is subtracted from palto after necessary adjustments in order to maintain the zm analogy for underlying asset price might at least partially reflect the value of the land use conversion option in contrast the tm s lev does not reflect this option value because of the possibility that the market clearing price of the cutover timberland tract at time 0 will

investor valuation of the abandonment option abstract we investigate whether investors price the option to abandon a firm at its exit value theory prices this real option as an american put with both a stochastic strike price exit value and a stochastic value of the underlying security the value of cash flows the empirical implications are that firm value increases in exit value after controlling for expected going concern cash flows and that more generalizable assets produce more abandonment option value using discounted earnings forecasts to proxy for expected cash flows and prior literature to categorize asset generalizability we find strong support for the predictions of abandonment option theory

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

sustainability at home policy measures for energy efficient appliances abstract residential energy consumption is now an important component of total energy consumption and its related emissions in addition this consumption has significant potential for growth in both developed and developing countries as average incomes increase and domestic appliance numbers rise reduction in this energy use may be achieved both through conservation measures and through increased efficiency in its use this paper focuses on energy efficiency in appliances those many devices through which household energy is consumed the policy instruments available to promote the uptake of more efficient devices and issues associated with their use are reviewed drawing on developed country experiences to date the instruments available are more limited than in other energy applications and largely comprise information dissemination forms of subsidy and regulation the last is commonly used in the form of minimum energy performance standards assessment of the three instrument types and issues with their use suggests that regulation is the most important measure albeit with several qualifications on the manner of its use

ethiopia food for work or food for relief abstract this article examines the aims context and experience of food aid projects in ethiopia the major focus is a case study of an ethiopian food for work project the largest in sub saharan africa and favourable conclusions are drawn factors are identified which have made for this apparent success since one factor is local food shortage consideration is also given to the proposition that the concept of relief aid needs a wider definition than heretofore

nonparametric conditional pricing of higher order multivariate contingent claims abstract this paper describes and applies a nonparametric model for pricing multivariate contingent claims multivariate contingent claims are contracts whose payoffs depend on the future prices of more than one underlying variable the pricing however of these kinds of contracts represents a challenge all known models are adaptations of earlier ones that have been introduced to price plain vanilla calls and puts they are imposing strong assumptions on the distributional properties of the underlying variables in contrast this study adopts a methodology that relaxes such restrictions following barone adesi g bourgoin f giannopoulos k 1998 don t look back risk 11 august 100 104 barone adesi g engle r mancini l 2004 garch options in incomplete markets mimeo university of applied sciences of southern switzerland long x 2004 semiparametric multivariate garch model mimeo university of california riverside multivariate pathways for a set of underlying variables are constructed before the option payoffs are computed this enables the covariances in addition to the means and variances to be modelled in a dynamic and nonparametric manner the model is particular suitable for options whose payoffs depend on variables that are characterised by high nonlinearities and extremes and on higher order multivariate options whose underlying variables are more unlikely to conform to a common theoretical distribution

bounds on contingent claims based on several assets abstract in 1987 lo derived an upper bound on the price of a european call option on a single asset lo s bound depends only on the mean and variance of the terminal asset price and is termed a semi parametric bound this paper derives similar semi parametric bounds on a european call on the maximum of any number of assets a distribution free bound for the price of this option is obtained the bound depends only on the means and covariance matrix of the returns on n underlying assets the bound is obtained by optimizing over the entries of a positive definite matrix a this can be accomplished by a technique known as semidefinite programming we demonstrate the methodology using two specific applications the first concerns the valuation of a european call option on the maximum of several assets this is known as an outperformance option and is of some practical interest the second application concerns the valuation of a discretely adjusted lookback option these lookback options are of interest in connection with certain equity annuity insurance products

reconciling food for work project feasibility with food aid targeting in tigray ethiopia abstract food for work ffw projects face the challenge of addressing three kinds of objectives to feed hungry people to build public works where needed and to be feasible for prompt project implementation in the debate over how to target ffw to the poorest of the poor the last two program objectives are often overlooked this research examines ffw afforestation and erosion control programs in central tigray ethiopia during 1992 95 in order to understand how these sometimes conflicting objectives were reconciled statistical analyses examined the factors that influenced 1 in which villages ffw projects were located 2 which households were deemed eligible to participate in ffw in those villages having ffw projects and 3 which eligible households elected to participate and 4 how much time the participating households dedicated to ffw activities project feasibility outweighed the needs for food security or natural resource conservation in influencing whether an ffw project would be located in one of the 25 villages surveyed in villages where ffw was available anti poverty targeting appears to be taking place since smaller households with less land were more likely to be eligible to participate in ffw projects but although the poor were likely to be eligible for ffw some non poor households were also eligible which suggests that anti poverty targeting was not efficient among households eligible for ffw those that were relatively better off larger families that did not lease out land tended to participate and supply more days of ffw labor than the poorest households the only households eligible for ffw which did not participate were headed mostly by elderly women and hence unable rather than unwilling to participate overall anti poverty targeting was sub optimal but reasonable considering that these resource conservation projects need to be located where labor and materials could be made available

food aid food prices and producer disincentives in ethiopia although the short term aims of food aid are well conceived strong concerns have been voiced regarding the long term impacts of such aid on incentives for agricultural producers in recipient countries this article examines the statistical link between food aid shipments and food prices in ethiopia over the period 1996 2006 monthly data from three markets and three commodities are used to estimate a system of seemingly unrelated regression models for food prices results indicate that previous year food aid shipments reduce prices in all producer and consumer markets these effects however appear to be limited to the set of internationally traded commodities that are domestically marketed a recursive regression procedure is used to identify the food aid threshold at which a negative aid effect emerges food aid shipments that constitute less than 10 of domestic production appear to be benign but shipments above this level show signs of being disruptive to local markets we use a simple policy simulation to argue that production sensitive targeting e g conditioning food aid on local food production would help to circumvent disincentive effects copyright 2009 oxford university press

renewable energy integration into community energy systems a case study of new urban residential development abstract during the recent past the individual responsibility of climate change mitigation has been acknowledged by the society at large energy planning is pivotal in mitigating ghg emissions and adopting climate resilient strategies however community level energy planning has been overlooked in the urban development planning and the approval process many energy and emission reduction approaches are still voluntary for the developers and been pursued on ad hoc basis the objective of this study is to propose a systematic framework for renewable energy integration in community development a scenario based study was conducted for an upcoming neighbourhood in okanagan british columbia bc canada scenarios were assessed based on the life cycle cost lcc and ghg emission reduction the scenarios were then compared based on costs and benefits to key stakeholders results of this study revealed that a higher share of renewable sources in the energy mix does not necessarily reduce lcc or ghg emissions the benefits which can be achieved via incorporating renewables to the regional energy mix varies depending on the existing energy sources in the mix therefore regional power grid mix influences the feasibility and acceptability of re integration at a given location developers should be aware of the optimal investment level which could be fully or partially recovered by premium home prices the government should promote this practice via various incentives such as tax credits grants etc findings of this research would mainly inform urban developers in renewable energy planning and local government in formulating climate action policies

measuring systematic risk using implicit beta a new technology is proposed for estimating the systematic beta risk of a firm s stock just as the implicit volatility of an asset is revealed by an ordinary call option the implicit beta of a stock would be revealed by the price of an option to exchange shares of stock for shares of a market index considerable benefits would accrue to those involved with the theory and practice of finance if and when these exchange options begin trading due to the availability of instantaneous up to the minute precise indicators of firms systematic risk levels

a pricing method for options based on average asset values abstract in this paper we present a new strategy for pricing average value options i e options whose payoff depends on the average price of the underlying asset over a fixed period leading up to the maturity date such options are of particular interest and importance for thinly traded assets e g crude oil since price manipulation is inhibited and both the investor and issuer enjoy a welcome degree of protection from the vagaries of the market these options are often implicit in a bond contract although they also appear in a straightforward form our results suggest that the price of an average value option will always be lower than that of a standard european option our pricing strategy involves monte carlo simulation with variance reduction elements and offers an enhanced pricing method to both arbitragers and hedgers as well as to the issuers of such bonds

monte carlo methods for security pricing the monte carlo approach has proved to be a valuable and flexible computational tool in modern finance this paper discusses some of the recent applications of the monte carlo method to security pricing problems with emphasis on improvements in efficiency we first review some variance reduction methods that have proved useful in finance then we describe the use of deterministic low discrepancy sequences also known as quasi monte carlo methods for the valuation of complex derivative securities we summarize some recent applications of the monte carlo method to the estimation of partial derivatives or risk sensitivities and to the valuation of american options we conclude by mentioning other applications

appearance and reality in deposit insurance the case for reform abstract this paper argues that the staffs and explicit insurance reserves of u s deposit insurers have been overwhelmed by de facto financial disaster the full costs of financing federal deposit insurance have become enormous and increasingly inequitable in distribution to reduce voluntary risk taking authorities must reprice and redesign the system of de facto deposit insurance coverage six complementary reforms are discussed 1 accounting for institutional assets liabilities and net worth at market value 2 enhancing opportunities for deposit insurers to manage their risk exposure 3 recalibrating insurance coverages 4 imposing risk rated premiums 5 mixed private and governmental competition in deposit insurance and 6 constraining insurance agency and federal reserve authority to bail out insolvent institutions

can food for work encourage agricultural production abstract food for work ffw is the most widely used type of public works program in ethiopia through which a high share of the food aid is distributed this paper assesses the impacts of ffw in tigray a chronically food insecure region in ethiopia in terms of relieving liquidity constraints and thereby improving input use in agriculture a heckman selection model on the adoption and intensity of fertilizer use demonstrated that ffw positively influenced the decision to adopt fertilizer and there was no evidence of disincentive effect

unpacking the meaning of market access evidence from rural kenya summary this paper critically examines the dimensions of market access using farm panel survey data from kenya we investigate changes in ten indicators of market access during the 1997 2010 post liberalization period we find major improvements in certain market access conditions and little change in others there is generally low correlation between alternative indicators of market access all purpose indicators may not accurately reflect specific market access conditions of interest distances to physical infrastructure are often not representative of farmers access to markets changes in specific market access conditions may have more to do with the behaviors of marketing agents we consider the implications of these findings for agricultural marketing policies and for research methods

the default risk of swaps we characterize the exchange of financial claims from risky swaps these transfers are among three groups shareholders debtholders and the swap counterparty from this analysis we derive equilibrium swap rates and relate them to debt market spreads we then show that equilibrium swaps in perfect markets transfer wealth from shareholders to debtholders in a simplified case we obtain closed form solutions for the value of the default risk in the swap for interest rate swaps we obtain numerical solutions for the equilibrium swap rate including default risk we compare these with equilibrium debt market default risk spreads swaps have been one of the most explosive and important innovations in international capital markets in the last 10 years in its simplest form a swap consists of an agreement hetween two entities called counterparties to exchange in the future two streams of cash flows in a currency swap these streams of cash flows consist of a stream of interest and principal payments in one cvtrrency exchanged for a stream of interest and principal payments of the same maturity in another currency in an interest rate swap they consist of streams of interest payments of one type fixed or floating exchanged for streams of interest payments of the other type in the same currency the two types of swap are shown in appendix 1 the economic importance of swap transactions is the fact that they can he comhined with deht issues to change the nature of the liahility for the borrower the sum of a hond issue and a currency swap gives a net liability stream which is equivalent to transforming the bond liability into a different currency a floating rate note combined with an interest rate swap results in a liability equivalent to fixed rate debt two issues have dominated the academic literature on swaps the first concerns the reasons for their use arbitrage of imperfections in capital markets was the original cause of their appearance price and henderson 1984 turnbull 1987 shows that lowering borrowing costs by a synthetic transaction involving a swap is not possible in a complete integrated capital market subsequent authors wall and pringle 1988 arak estrella groodman and silver 1988 smith smithson and wakeman 1987 observe

a note on optimal credit and pricing policy under uncertainty a contingent claims approach investment in accounts receivable differs from investment in other assets since it is a joint decision on product pricing and credit policy any changes in product price financing charges or both will affect the quantity demanded and the investment in accounts receivable in a world of certainty a profit maximizing firm would invest in accounts receivable until the marginal revenue equals the marginal cost of the product this criterion maximizes the firm s value since no default risk in accounts receivable is considered in a realistic world with uncertainty management of accounts receivable is more complicated because the quantity demanded is often stochastic and the payment by the customer may be uncertain due to default risk a greater default risk other things being equal will imply a lower value of credit sale thus a firm that considers the price elasticity of demand alone and that ignores the default risk and other factors will not be led to an optimal investment in accounts receivable product pricing decisions are not independent of the credit decisions for example increases in product price or financing charges may reduce the quantity demanded sufficiently to reduce the contractual revenue but they may increase the current market value of the accounts receivable due to an increase in the payment probability although the appropriateness of wealth maximization as opposed to profit maximization and the importance of the interdependency of the joint credit and pricing decisions have gradually been recognized in the literature to our knowledge no work has succeeded in integrating the two under the assumption that the pricing decisions are given several studies have concentrated on the creditgranting decisions and have thus assumed away the more important and interesting interactive effects between pricing and credit decisions 1 a few recent studies have attempted to integrate these decisions however the criteria used in selecting the optimal policies are ad hoc and often not within a wealthmaximization framework 2 kim and atkins 4 recognized some deficiencies in previous work and proposed a much improved model in which they attempt to

decision making in electrical appliance use in the home this paper presents the results of a survey as well as an argument from the viewpoint of behavioral economics with the aim of clarifying how consumers make decisions about electrical appliance use in the home a survey of consumers showed that most have little awareness of the energy efficiency of appliances the price of the services produced by electrical appliances or electricity rates these findings indicate that price does not function as a signal in electricity consumption through electrical appliance use rather we found that consumer decision making in electricity consumption is dependent on the characteristics of the particular electrical appliances they use additionally we argue that the payment system for home electricity consumption plays an important role in decision making causing biases due to aspects of human psychology discussed here in terms of satisficing and heuristics payment decoupling and budgeting we conclude that decision making about electrical appliance use and electricity consumption in the home is not always rational and is affected both by the particular characteristics of appliances and the payment system for electricity consumption along with human psychology

an option pricing approach to evaluating petroleum projects abstract option pricing applications in capital budgeting decisions are still in the development stage this paper uses concepts and methods from option pricing theory to evaluate real projects rather than financial ones within a petroleum projects context such real options include development and operations of satellite fields break even values of incremental capacity and flexibility value with compound development and operations options the option pricing results may be quite different from those obtained by traditional capital budgeting and decision tree approaches some related papers on real options are also briefly noted

leverage constraints and the optimal hedging of stock and bond options this paper considers the problem of a financial institution that needs to hedge a stream of state contingent cash flows while facing borrowing and short sales restrictions the study determines analytically the strategy that minimizes the initial cost of hedging the desired cash flow which is also the upper bound on its market price and shows that the impact of leverage constraints on the cost of hedging call and put options is significant and therefore the biases detected by tests of option pricing models may not represent arbitrage opportunities the paper also shows that with credit limits it is optimal to reduce the rate of trading thus these constraints need to be recognized when estimating the trading volume generated in replicating contingent payoffs such as portfolio insurance

water seeks a level modeling bimetallic exchange rates and the bimetallic band arbitrage costs are usually treated as a mere footnote in formal analyses of bimetallism at the same time recent empirical research has demonstrated their key importance since they produced a bimetallic band this paper provides the first model of bimetallism that takes this explicitly into account and uses it to explain a number of stylized features of the french bimetallic experience 1850 1870 first the model explains the association between the location of the price ratio within its band and the nature either cross or joint of specie flows second it explains the correlation between bimetallic exchange rates and the bimetallic ratio and third it explains the two humps distribution of the bimetallic ratio this analysis leads to a reconsideration of bimetallism the fluctuations of the price ratio are no longer evidence of the collapse of bimetallism but are part of the normal functioning of a bimetallic system

food aid impacts in rural kenya assessing the potential role of food aid in economic development requires that analytical attention be given to both household production and consumption consequences of food aid projects effects of a food for work ffw project in rural kenya are assessed using a peasant household firm model which incorporates a linear programming model and an almost ideal demand system the results indicate that program participants have net returns 52 percent higher than nonparticipants most of which is due to induced effects of capital formation on own farm production greater capital formation increases the opportunity cost of participants time encouraging a transition over time from ffw activities to greater own farm production ffw increases food demand employment and marketable surplus

food aid and child nutrition in rural ethiopia abstract this paper uses a unique panel data set from ethiopia to examine the determinants of participation in and receipts of food aid through free distribution fd and food for work ffw results show that aggregate rainfall and livestock shocks increase household participation in both fd and ffw ffw also seems well targeted to asset poor households the probability of receiving fd does not appear to be targeted based on household wealth but fd receipts are lower for wealthier households the effects of fd and ffw on child nutritional status differ depending on the modality of food aid and the gender of the child both ffw and fd have a positive direct impact on weight for height households invest proceeds from fd in girls nutrition while earnings from ffw are manifested in better nutrition for boys the effects of the gender of the aid recipient are not conclusive

does the nonfarm economy offer pathways for upward mobility evidence from a panel data study in ethiopia summary empirical studies across many developing countries routinely document a positive correlation between participation in rural nonfarm employment and households wealth or income this paper explores whether nonfarm employment leads to higher consumption expenditure growth in ethiopia we find that 1 households consumption expenditure growth is positively correlated with the initial share of nonfarm income 2 the growth elasticity of nonfarm income share is higher for wealthier households and 3 the main source of growth for nonfarm participants comes from the higher rates of return participants enjoy on their human and physical capital

options on the minimum or the maximum of two risky assets analysis and applications this paper provides analytical formulas for european put and call options on the minimum or the maximum of two risky assets the properties of these formulas are discussed in detail options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists applications discussed in this paper include the valuation of foreign currency debt option bonds compensation plans risk sharing contracts secured debt and growth opportunities involving mutually exclusive investments

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

pricing multivariate contingent claims using estimated risk neutral density functions abstract many asset price series exhibit time varying volatility jumps and other features inconsistent with assumptions about the underlying price process made by standard multivariate contingent claims mvcc pricing models this article develops an interpolative technique for pricing mvccs flexible nls pricing that involves the estimation of a flexible multivariate risk neutral density function implied by existing asset prices as an application the flexible nls pricing technique is used to value several bivariate contingent claims dependent on foreign exchange rates in 1993 and 1994 the bivariate flexible risk neutral density function more accurately prices existing options than the bivariate log normal density implied by a multivariate geometric brownian motion in addition the bivariate contingent claims analyzed have substantially different prices using the two density functions suggesting flexible nls pricing may improve accuracy over standard methods

the pricing of stock index options in a general equilibrium model this paper analyzes the pricing of stock index options in a simple general equilibrium model in this model the volatility of the stock index and the spot rate of interest are functions of a stochastic variable the paper investigates the biases that arise when using the black scholes model with the assumed volatility and interest rate dynamics it is shown that the model can in principle explain the biases observed in empirical work on stock index options

what s driving energy efficient appliance label awareness and purchase propensity the eu appliance energy consumption labeling scheme is a key component of efforts to increase the diffusion of energy efficient household appliances in this paper the determinants of consumer knowledge of the energy label for household appliances and the choice of class a energy efficient appliances are jointly estimated using data from a large survey of more than 20 000 german households the results for five major appliances suggest that lack of knowledge of the energy label can generate considerable bias in both estimates of rates of uptake of class a appliances and in estimates of the underlying determinants of choice of class a appliance simulations of the choice to purchase a class a appliance given knowledge of the labeling framework reveal that residence characteristics and in several cases regional electricity prices strongly increase the propensity to purchase a class a appliance but socio economic characteristics have surprisingly little impact on appliance energy class choice

real options theory in international business the last quarter century has witnessed substantial growth in applications of real options theory rot to international business ib research in this review we explicate the core rot concepts in the ib context and discuss the contributions of rot based research to three core ib issues timing and scale of market entry or exit entry mode and governance form and the role of multinational networks based on our review we propose a holistic rot view of the multinational enterprise that synthesizes the insights of existing studies finally to move the field forward we highlight key questions and challenges in current rot based work provide a more precise definition of exogenous and endogenous uncertainty suggest empirical designs to test unique rot predictions and explore areas where rot can be combined with other theoretical perspectives to better understand ib phenomena

a model of bimetallism bimetallism has been the subject of considerable debate was it a viable monetary system was it desirable in our model the amounts of each metal are split between coined metal satisfying a cash in advance constraint and uncoined metal yielding utility the ratio of the monies in the cash in advance constraint is endogenous bimetallism is feasible we find a continuum of steady states indexed by the constant exchange rate of the monies bimetallism is not desirable among steady states welfare under monometallism is higher than under any bimetallic equilibrium long run trends in gold and silver production placed limits on the maintenance of bimetallism at any given ratio but its sudden collapse in 1873 remains a puzzle

opportunities and challenges in energy demand reduction for canadian residential sector a review abstract developing energy independent and sustainable communities has gained a high level of global interest in recent times the federal sustainable development strategy for canada fsds has defined the addressing of climate change and the shrinking of the environmental footprint as priority themes in its sustainable development approach in the pursuit of planning net zero to net positive community energy systems reducing the energy demand of the residential buildings is the first priority particularly as the residential sector accounts for 17 of the secondary energy use in canada various technical behavioural and policy level interventions are available for reducing residential energy consumption in this review demand reduction interventions have been categorised as efficiency saving and conservation measures the benefits limitations and challenges present in adopting those strategies are discussed for various regions in canada even though there is an advanced level of knowledge available on energy demand reduction the scattered information needs to be brought together to develop a combined and inclusive approach for residential demand management collected knowledge will inform decision makers engaged in the design of residential buildings and planning of sustainable communities to identify the interventions which can be implemented in a given locality this review aims to address the above gaps through a comprehensive review on potential energy demand reduction methods especially for canada the implications of the findings to canadian residential energy sector as a whole are discussed in the final part of the review

does food aid disrupt local food market evidence from rural ethiopia the paper examines the impact of food aid on households marketing behavior based on a panel of households followed during 1994 2009 in 15 villages of ethiopia the impact of aid is examined at the intensive margin on quantities produced sold or bought by the households and at the extensive margin on the number of producers sellers and buyers food aid reduces the probability of being a producer it also increases the probability of being a seller after a reform of aid policy in 2004 from repeated emergency distributions toward a multi year program aiming at agricultural development

financial incentive approaches for reducing peak electricity demand experience from pilot trials with a uk energy provider abstract whilst tariff based approaches to load shifting are common in the residential sector incentive based approaches are rare this is so even though providing customers incentives to shape their power consumption patterns has substantial potential this paper presents findings from an exploratory uk pilot study that trials financial payments and detailed energy feedback to incentivise load shifting of residential electricity consumption an intervention study was implemented measuring actual energy use by individual households as well as conducting surveys and interviews from the trials it was found that the approaches resulted in reductions in peak time energy use evidence from the study found that the incentives based approaches were able to overcome some of the barriers to response experienced in time of use studies though less good on others interestingly the height of the barriers varied by the electricity using practice and the incentivising approach applied the height of the barriers also varied by participant the study concludes by identifying that broad participation in demand response is likely to require a suite of incentivising approaches that appeal to different people a key policy finding of interest to international agencies government public and private sector entities

the valuation of multivariate contingent claims in discrete time models there are several examples in the literature of contingent claims whose payoffs depend on the outcomes of two or more stochastic variables familiar cases of such claims include options on a portfolio of options options whose exercise price is stochastic and options to exchange one asset for another this paper derives risk neutral valuation relationships rnvrs in a discrete time setting that facilitate the pricing of such complex contingent claims in two specific cases joint lognormally distributed underlying variables and constant proportional risk aversion on the part of investors and joint normally distributed underlying variables and constant absolute risk aversion preferences respectively this methodology is then applied to the valuation of several interesting complex contingent claims such as multiperiod bonds multicurrency option bonds and investment options

an ex post valuation of the quality option implicit in the treasury bond futures contract abstract this paper develops three empirical estimates of the value of the quality delivery option implicit in the treasury bond futures contract a an ex ante value as given by the excess of forward price of the cheapest to deliver bond over its conversion factor times the futures price b an ex post value equal to the payoffs to a strategy of buying and holding a short futures long forward position at the start and delivering the cheapest bond at the expiration of futures contract and c another ex post value equal to the sum of payoffs to a continuous rollover strategy involving a short futures long forward position in the cheapest to deliver bonds three months prior to delivery the average values of the three estimates are 464 329 and 2 075 respectively the differences among the three estimates appear to be largely due to nonsynchronous spot futures data

the quality delivery option in treasury bond futures contracts this paper uses three methods to estimate quality option values for cbot treasury bond futures contracts it presents evidence regarding 1 payoffs from exercising this option at delivery 2 estimates from a t bond futures pricing model that incorporates this option and 3 estimates obtained from an exchange option pricing formula the results indicate that this option is worth considerably less than reported by kane and marcus 1986a for example payoffs obtained by switching from the bond cheapest to deliver three months prior to delivery to the one cheapest at time of delivery average less than 0 30 percentage points of par

are structured products fairly priced an analysis of the german market for equity linked instruments abstract based on a unique data set this paper examines the pricing of equity linked structured products in the german market the daily closing prices of a large variety of structured products are compared to theoretical values derived from the prices of options traded on the eurex european exchange for the majority of products the study reveals large implicit premiums charged by the issuing banks in the primary market a set of driving factors behind the issuers pricing policies is identified for example underlying and type of implicit derivative s for the secondary market the product life cycle is found to be an important pricing parameter

an option valuation analysis of investment choices by a regulated firm this paper analyzes a utility power plant construction project using an option pricing model of the value of the capital investment it includes descriptive factors frequently ignored in the valuation of capital investments by regulated firms including lead time lumpy and sequential cost outlays irreversibility of expenditures and uncertainty about regulatory outcomes for completed projects the analysis shows the value of shorter lead time technologies the value of flexibility to delay or abandon construction the incentive to delay construction under uncertain regulation and how cost recovery policies such as possible disallowance of allow for funds used during construction afudc create incentives to invest less but to complete construction quickly the analysis may also apply in unregulated contexts where the value of a completed project is affected by taxation the possibility of nationalization or possible competitors actions that create uncertain restrictions on potential profits

nominal contracts in a bimetallic standard as its central feature a bimetallic standard grants nominal debtors an option to deliver either of two metals with results from the option pricing literature construction of a formula to evaluate the bimetallic option in debt instruments is straightforward with this formula one can compute the option value in a wide range of nineteenth century u s treasury securities posession of the option values permits an adjustment of the yields on u s securities to make them comparable to yields on nonmetallic european securities evaluating the option allows the estimation of transfers from debtors to creditors copyright 1986 by american economic association

targeting of food aid in rural ethiopia chronic need or inertia abstract this paper quantifies the factors underlying the allocations of food aid by the ethiopian government together with local and international non governmental organizations ngos both across rural regions and to households within regions we focus on reduced form specifications in which as little structure as possible is put on the decision rules because so little is known about these rules and their implementation nationally representative rural household data from ethiopia collected in 1996 are used the paper determines the extent to which food aid both free distribution and food for work is targeted to poor households and communities we also demonstrate that food aid allocations display a large degree of spatial continuity over time and are concentrated in areas that at least during the time of the survey are not the poorest the paper attempts to disentangle two competing explanations for the apparent spatial rigidity of food aid allocations that the recipient areas are chronically needy or that needs shift geographically from 1 year to the next but that fixed costs in setting up operations and in the process of identifying needs lead to a degree of inertia in the location of food aid programs over time we conclude that the evidence best fits the inertia explanation

design of incentive programs for accelerating penetration of energy efficient appliances abstract incentives are policy tools that sway purchase retail stocking and production decisions toward energy efficient products incentives complement mandatory standards and labeling policies by accelerating market penetration of products that are more energy efficient than required by existing standards and by preparing the market for more stringent future mandatory requirements incentives can be directed at different points in the appliance s supply chain one point may be more effective than another depending on the technology s maturity and market penetration this paper seeks to inform future policy and program design by categorizing the main elements of incentive programs from around the world we identify advantages and disadvantages of program designs through a qualitative overview of incentive programs worldwide we find that financial incentive programs have greater impact when they target highly efficient technologies with a small market share and that program designs depend on the market barriers addressed the target equipment and the local market context no program design is inherently superior to another the key to successful program design and implementation is a thorough understanding of the market and identification of the most important local obstacles to the penetration of energy efficient technologies

does food aid really have disincentive effects new evidence from sub saharan africa summary limited empirical evidence exists either to refute or confirm the pervasive belief that food aid has significant disincentive effects on recipient food production using household level data from rural ethiopia we demonstrate that while simple descriptive statistics appear consistent with the disincentive effects hypothesis once one controls properly for the endogeneity of food aid receipt no empirical support remains for the hypothesis that food aid creates disincentive effects among recipient households the macro economic evidence yields similar findings applying vector autoregression methods to national level data controlling for possible confounding variables we find that food aid has no disincentive effect on food production

pricing of forwards and other derivatives in cointegrated commodity markets abstract we analyze cointegration in commodity markets and propose a parametric class of pricing measures which preserves cointegration for forward prices with fixed time to maturity we present explicit expressions for the term structure of volatility and correlation in the context of our spot price models based on continuous time autoregressive moving average dynamics for the stationary components the term structures have many interesting shapes and we provide some empirical evidence from refined oil future prices at nymex defending our modeling idea motivated from these results we present a cointegrated forward price dynamics using the heath jarrow morton approach in this setting the concept of cointegration is extended to what we call cointegration in the limit which is an asymptotic form of the notion the margrabe formula for spread option prices is shown to hold with an explicit plug in volatility we present several numerical examples showing that cointegration leads to significantly cheaper spread options compared to the complete market case where cointegration disappears with respect to the pricing measure

numerical valuation of high dimensional multivariate european securities we consider the problem of pricing a contingent claim whose payoff depends on several sources of uncertainty using classical assumptions from the arbitrage pricing theory the theoretical price can be computed as the discounted expected value of future cash flows under the modified risk neutral information process although analytical solutions have been developed elsewhere for a few particular option pricing problems computing the arbitrage prices of securities under several sources of uncertainty is still an open problem in many instances in this paper we present efficient numerical techniques based upon monte carlo simulation for pricing european contingent claims depending on an arbitrary number of risk sources we introduce in particular the method of quadratic resampling qr a new powerful error reduction technique for monte carlo simulation quadratic resampling can be efficiently combined with classical variance reduction methods such as importance sampling our numerical experiments show th

improving the economics of building energy code change a review of the inputs and assumptions of economic models abstract building energy code change in australia and many other developed nations is subject to standardised economic tests with a net present value calculation at the heart of the economic analysis although many nations have introduced minimum energy efficiency standards for residential and commercial buildings increases in stringency have been hindered by limitations to the range of private and societal impacts typically incorporated in regulatory impact assessments given the policy move towards net zero energy homes a more comprehensive set of inputs and robust assumptions are needed to support further regulatory change yet the literature provides substantial evidence of many private and societal costs and benefits not commonly incorporated into the economic assessments that underpin regulatory change drawing on a case study of australian and uk residential regulatory change assessments this paper highlights limitations to the range of inputs and assumptions currently incorporated within the economic arguments applied during residential energy code change processes and presents a more comprehensive economic argument that could support further stringency improvements

child growth shocks and food aid in rural ethiopia this brief summarizes the results of a gender impact evaluation study entitled child growth shocks and food aid in rural ethiopia conducted between 1995 and 1996 in ethiopia the study observed the impact of food aid on child growth and shocks in communities on the child level food aid has a positive significant impact on the growth in height of children the total amount of food aid appears on average to be sufficient to offset the negative effects of plot damage on child growth given the fact there remains a massive amount of child stunting there must be large amounts of mis targeting of aid girls seem to be more resilient to shocks than boys

residential energy efficient technology adoption energy conservation knowledge and attitudes an analysis of european countries abstract relationships between measures of household energy use behavior and household characteristics are estimated using a unique dataset of approximately 5000 households in 10 eu countries and norway family age composition patterns are found to have a distinct impact on household energy use behavior households with young children are more likely to adopt energy efficient technologies and energy conservation practices and place primary importance on energy savings for environmental reasons by contrast households with a high share of elderly members place more importance on financial savings and have lower levels of technology adoption energy conservation practice use and knowledge about household energy use education levels also matter with higher levels associated with energy efficient technology adoption and energy conservation practice use similarly university education increases the stated importance of energy savings for greenhouse gas reductions and decreases the stated importance for financial reasons education impacts also vary greatly across survey countries and there is some evidence of an eastern western european divide with respect to attitudes towards energy savings these cross country differences highlight the need to balance a common eu energy efficiency policy framework with flexibility for country specific policies to address unique constraints to energy efficient technology and conservation practice adoption

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

food aid targeting in ethiopia a study of who needs it and who gets it abstract the need for systematic empirical analysis of food aid targeting and impacts is overwhelming especially given the large numbers of people concerned and volume of funds allocated to the problem of feeding ethiopia s food insecure this research examines the efficiency of food aid targeting in rural ethiopia based on empirical evidence from a nationally representative survey of 4166 farm households a key finding of the study is that there is no significant association between household food insecurity vulnerability and food aid receipts a result of high errors of exclusion and inclusion at both the wereda and household levels four factors are identified as causes of the high level of targeting error 1 the primary beneficiaries of food aid programs are found to be households at the extremes in terms of food availability those with the least and those with the most food available 2 a disproportionate number of female and aged heads of households received food aid irrespective of their food needs 3 an inability of the food aid system to reach households outside of the historically deficit areas and 4 a disproportionate concentration of food aid in the region of tigray

impact of energy policy instruments on the estimated level of underlying energy efficiency in the eu residential sector the promotion of energy efficiency is seen as one of the top priorities of eu energy policy ec 2010 in order to design and implement effective energy policy instruments it is necessary to have information on energy demand price and income elasticities in addition to sound indicators of energy efficiency this research combines the approaches taken in energy demand modelling and frontier analysis in order to econometrically estimate the level of energy efficiency for the residential sector in the eu 27 member states for the period 1996 to 2009 the estimates for the energy efficiency confirm that the eu residential sector indeed holds a relatively high potential for energy savings from reduced inefficiency therefore despite the common objective to decrease wasteful energy consumption considerable variation in energy efficiency between the eu member states is established furthermore an attempt is made to evaluate the impact of energy efficiency measures undertaken in the eu residential sector by introducing an additional set of variables into the model and the results suggest that financial incentives and energy performance standards play an important role in promoting energy efficiency improvements whereas informative measures do not have a significant impact

options on the maximum or the minimum of several assets using an intuitive approach that also provides new intuition concerning the black and scholes equation this paper extends the results of johnson and stulz to the pricing of options on the minimum or the maximum of several risky assets

income diversification poverty traps and policy shocks in cote d ivoire and kenya abstract this paper presents evidence on the effects of two different sorts of policy shocks on observed income diversification patterns in rural africa in cote d ivoire households with poor endowments were less able to respond to attractive emerging on farm and non farm opportunities due to entry barriers to superior livelihood strategies the benefits of exchange rate reform accrued disproportionately to households that were richer prior to devaluation by contrast food for work transfers to households in kenya significantly reduced liquidity constraints enabling project participants to pursue more lucrative livelihood strategies in non farm activities and higher return agricultural production patterns jointly these two shocks underscore the importance of liquidity market access and skill constraints to skilled non farm income sources to dynamic poverty traps in rural africa

pricing options with extendible maturities analysis and applications many common types of financial contracts incorporate options with extendible maturities this paper derives closed form expressions for options that can be extended by the optionholder and presents a number of applications including the valuation of american options with stochastic dividends junk bonds and shared equity mortgages we also derive closed form expressions for writer extendible options and discuss the writer s economic incentives for extending an out of the money option we apply these results to show that corporate debtholders have a strong incentive to extend the maturity of defaulting debt if there are liquidation costs we model and solve the debtholders optimal extension problem and show that the possibility of an extension can induce shareholders in highly levered firms to accept negative npv projects many common types of financial contracts and contingent claims incorporate options with extendible maturities for example a growing number of firms in many cases firms involved in leveraged buyouts are issuing bonds with maturities that can be extended at the firm s option options on real estate often allow the optionholder to extend the expiration date by paying an additional fixed amount to the option writer corporate warrants frequently give the issuing firm the right to unilaterally extend the life of the warrants a right that is often exercised in general any financial contract that could involve a rescheduling of payments a renegotiation of terms an early call or exercise provision or some similar type of flexibility over the timing of cash flows could be viewed as including an option with an extendible maturity this paper derives valuation expressions for extendible options examines the analytical properties of these prices and presents a wide variety of applications and examples in this analysis we distinguish between options that can be extended by the optionholder and options that are extended by the option writer since they differ fundamentally in their pricing implications focusing on the

static hedging of multivariate derivatives by simulation we propose an approximate static hedging procedure for multivariate derivatives the hedging portfolio is composed of statically held simple univariate options optimally weighted minimizing the variance of the difference between the target claim and the approximate replicating portfolio the method uses simulated paths to estimate the weights of the hedging portfolio and is related to monte carlo control variates techniques we report numerical results showing the performance of this static hedging procedure on bivariate options on the maximum of two assets and on 2 and 7 dimensional portfolio options it is shown that in the presence of transaction costs value at risk and expected shortfall of the dynamically hedged positions can be higher than the ones obtained by a static hedge

income diversification and entry barriers evidence from the tigray region of northern ethiopia abstract farm households diversify their income sources into off farm wage employment motivated by low farm income and availability of surplus family labor whereas they enter into off farm self employment to earn an attractive return farm households have upward sloping although inelastic off farm labor supply curves therefore increasing the availability of off farm activities and improving the wage rate received by farm households can expand the economic activity of the tigray regional state due to entry barriers relatively wealthy farm households may dominate the most lucrative rural non farm activities such as masonry carpentry and petty trade hence the underlying factors that hinder participation in non farm activities such as credit constraints and lack of skill may have to be addressed through the provision of credit and technical training for the poor

demand for a labor based drought insurance scheme in ethiopia a stated choice experiment approach index based weather insurance is increasingly used to manage weather related risks in smallholder agriculture however cash constrained smallholders often lack the resources to pay an insurance premium which may undermine its wider adoption this article investigates alternative insurance payment methods that may help to enhance the adoption of index based weather insurance we use a choice experiment to elicit smallholders willingness to pay in cash or labor for index based weather insurance in four districts in the south central highlands of ethiopia the insurance schemes were created using a fractional factorial design with three factors work cash and payout rate we analyze the choice data using a random parameter mixed logit model we find that the average participants need a subsidy to pay cash for insurance because their willingness to pay is less than the expected cost of the insurance on average they are willing to pay only 0 81 etb ethiopian currency to get an expected yearly payout of 1 etb however most are willing to participate in work for insurance programs at lower daily wage rates than is common for other work programs in ethiopia

on the pricing of european and american foreign currency call options abstract this study uses cox ross analysis and dynamic programming techniques to price foreign currency call options we show that under certain conditions the american call price will exceed its european counterpart while under other conditions the two prices will be identical we find that the american premium is a complex function of the degree to which an option is in or out of the money and that this premium is greatest when an option is near in or out we present empirical evidence which shows that the american model significantly improves upon a european model however significant pricing errors associated with the american model remain

realignment expectations and the us dollar 1890 1897 was there a peso problem we investigate dollar sterling exchange rate expectations during the period 1890 1908 we show that the dollar faced a peso problem in that for much of the period financial markets expected it to depreciate against sterling but this never in fact happened i e expectations were persistently biased drawing on the economic history of the period we identify 11 events which probably gave rise to realignment expectations once the dollar s adherence to the gold standard was settled as a political matter in the 1896 presidential election expectations of dollar realignment abruptly subsided and united states interest rates fell relative to british rates

numerical valuation of high dimensional multivariate american securities we consider the problem of pricing an american contingent claim whose payoff depends on several sources of uncertainty several efficient numerical lattice based techniques exist for pricing american securities depending on one or few up to three risk sources however these methods cannot be used for high dimensional problems since their memory requirement is exponential in the number of risk sources we present an efficient numerical technique that combines monte carlo simulation with a particular partitioning method of the underlying assets space which we call stratified state aggregation ssa using this technique we can compute accurate approximations of prices of american securities with an arbitrary number of underlying assets our numerical experiments show that the method is practical for pricing american claims depending on up to 400 risk sources

option premiums in mineral asset pricing are they important mineral assets consistently trade at market values greater than their discounted cash flow dcf values one explanation is that dcf analysis does not and cannot incorporate the asset value generated by asset management under uncertainty this paper surveys the attempts to empirically quantify the option premium associated with optimal mineral asset management the option premium appears to explain at most half of the observed gap between dcf value and market value and adds at most 3 percent to a mineral asset s gross worth asset management option premiums therefore have only a second order impact on mineral asset pricing

the impact of singapore s residential electricity conservation efforts and the way forward insights from the bounds testing approach abstract this article provides fresh empirical evidence of residential electricity demand in singapore over the period of 1980 2014 using the bounds testing procedure to cointegration the residential electricity demand comprises of income price temperature rainy days old age dependency and the impact of energy efficiency policies our results are consistent with previous studies where income and price elasticities are inelastic hence from a policy perspective subsidies will not be effective in reducing electricity demand we also found that old age dependency is an important determinant that reduces electricity consumption at least in the short run suggesting that policies that target the younger population may bring more savings the model findings suggest that in general energy efficiency interventions introduced after 2007 which comprises of both informational strategies and efficiency standards were effective in reducing household electricity consumption however in order to realise greater electricity reduction potential policy efforts have to intensify into the future with the main objectives being to permanently change energy habits and consider the role of hassle costs when rolling out energy saving measures

portfolio management and appropriation of private benefits of control in many countries around the globe portfolio managers utilize well accepted models assuming that a partial stake of ownership is proportionally valued this assumption is incorrect in markets in which traded firms or publicly held firms are controlled by major owners who would take any possible measure to protect and maintain a lock on control so they can secure a sellable asset to another control seeker in this case estimation of key parameters such as volatility expected returns and diversification effect may be grossly distorted we would argue that a major trigger for the value of the benefits of control is the ability of control owners to transfer assets from their own portfolio to a controlled publicly traded firm while it is obvious that these transfers will take place if and only if it is beneficial to the control owners the impact on the minor shareholders may not necessarily be negative and may vary depending on several parameters thus the benefits of control are not entirely private i e appropriation and diversion of the resources of publicly traded firms for the benefit of the control owners this paper aims to model the effect of the benefits of control on the value of a minority held public firms it focuses on two related issues that are discussed in the literature on the benefits of control what drives the value of the benefits of control given the empirical evidence that control seekers are willing to pay a significant premium for control and secondly can these benefits be rationally modeled to better understand these issues it then models a specific drive on the part of control seekers who in addition to their stake in a publicly traded firm own a private portfolio it could be argued that they may transfer inferior investments to the public firms that they control exploiting less than perfect transparency however while they own this valuable option of transferring inferior investments into the public firm these actions may still be beneficial to the minority shareholders we establish a model and derive a simulation procedure that are applied to several cases in which transfers are made in exchange for cash or equity instances of full disclosure or partial transparency the likelihood that the control owners actions will be contested in court level of risk and other parameters then we will compare the results to empirical finding the final model will be greatly simplified so that the end formula can be easily used by practitioners

option valuation with co integrated asset prices abstract this paper investigates theoretical and practical aspects of options that are based upon two or more assets which are co integrated for this purpose a new discrete time model of asset prices is developed a model featuring both the co integration property as well as stochastic volatilities using a garch equilibrium based option pricing approach it is shown that when volatilities are deterministic the option prices do not depend on the co integration parameters except for the mis specification effect as to the manner in which the volatilities are estimated however with stochastic volatilities the option prices explicitly depend upon the co integration parameters in order to understand these results better this paper also examines a continuous time diffusion limit of the asset price system and empirically studies the co integration effect using spread options based upon the s p500 and the nasdaq100 these numerical results suggest that consideration of co integration can substantially alter the value delta and vega of a spread option