moment matching machine learning methods for risk management of large variable annuity portfolios abstract variable annuity va with embedded guarantees have rapidly grown in popularity around the world in recent years valuation of vas has been studied extensively in past decades however most of the studies focus on a single contract these methods can be extended neither to valuate nor to manage the risk of a large variable annuity portfolio due to the computational complexity in this paper we propose an efficient moment matching machine learning method to solve this problem this method is proved to be a good candidate for risk management in terms of the speed of and the complexity of computing the annual dollar deltas vars and cvars for a large variable annuity portfolio whose contracts are over a period of 25 years there are two stages for our method first we select a small number of contracts and propose a moment matching monte carlo method based on the johnson curve rather than the well known nested simulations to compute the annual dollar deltas vars and cvars for each selected contract then these computed results are used as a training set for well known machine learning methods such as regression tree neural network and so on afterwards the annual dollar deltas vars and cvars for the entire portfolio are predicted through the trained machine learning method compared to other existing methods bauer et al 2008 gan 2013 gan and lin 2015 our method is very efficient and accurate finally our test results support our claims

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

do too many cooks always spoil the stew an experimental analysis of rent seeking and the role of a strategic buyer laboratory methods are used to evaluate the effects of institutional arrangements and rent defending activity on rent seeking auction outcomes in part nash equilibrium predictions are a useful behavioral guide as predicted more rents are dissipated in perfectly discriminating auctions where the high bidder wins than in lotteries where relative bids determine the chance of winning also as predicted the introduction of a rent defending buyer reduces social costs nevertheless the social costs of rent seeking consistently exceed predicted levels moreover individual bidding especially by buyers deviates markedly from nash predictions

a tale of two regimes theory and empirical evidence for a markov modulated jump diffusion model of equity returns and derivative pricing implications abstract we provide closed form solutions for a continuous time markov modulated jump diffusion model in a general equilibrium framework for options prices under a variety of jump diffusion specifications we further demonstrate that the two state model provides the leptokurtic return features volatility smile and volatility clustering observed empirically for the dow jones industrial average djia and its component stocks using 10 years of stock return data we confirm the existence of jump intensity switching and clustering illustrate transition probabilities and verify superior empirical fit over competing poisson style models

career concerns in a simple experimental labour market abstract we experimentally investigate a simple version of holmstrom s career concerns model in which firms compete for agents in two consecutive periods profits of firms are determined by agents unknown ability and the effort they choose before making second period wage offers firms are informed about first period profits in a different treatment firms additionally learn the abilities of agents theory suggests high first period equilibrium effort in the hidden ability treatment but no effort elsewhere however we find that effort tends to be higher in the revealed ability treatment and therefore conclude that transparency does not weaken but strengthen career concerns incentives

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

omega performance measure and portfolio insurance abstract we analyze the performance of the two main portfolio insurance methods the obpi and cppi strategies using downside risk measures for this purpose we introduce kappa performance measures and especially the omega measure these measures take account of the entire return distribution we show that the cppi method performs better than the obpi as a by product we determine the set of threshold values for these risk reward performance measures

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

a unified approach to bermudan and barrier options under stochastic volatility models with jumps abstract many financial assets such as currencies commodities and equity stocks exhibit both jumps and stochastic volatility which are especially prominent in the market after the financial crisis some strategic decision making problems also involve american style options in this paper we develop a novel fast and accurate method for pricing american and barrier options in regime switching jump diffusion models by blending regime switching models and markov chain approximation techniques in the fourier domain we provide a unified approach to price bermudan american options and barrier options under general stochastic volatility models with jumps the models considered include heston hull white stein stein scott the 3 2 model and the recently proposed 4 2 model and the hypergeometric model with general jump amplitude distributions in the return process applications include the valuation of discretely monitored contracts as well as continuously monitored contracts common in the foreign exchange markets numerical results are provided to demonstrate the accuracy and efficiency of the proposed method

the behavioralist visits the factory increasing productivity using simple framing manipulations recent discoveries in behavioral economics have led to important new insights concerning what can happen in markets such gains in knowledge have come primarily via laboratory experiments a missing piece of the puzzle in many cases is parallel evidence drawn from naturally occurring field counterparts we provide a small movement in this direction by taking advantage of a unique opportunity to work with a chinese high tech manufacturing facility our study revolves around using insights gained from one of the most influential lines of behavioral research framing manipulations in an attempt to increase worker productivity in the facility using a natural field experiment we report several insights for example conditional incentives framed as both losses and gains increase productivity for both individuals and teams in addition teams more acutely respond to bonuses posed as losses than as comparable bonuses posed as gains the magnitude of this framing effect is roughly 1 that is total team productivity is enhanced by 1 purely due to the framing manipulation importantly we find that neither the framing nor the incentive effect lose their significance over time rather the effects are observed over the entire sample period moreover we learn that repeated interaction with workers and conditionality of the bonus contract are substitutes for sustenance of incentive effects in the long run this paper was accepted by gerard p cachon decision analysis

the risk premium that never was a fair value explanation of the volatility spread abstract we present a new framework to investigate the profitability of trading the volatility spread the upward bias on implied volatility as an estimator of future realized volatility the scheme incorporates the first four option implied moments in a growth optimal payoff that is statically replicated using a portfolio of options removing the upward bias on implied volatility worsens the likelihood score of risk neutral densities obtained from s p 500 index options when they are used as forecasts of the underlying index return distribution it also results in negative expected capital growth when they are used in a volatility arbitrage scheme our empirical finding is that the upward bias on implied volatility does not represent a long term return premium rather it is required to mitigate the large losses associated with tail events when trading volatility in options markets

leverage effect volatility feedback and self exciting market disruptions equity index volatility variation and its interaction with the index return can come from three distinct channels first index volatility increases with the market s aggregate financial leverage second positive shocks to systematic risk increase the cost of capital and reduce the valuation of future cash flows generating a negative correlation between the index return and its volatility regardless of financial leverage finally large negative market disruptions show self exciting behaviors this article proposes a model that incorporates all three channels and examines their relative contribution to index option pricing and stock option pricing for different types of companies

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

do tournaments have incentive effects much attention has been devoted to studying models of tournaments or situations in which an individual s payment depends only on his or her output or rank relative to that of other competitors academic interest derives from the fact that under certain sets of assumptions tournaments have desirable normative properties because of the incentive structures they provide our paper uses nonexperimental data to test whether tournaments actually elicit effort responses we focus on professional golf tournaments because information on the incentive structure prize distribution and measures of individual output players scores are both available we find strong support for the proposition that the level and structure of prizes in pga tournaments influence players performance

intergroup conflict and intra group punishment in an experimental contest game we study how conflict in a contest game is influenced by rival parties being groups and by group members being able to punish each other our main motivation stems from the analysis of socio political conflict the relevant theoretical prediction in our setting is that conflict expenditures are independent of group size and independent of whether punishment is available or not we find first that our results contradict the independence of groupsize prediction conflict expenditures of groups are substantially larger than those of individuals and both are substantially above equilibrium towards the end of the experiment material losses in groups are 257 of the predicted level there is however substantial heterogeneity in the investment behaviour of individual group members second allowing group members to punish each other after individual contributions to the contest effort are revealed leads to even larger conflict expenditures now material losses are 869 of the equilibrium level and there is much less heterogeneity in individual group members investments these results contrast strongly with those from public goods experiments where punishment enhances efficiency and leads to higher material payoffs

the reality of stock market jumps diversification abstract we propose a non parametric procedure for estimating systemic co jumps and independent idiosyncratic jumps for 35 stock markets and study news associated with these jumps as reported in factiva and bloomberg from 1988 to 2014 our results suggest that it is important to distinguish between systemic co jumps and idiosyncratic jumps we find both types of jumps have important implications for home bias investors while idiosyncratic jumps have economically significant impact on portfolio weights for emerging markets our news analysis suggests systemic jumps are typically caused by currency crises sectoral failure liquidity issues and deteriorating economic climate while idiosyncratic jumps are usually caused by political unrest currency instability and large firm effects on small economies in fact many of the idiosyncratic jumps share the same origin although different stock markets experienced the impact differently at different times

testing the theory of tournaments an empirical analysis of broiler production broiler chickens are raised by contract growers whose rewards depend explicitly upon relative performance we use data on the performance of broiler producers facing both tournament and linear performance evaluation compensation structures to test three predictions from the theory of tournaments that changes in the level of prizes that leave prize differentials unchanged will not affect performance that in mixed tournaments more able players will choose less risky strategies and that tournament organizers will attempt to handicap players of unequal ability or reduce mixing to avoid the disincentive effects of mixed tournaments our evidence is consistent with each prediction

quitters never win the adverse incentive effects of competing with superstars internal competition may motivate worker effort yet the benefits of competition may depend critically on workers relative abilities large skill differences may reduce efforts i use panel data from professional golf tournaments and find that the presence of a superstar is associated with lower performance on average golfers first round scores are approximately 0 2 strokes worse when tiger woods participates relative to when woods is absent the overall tournament effect is 0 8 strokes the adverse superstar effect varies with the quality of woods s play there is no evidence that reduced performance is attributable to media attention intensity or risky strategy adoption

pricing methods and hedging strategies for volatility derivatives abstract we explore the valuation and hedging of discretely observed volatility derivatives using three different models for the price of the underlying asset geometric brownian motion with constant volatility a local volatility surface and jump diffusion we begin by comparing the effects on valuation of variations in contract design such as the differences between specifying log returns or actual returns and incorporating caps on the level of realized volatility we then focus on the difficulties associated with hedging these products delta hedging strategies are ineffective for hedging volatility derivatives since they require very frequent rebalancing moreover they provide limited protection in the jump diffusion context we study the performance of a hedging strategy for volatility swaps that establishes small fixed positions in vanilla options at each volatility observation

consumption needs and inequality most empirical studies demonstrating a u turn in inequality in the united states are based on the distribution of income however utility is derived from the consumption of goods and services and there are many reasons to expect the distribution of expenditure to be different from the distribution of income the author demonstrates that consumption based inequality indexes actually decrease over the postwar era this conclusion differs from the stylized facts because of differences in the income and expenditure distributions differences also arise from the inclusion of equivalence scales to account for the different needs of heterogeneous households copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

pricing and exercising american options an asymptotic expansion approach abstract this paper proposes and implements a novel asymptotic expansion approach for pricing discretely monitored american options and approximating their optimal early exercise boundaries under a generic class of multivariate derivative pricing models incorporating both stochastic volatility and levy driven jumps in asset return the price and the critical value can be expanded up to any arbitrary order around those under a simple constant volatility jump diffusion model the expansion terms are then efficiently implemented by exactly solving some backward inductions via closed form fourier transforms where a substantial extension of the hilbert transform method of feng and linetsky 2008a 2009 plays an important role the efficiency of our method is illustrated through some representative examples as applications we analyze the impacts of various model parameters on the optimal early exercise boundary compare the optimal early exercise boundaries under different models and propose a derivative proxy based method for practically exercising american options under models with stochastic volatility and jumps

time changed levy processes and option pricing abstract the classic black scholes option pricing model assumes that returns follow brownian motion but return processes differ from this benchmark in at least three important ways first asset prices jump leading to non normal return innovations second return volatilities vary stochastically over time third returns and their volatilities are correlated often negatively for equities time changed levy processes can simultaneously address these three issues we show that our framework encompasses almost all of the models proposed in the option pricing literature and it is straightforward to select and test a particular option pricing model through the use of characteristic function technology

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

motivating innovation the effect of loss aversion on the willingness to persist we investigate the willingness of individuals to persist at exploration when confronted by prolonged periods of negative feedback we design a two dimensional maze game and run a series of randomiz

pricing discrete path dependent options under a double exponential jump diffusion model abstract we provide methodologies to price discretely monitored exotic options when the underlying evolves according to a double exponential jump diffusion process we show that discrete barrier or lookback options can be approximately priced by their continuous counterparts pricing formulae with a simple continuity correction the correction is justified theoretically via extending the corrected diffusion method of siegmund 1985 we also discuss the jump effects on the performance of this continuity correction method numerical results show that this continuity correction performs very well especially when the proportion of jump volatility to total volatility is small therefore our method is sufficiently of use for most of time

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

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

does participation in the conservation reserve program impact the economic well being of farm households this study uses u s farm household survey data to examine how participation in the conservation reserve program crp affects farm household economic well being further the study also examines the effects of crp participation on farm household consumption income and imputed savings in contrast to previous studies that assume the relationships are homogenous across the population quantile regression is used to investigate the association between crp participation across the entire distribution of farm household consumption and income empirical findings suggest that the effect of crp participation on household economic well being differs across the income and consumption distribution for households in the lower percentiles of the distribution the crp participation is associated with an increase in household consumption but a decrease in farm household income and savings in contrast farm households at the median and higher income and consumption quantiles participation in crp is associated with lower levels of household consumption and income but with higher levels of savings

a closed form garch option valuation model this paper develops a closed form option valuation formula for a spot asset whose variance follows a garch p q process that can be correlated with the returns of the spot asset it provides the first readily computed option formula for a random volatility model that can be estimated and implemented solely on the basis of observables the single lag version of this model contains heston s 1993 stochastic volatility model as a continuous time limit empirical analysis on s p500 index options shows that the out of sample valuation errors from the single lag version of the garch model are substantially lower than the ad hoc black scholes model of dumas fleming and whaley 1998 that uses a separate implied volatility for each option to fit to the smirk smile in implied volatilities the garch model remains superior even though the parameters of the garch model are held constant and volatility is filtered from the history of asset prices while the ad hoc black scholes model is updated every period the improvement is largely due to the ability of the garch model to simultaneously capture the correlation of volatility with spot returns and the path dependence in volatility article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

separating the signal from the noise financial machine learning for twitter abstract most statistical arbitrage strategies in the academic literature solely rely on price time series by contrast alternative data sources are of growing importance for professional investors we contribute to bridging this gap by assessing the price predictive value of millions of tweets on intraday returns of the s p 500 constituents from 2014 and 2015 for this purpose we design a machine learning system addressing specific challenges inherent to this task at first building on the literature of financial dictionaries we engineer domain specific features along three categories i e directional indicators relevance indicators and meta features next we leverage a random forest to extract the relationship between these features and subsequent stock returns in a low signal to noise setting for performance evaluation we run a rigorous event based backtesting study across all tweets and stocks we find annualized returns of 6 4 percent and a sharpe ratio of 2 2 after transaction costs finally we illuminate the machine learning black box and unveil sources of profitability first results are both driven and limited by the temporal clustering of tweets i e the majority of profits stem from tweets clustered closely together in time corresponding to high event situations second the importance of included features follows an economic rationale e g tweets with positive sentiment tend to yield positive returns and vice versa third we find that stocks of medium market capitalization and from the consumer and technology sectors contribute most to our results which we interpret as a trade off between tweet coverage and tweet relevance

do illiquid stocks jump more frequently we study the influence of stock liquidity on the stock price jump frequency using intraday data of 175 us stocks during 2007 11 grouping these stocks according to their average liquidity we find l

using loss aversion to incentivize energy efficiency in a principal agent context evidence from a field experiment abstract promoting energy efficient behavior of agents in a principal agent context simultaneously decreases costs for firms and mitigates co2 emissions along this line we analyze the effect of incentive framing on energy efficient driving behavior our results contribute to the understanding of the drawbacks of loss framing in a situation with persistent labor market relations an extremely low bonus and heterogeneous prior performance the introduction of a bonus framed as a gain outperforms that of a bonus framed as a loss

on pricing and hedging options in regime switching models with feedback effect abstract we study the pricing and hedging of european style derivative securities in a markov regime switching model with a feedback effect depending on the economic condition we adopt a pricing kernel which prices both financial and economic risks explicitly in a dynamically incomplete market and we provide an equilibrium analysis a martingale representation for a european style index option s price is established based on the price kernel the martingale representation is then used to construct the local risk minimizing strategy explicitly and to characterize the corresponding pricing measure

transparency and reciprocal behavior in employment relations abstract the impact of transparency on the extent of reciprocal behavior is investigated in a simple repeated gift exchange experiment where principals set wages and agents respond by choosing effort levels that with a random component determine principals payoff it is shown that direct reciprocal behavior is much stronger in a more transparent situation where efforts are revealed to the principals however there is no significant impact of transparency on average effort as non transparency leads to a stronger diversity in behavioral patterns such that at the same time the frequency of very low and very large effort levels increases

a jump diffusion model for option pricing brownian motion and normal distribution have been widely used in the black scholes option pricing framework to model the return of assets however two puzzles emerge from many empirical investigations the leptokurtic feature that the return distribution of assets may have a higher peak and two asymmetric heavier tails than those of the normal distribution and an empirical phenomenon called volatility smile in option markets to incorporate both of them and to strike a balance between reality and tractability this paper proposes for the purpose of option pricing a double exponential jump diffusion model in particular the model is simple enough to produce analytical solutions for a variety of option pricing problems including call and put options interest rate derivatives and path dependent options equilibrium analysis and a psychological interpretation of the model are also presented

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

framing of incentives and effort provision a prospect theory model combining loss aversion and diminishing sensitivity predicts that the link between incentives framing and effort is ambiguous small penalties yield higher effort but isomorphic contracts with large penalties decrease effort we conduct two experiments a framed field and a conventional lab experiment in which economically equivalent contracts are framed as menus of either i bonuses ii penalties or iii bonuses and penalties the experimental results confirm the main intuition of the model as subjects performed best when bonuses and penalties are combined a follow up lottery experiment confirms that both loss aversion and diminishing sensitivity influenced the performance

dampened power law reconciling the tail behavior of financial security returns this article proposes a stylized model that reconciles several seemingly conflicting findings on financial security returns and option prices the model is based on a pure jump levy process wherein the jump arrival rate obeys a power law dampened by an exponential function the model allows for different degrees of dampening for positive and negative jumps and also for different pricing for upside and downside market risks calibration of the model to the s p 500 index shows that the market charges only a moderate premium on upward index movements but the maximally allowable premium on downward index movements

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

an empirical comparison of continuous time models of implied volatility indices abstract we explore the ability of alternative popular continuous time diffusion and jump diffusion processes to capture the dynamics of implied volatility indices over time the performance of the various models is assessed under both econometric and financial metrics to this end data are employed from major european and american implied volatility indices and the rapidly growing cboe volatility futures market we find that the addition of jumps is necessary to capture the evolution of implied volatility indices under both metrics mean reversion is of second order importance though the results are consistent across the various metrics markets and construction methodologies

crowding out in the labor market a prosocial setting is necessary recent studies mostly from prosocial settings suggest that monetary rewards may crowd out effort exertion by economic agents we design a field experiment with data entry workers to investigate the extent of such crowding out effects in a labor market using simple variations in the job description of a task we induce a natural work setting under the work frame and emphasize social preference under the social frame we find that crowding out of labor participation critically depends on framing whereas small monetary rewards reduce the participation rate under the social frame the participation rate is nondecreasing in the wage rate under the work frame moreover among the workers who participate in the task those who receive a positive wage perform a considerably higher amount of work than those who are paid zero wage under either frame thus there is weak evidence of crowding out only when the task is explicitly given a prosocial flavor and not under a regular work setting furthermore emphasizing social preference in the labor market in such a way reduces the overall labor supply and seems to have an adverse effect on the quality of work data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1807 this paper was accepted by john list behavioral economics

the pricing of tail risk and the equity premium evidence from international option markets we explore the pricing of tail risk as manifest in index options across international equity markets the risk premium associated with negative tail events displays persistent shifts unrelated to

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

framing manipulations in contests a natural field experiment abstract exploiting findings that losses loom larger than gains studies have shown that framing manipulations can increase productivity of workers using a natural field experiment that exogenously manipulates wage bonuses within contests in a chinese high tech manufacturing facility we show that how loss aversion affects worker behavior critically depends on the incentive scheme as well as the framing manipulation four sets of two identical teams competed against each other to win a bonus given to the team within a set with the higher average hourly productivity over the week in each set the bonus was framed as a reward or gain for one team and as a punishment or loss for the other average weekly productivity was slightly higher under the loss treatment but this increase was statistically insignificant however the team under the loss treatment was at least 35 more likely to win the contest as teams payoffs are based on relative productivity under a contest framing effect is much stronger in terms of relative productivity finally workers seemingly responded to the bonus by increasing the quality of production as well as quantity defect rate fell as productivity increased

another look at decoupling additional evidence on the production effects of direct payments an important shift in u s agricultural policy occurred with the 1996 federal agriculture improvement and reform fair act although the actual intent and effects of the act remain a topic of debate many observers believed that the 1996 legislation signaled a transition toward a new policy environment characterized by diminished government involvement in agricultural markets perhaps the biggest change in policy under the act pertained to the use of fixed decoupled payments called production flexibility contract or agricultural market transition act amta payments under the terms of the fair act amta payments were intended to decline each year until the fair act expired in 2002 however periods of low prices and localized yield shortfalls during the late 1990s led congress to pass supplemental ad hoc payments to farmers these payments known as market loss assistance were also decoupled since they were paid on the basis of historical base acreage and thus carried no current production requirements these payments were however tied to market prices in that they were a response to poor market conditions

general equilibrium pricing of options on the market portfolio with discontinuous returns when the price process for a long lived asset is of a mixed jump diffusion type pricing of options on that asset by arbitrage is not possible if trading is allowed only in the underlaying asset and a risk less bond using a general equilibrium framework we derive and analyze option prices when the underlying asset is the market portfolio with discontinuous returns the premium for the risk of jumps and the diffusion risks forms a significant part of the prices of the options in this economy an attempted replication of call and put options by the black scholes type of trading strategies may require substantial infusion of funds when jumps occur we study the cost and risk implications of such dynamic hedging plans article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a discontinuous mispricing model under asymmetric information we study a discontinuous mispricing model of a risky asset under asymmetric information where jumps in the asset price and mispricing are modelled by levy processes by contracting the filtration of the informed investor we obtain optimal portfolios and maximum expected utilities for the informed and uninformed investors we also discuss their asymptotic properties which can be estimated using the instantaneous centralized moments of return we find that optimal and asymptotic utilities are increased due to jumps in mispricing for the uninformed investor but the informed investor still has excess utility provided there is not too little or too much mispricing