models for referendum data the structure of discrete choice models for contingent valuation abstract in 1979 bishop and heberlein introduced an appealing variant of the contingent valuation method which required only yes or no responses hanemann developed a utility theoretic interpretation of the yes no responses which has helped popularize the approach recently cameron has offered another interpretation also utility theoretic which she argues is more general than the hanemann random utility model this paper compares the deterministic models suggested by hanemann and cameron showing them to be dual to each other it shows that correct specification of either function must exclude endogenous variables such as quantity demanded it also demonstrates that using utility theoretic models allows one to compare travel cost models and contigent valuation models on the basis of their implied behavior not on the unobservable surplus or variation measure

the returns and forecasting ability of large traders in the frozen pork bellies futures market using settlement prices and nine years of daily commitments for large reporting traders in the frozen pork bellies futures market the authors find that these traders generate significant profits and the distribution of trader returns over time is not random further analysis finds that a subset of large elite traders possesses significant forecasting ability indicating that they not only are able to consistently anticipate the direction of price changes but are also on the right side of the market when large price changes occur hence certain futures market traders accumulate trading experience and knowledge permitting them to accrue considerable wealth copyright 1994 by university of chicago press

the performance of agricultural market advisory services in corn and soybeans the purpose of this article is to evaluate the performance of market advisory services for the 1995 2003 corn and soybean crops a new database from the agricultural market advisory services agmas project is used in the evaluation this database should not be subject to survivorship and hindsight biases overall the results provide little evidence that advisory services as a group outperform market benchmarks particularly after considering risk the evidence is more positive versus the farmer benchmarks even after taking risk into account results also suggest that it is difficult to predict the pricing performance of advisory services across crop years

the valuation of floating rate instruments abstract a framework for valuing floating rate notes is developed to examine the effects of 1 lags in the coupon formula 2 special contractual features and 3 default risk evidence from a sample of floaters indicates they sold at significant discounts while lags in the coupon formulas and other contractual features make these notes more variable they do not account for the magnitude of the discounts we conclude that the fixed default premium in the coupon formula of a typical note is inadequate to compensate for time varying default premiums demanded by investors who treat other corporate short term paper as close substitutes

dynamic conversion behavior at e commerce sites this paper develops a model of conversion behavior i e converting store visits into purchases that predicts each customer s probability of purchasing based on an observed history of visits and purchases we offer an individual level probability model that allows for different forms of customer heterogeneity in a very flexible manner specifically we decompose an individual s conversion behavior into two components one for accumulating visit effects and another for purchasing threshold effects each component is allowed to vary across households as well as over time visit effects capture the notion that store visits can play different roles in the purchasing process for example some visits are motivated by planned purchases while others are associated with hedonic browsing akin to window shopping our model is able to accommodate these and several other types of visit purchase relationships in a logical parsimonious manner thepurchasing threshold captures the psychological resistance to online purchasing that may grow or shrink as a customer gains more experience with the purchasing process at a given website we test different versions of the model that vary in the complexity of these two key components and also compare our general framework with popular alternatives such as logistic regression we find that the proposed model offers excellent statistical properties including its performance in a holdout validation sample and also provides useful managerial diagnostics about the patterns underlying online buyer behavior

a probabilistic choice model for market segmentation and elasticity structure marketing scholars commonly characterize market structure by studying the patterns of substitution implied by brand switching though the approach is useful it typically ignores the destabilizing

returns to individual traders of futures aggregate results by means of a data set previously unavailable for academic research actual trading histories of individual futures traders are examined with this more detailed data the author is able to 1 test the risk return hypothesis directly 2 include a much larger segment of the market than before and 3 use actual instead of hypothetical t rading strategies it is shown that the commercial hedging traders are most profitable while noncommercial speculative traders earn n egative or zero profits because speculators are not receiving reward s for the risks they willingly absorb the theory of normal backwarda tion and its extension can be rejected copyright 1987 by university of chicago press

toward a positive economic theory of hedging the hedging models developed over the last half century are evaluated for their ability to explain the actual hedging behavior of the various economic agents this evaluation shows a total lack of a reasonable positive model of hedging behavior while each class of existing models predicts some observed behavior none is able to predict the broad range of actions that is easily observed in the real world in this paper i develop such a model and include a plausible and coldly rational economic explanation for why farmers don t hedge at all while merchandisers with identical risk attitudes will fully hedge

digital piracy a competitive analysis in recent years the issue of copyright protection for intellectual properties such as computer software music cds and videos has become increasingly important it is often claimed that illegal copying of intellectual property costs companies billions of dollars in lost revenues and reduces firms incentives to innovate some researchers have shown that copying can be beneficial to firms when there are strong network effects and copying expands the market in this paper we first examine the impact of illegal copying of software and other similar intellectual properties on firms prices profits and quality choices even when there are no network effects and the market is saturated we show that contrary to the claims of manufacturers there are conditions under which copying can increase firms profits lead to better quality products and increase social welfare this is because weaker copyright protection enables firms to reduce price competition by allowing price sensitive consumers to copy thus weaker copyright protection can serve as a coordination device to reduce price competition we also examine how equilibrium copyright enforcement is affected by network externalities in contrast to previous research we show that strong network effects can sometimes lead to a firm choosing higher levels of copyright protection our results show that in the presence of strong network effects stronger copyright enforcement by one firm can serve as a coordinating device to reduce price competition

the relative termination experience of adjustable to fixed rate mortgages our study uses a multinomial logit model to analyze the concurrent termination experience of adjustable rate and fixed rate mortgages a new set of arm specific interactive determinants expands the conventional frm specification to isolate the unique termination behavior of arms we find that expected rate adjustments and large lifetime caps are positively related to arm termination probabilities while long adjustment frequencies are inversely related caps both periodic and lifetime have a secondary inverse effect on termination probabilities when interest rate movements exceed cap limits the model also shows that interest rate expectations affect frm terminations more strongly than arm terminations in september 1981 commitment rates on fixed rate mortgages frms peaked at 18 after a 3 year 850 basis point rise lenders encumbered with losses from devalued frm portfolios faced insolvency while mortgage applicants constrained by large payment burdens contended with disqualification adjustable rate mortgages arms emerged as a solution to both problems the adjusting note rate allowed lenders to hedge their portfolios against rising interest rates and the discounting of initial arm rates kept household payment ratios within underwriting guidelines the benefit of arms remains questionable however because of the uncertainty surrounding their future payment streams in particular the shift of interest rate risk to borrowers may result in higher default and prepayment risks to lenders uncertainty is further compounded by nonstandard contracts for buydown terms period caps life caps indexes and adjustment periods originators and insurers of arms as well as investors in the emerging market for arm backed securities need arm specific methods for evaluating the cashflow risks of these unique instruments in this paper we address these issues by examining the concurrent default and prepayment experience of arms

valuation of adjustable rate mortgages with automatic stretching maturity abstract in hong kong 35 of residential mortgage loans are adjustable rate mortgages with variable tenor vrt that is with a change in interest rates the loan adjusts its maturity and principal payment such that the monthly installment remains the same in other words instead of bearing a volatility on monthly payments as in a fixed tenor variable payment vrp mortgage vrt mortgagors bear interest rate risk by bearing a tenor risk in this paper we analyze the valuation of this type of mortgages and the results are compared with the conventional vrp mortgages we find vrt loans are less expensive from a borrower s perspective than vrp loans but the difference between the loans becomes less significant if a tenor cap is added to the vrt loan

subprime mortgage design abstract this paper offers evidence on the design of subprime mortgages as bridge financing products we show that the viability of subprime mortgages was uniquely predicated on the appreciation of house prices over short horizons high rates of early prepayments on subprime mortgages suggest the use of prepayments as an exit option this paper argues that high early defaults on post 2004 originations can be explained when one considers high early prepayment rates for pre 2004 originations

adjustable and fixed rate mortgages as a screening mechanism for default risk abstract this paper studies how borrowers with different levels of default risk would self select between fixed rate mortgages frms and adjustable rate mortgages arms we show that under asymmetric information where the risk type of a borrower is private information to the borrower and not known by the lender the unique equilibrium may be a separating equilibrium in which the high risk low risk borrowers choose arms frm s thus the borrower s mortgage choice will serve as a signal of default risk enabling lenders to screen high risk and low risk borrowers it is possible for the separating equilibrium to yield positive economic profits for lenders in a competitive market it is also possible to have a unique pooling equilibrium where all borrowers choose either frms or arms the model implies that an increase in the proportion of high risks will increase the likelihood of a separating equilibrium where both mortgage types are offered also a uniform downward shift in the expected change in the interest rate or an increase in borrowers current or future incomes make arms more attractive for both types of borrowers

using usda forecasts to estimate the price flexibility of demand for agricultural commodities we estimate the general equilibrium price flexibility of demand for corn and soybeans using monthly changes in expected supply published by the usda our estimates reflect the demand response to a one year supply shock and thus correspond to the inverse demand elasticity we derive the conditions under which our estimates are consistent and we show how demand flexibility varies by season inventory time horizon and demand composition at average inventory and without accounting for corn ethanol use we obtain price flexibility estimates of 1 35 and 1 03 for corn and soybeans respectively current corn ethanol production levels are associated with much larger absolute flexibilities for both commodities copyright 2012 oxford university press

returns to individual traders in agricultural futures markets skill or luck using individual trader data from the commodity futures trading commission s cftc large trader reporting system ltrs for the period january 2000 to september 2009 this article investigates whether noncommercial traders in the corn live cattle and coffee futures markets persist in making profits two out of sample measures of skill a winner and a loser ranking test and a top and a bottom decile test are used to analyse the ability of traders to consistently perform well at monthly quarterly and annual time horizons the findings identify significant persistence in rankings traders in the top half of the profit distribution in a time period tend to stay in the top half in the next period differences in magnitude of profitability between the top and bottom deciles also provide support that persistent skill exists among the top 10 of traders detailed examination of annual rankings for those traders who were most continuously in the markets further reveals persistence in profits for a smaller s

a generalized valuation model for fixed rate residential mortgages this paper uses option pricing techniques to rationally price mortgage instruments subject to both default and prepayment risk attention is given to terminations due to purely financial consideration of the mortgage contract itself as well as to personally induced terminations explicit inclusion of default in the mortgage valuation procedure also permits the valuation of insurance against such default qualitatively it is found that default differs significantly in the behavior from either prepayment or nonfinancial termination quantitatively however there is significant substitution between prepayment and default so that the addition of a default feature to the contract has only a modest impact on mortgage values unless there is substantial price volatility in the housing market or a high loan to value ratio copyright 1992 by ohio state university press

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

a probabilistic approach to pricing a bundle of products or services the authors propose a probabilistic approach to optimally price a bundle of products or services that maximizes seller s profits their focus is on situations in which consumer decision making is o

professionally managed publicly traded commodity funds investment in professionally managed publicly traded commodity funds has grown rapidly in recent years this is the first comprehensive study of the performance of these funds it is found that randomly selected funds offer neither an attractive alternative to bonds nor a profitable addition to a portfolio of stocks and bonds furthermore past performance of these funds offers very little information about future performance the findings may be explained by the large transactions costs incurred by these funds and their primary reliance on technical analysis copyright 1987 by the university of chicago

a reservation price model for optimal pricing of multiattribute products in conjoint analysis a significant application of conjoint analysis is in pricing decisions for new products conceptually profit maximization is an important criterion for selecting the price of a product however t

optimal bundling and pricing under a monopoly contrasting complements and substitutes from independently valued products we develop an analytical model of contingent valuations and address two questions of import to a monopolist i should a given pair of complements or substitutes be sold separately pure components together pure bundling or both mixed bundling and at what prices ii how do optimal bundling and pricing strategies for complements and substitutes differ from those for independently valued products we find that the combination of marginal cost levels and the degree of complementarity or substitutability determines which of the three bundling strategies is optimal complements and substitutes should typically be priced higher than independently valued products

interday variations in volume variance and participation of large speculators abstract we use data uniquely available from the commodity futures trading commission cftc to document the intraweek trading patterns of large speculators in five futures markets these markets include futures traded against the standard and poor s 500 stock index treasury bonds gold corn and soybeans we also examine the influence of large speculator trades on the patterns of volume and volatility for the contracts in our sample though we detect the familiar u shaped and inverted u shaped patterns across weekdays for volatility and aggregate volume the association between volume and volatility becomes stronger when we separate large speculator volume from volume associated with other traders the coefficient on large speculator volume is much larger than the coefficient on other volume in these regressions compared with total volume large speculator volume is greater on mondays than on the other days of the week in all five markets

gaussian demand and commodity bundling in an important and widely cited essay adams and yellen 1976 examine the use of package selling as a price discrimination device they consider a monopolist producing two goods with constant unit costs and facing buyers with diverse tastes the marginal utility of a second unit of either good is assumed to be zero for all buyers the two goods are independent in demand for all buyers so that any buyer s reservation price for the first unit of either good is independent of the market price of the other thus the maximum amount any buyer would pay for a bundle consisting of one unit of each good is the sum of the two reservation prices and buyers are completely described by the values of those two prices 2 resale markets are assumed away in order to obtain comparative results for alternative pricing strategies the distribution of reservation prices in the adams yellen framework is assumed to be bivariate normal implications of gaussian demand are explored pure bundling is shown to operate by reducing buyer diversity thus facilitating the capture of consumers surplus it generally makes buyers worse off than unbundled sales it is more profitable if average reservation prices are high enough mixed bundling combines advantages of both pure bundling and unbundled sales and it is generally strictly more profitable than either bundling which treats goods symmetrically seems most attractive under symmetric reservation price distributions i am indebted to severin borenstein for superb research assistance to the ford motor company for research support through a grant to m i t and to the harvard economics department for housing me as a visiting scholar while most of this research was performed of course only i can be held responsible for this essay s shortcomings 1 the first clear recognition of this possibility seems to have been by stigler 1968 but also see burstein 1960 2 paroush and peles 1981 relax the assumption that consumers purchase at most one unit of each good but they consider only two types of buyers both with linear demand functions they retain the assumption that demands are independent for all buyers telser 1979 and phillips 1981 use different frameworks to analyze bundling policies spence 1980 explores the relation between bundling across commodities as here and bundling multiple units of the same

luck versus forecast ability determinants of trader performance in futures markets statistical techniques are used to demonstrate that the fortunes of individual futures traders are determined by luck not forecast ability even though a large number of traders appear to exhibit significantly superior forecast ability the investigation strongly supports three conclusions there are fewer participants with significantly superior skill than expected if participants trade randomly there are more traders exhibiting no skill than expected if participants trade randomly and forecast ability is not correlated over time superior forecasters in the early period are only average forecasters in the later period therefore it is luck that determines trader performance copyright 1991 by university of chicago press

auction failures and the market for auction rate securities abstract the market for auction rate securities ars made headlines during the second week of february 2008 when auctions at which the bonds interest rates reset experienced a wave of failures contrary to headlines that attribute the failures to a frozen market or investors irrationality we find that 1 even at their height less than 50 of ars experienced auction failures 2 the likelihood of auction failure was directly related to the level of the bonds maximum auction rates 3 the implied market clearing yields of bonds with failed auctions were significantly above their maximum auction rates and 4 ars yields were generally higher than yields of various cash equivalent investment alternatives we infer that investors priced the possibility of auctions failures into ars yields and rationally declined to bid for bonds for which required market yields exceeded their maximum auction rates

financial speculators underperformance learning self selection and endogenous liquidity we develop an equilibrium model of learning by rational traders to reconcile several empirical regularities cross sectionally most individual speculators lose money large speculators outperform small speculators past performance positively affects subsequent trade intensity most new traders lose money and cease speculation and performance shows persistence learning from trading generates substantial endogenous liquidity reducing bid ask spreads and the impact of exogenous liquidity shocks on asset prices but amplifying the effects of real shocks introducing slightly overconfident traders increases bid ask spreads hurting all traders finally behavioral theories cannot reconcile all of these empirical regularities

rational prepayments and the valuation of collateralized mortgage obligations absteract this article presents a procedure for evaluating collateralized mortgage obligation cmo tranches the solution procedure is in the spirit of a dynamic programming problem in which an individual mortgagor s decision to prepay is the feedback control variable the mortgagor seeks to minimize the value of the mortgage subject to refinancing costs we employ a two step procedure to solve this dynamic programming problem the first step uses an implicit finite difference backward solution procedure to determine the optimal prepayment boundary for a class of mortgagors each of whom confronts the same proportional refinancing cost this step is repeated for several different classes of mortgagors that differ in the level of refinancing costs that they confront the outcome of this first step is a series of prepayment boundaries one set of boundaries for each level of refinancing costs i e one set of boundaries for each refinancing cost category of mortgagors in the second step the prepayment boundaries determined in the first step are used in conjunction with monte carlo simulation to value the cmo tranches the essence of the second step is that when the simulated interest rate hits the boundary for a particular class it triggers a prepayment scenario for that class of mortgagors we conduct extensive sensitivity analysis to determine the robustness of this approach and our solution procedure to alternative single factor models of the term structure of interest rates and to alternative specifications of the distribution of refinancing cost levels confronted by mortgagors the sensitivity analysis indicates that cmo tranche valuation is not particularly sensitive to alternative models of the term structure so long as the models are consistent with the current yield curve but even when alternative specifications of the refinancing cost categories generate nearly identical values for the collateral underlying the cmo i e the generic mortgage backed securities the resulting tranche values can differ widely between the two specifications the results point out the importance of accurate estimation of the distribution of refinancing costs when the rational valuation model is used for the analysis of cmo tranches

optimal designs for discrete choice contingent valuation surveys single bound double bound and bivariate models this paper finds the designs for discrete choice contingent valuation surveys which maximize the precision of a statistic of interest about the public s willingness to pay wtp for a change in the environmental quality such as median wtp an optimization problem is set up in which the efficiency of the estimate of median wtp or a related concept is the objective function to optimize with respect to the survey design i e the set of bids offered to the respondents in deriving the optimal designs we consider alternative econometric models such as the basic single bound model that uses the responses to the first payment question the traditional interval data or double bound model for surveys with a follow up payment question and the recently proposed bivariate binary response model simulations are carried out to compare the alternative design principles and assess their performances with respect to the statistic of primary interest median wtp and other welfare measures such as mean wtp other designs that are constructed ad hoc are also examined

heuristics for pricing and positioning a product line using conjoint and cost data designing and pricing a product line is the very essence of every business in recent years quantitative methods to assist managers in this task have been gaining in popularity conjoint analysis is already widely used to measure preferences for different product profiles and build market simulation models in the last few years several papers have been published that suggest how to optimally choose a product line based on such data we formalize this problem as a mathematical program where the objective of the firm is either profit or total welfare unlike alternative published approaches we introduce fixed and variable costs for each product profile the number of products to be introduced is endogenously determined on the basis of their desirability fixed and variable costs and in the case of profits their cannibalization effect on other products while the problem is difficult np complete we show that the maximum welfare problem is equivalent to the uncapacitated plant location problem which can be solved very efficiently using the greedy interchange heuristic based on past published experience with this problem and on simulations we perform we show that optimal or near optimal solutions are obtained in seconds for large problems we develop a new greedy heuristic for the profit problem and its application to simulated problems shows that it too runs quickly and with better performance than various alternatives and previously published heuristics we also show how the methodology can be applied taking existing products of both the firm and the competition into account

what motivates a subprime borrower to default this paper uses a real options approach to analyse the exercise of the default option embedded in mortgages in particular it examines a subprime household who borrows at a premium but hopes to refinance at prime rates if their house appreciates we show how these optimal default decisions can be used to calculate probabilities of default an important input for risk management and pricing purposes numerical examples are provided calibrated to us data in a low interest rate environment the credit upgrade potential may discourage subprime borrowers from defaulting however default probabilities are highly sensitive to changes in interest rates and house prices this provides a rational explanation for the prevalence of adjustable rate mortgages among subprime borrowers and the subsequent large numbers of defaults when interest rates rose and house prices declined

survivorship bias and attrition effects in measures of performance persistence we simulate standard tests of performance persistence using alternative returngenerating processes survival criteria and test methodologies when survival depends on performance over several periods survivorship bias induces spurious reversals despite the presence of cross sectional heteroskedasticity in performance look ahead biased methodologies and missing nal returns typical of u s mutual fund datasets can also materially a ect persistence measures our results reinforce previous ndings that u s mutual fund performance is truly persistent when fund performance is truly persistent fund attrition a ects persistence measures even when the sample includes all nonsurvivor returns we also examine the speci cation and power of the various persistence tests 1999 elsevier science s a all rights reserved

optimal product line pricing the influence of elasticities and cross elasticities the authors focus on the determination of optimal prices for products in a product line most firms offer more than a single brand and ultimately are concerned with the overall results of the enti

optimal hedging with a subjective view an empirical bayesian approach the standard optimal hedging model has been the preferred theoretical model of normative hedging behavior in empirical applications the model is often implemented with the parameter certainty equivalent pce procedure however the pce procedure completely ignores parameter estimation risk and subjective views we develop an empirical bayesian optimal hedging model that not only effectively accommodates parameter estimation risk but also provides hedgers with a theoretically intuitive yet quantitatively rigorous framework to blend their subjective views and a marketwide or firmwide consensus in determining optimal hedging positions ratios

are corn futures prices getting jumpy the article sheds light on price jump risk in corn futures prices in the era of electronic trading and after the shift to real time announcement of usda reports using intraday prices from 2008 to 2015 we employ a nonparametric test to detect jumps and variance analysis to assess the relative importance of jump risk real time trading of major usda reports has substantially increased the frequency and clustering of price jumps and results in higher market liquidity costs in contrast although the presence of jumps on non announcement days has doubled recently their magnitude has declined as have transactions costs during their occurrence the largest jump risk or execution risk is experienced by high frequency traders due to heightened microstructure noise during price jumps however traders holding long term market positions are only minimally affected by increased jump risk

option theory and floating rate securities with a comparison of adjustable and fixed rate mortgages this article demonstrates how to value floating rate securities in particular adjustable rate mortgages in the presence of default the problem is not a straightforward one since endogenous termination default and prepayment necessitates solution by backward procedures but caps on the floating rate then create path dependencies the solution is to introduce an artificial state variable the past contract rate in addition to the natural stochastic variables the interest and the house price process with this technique a numerical investigation of the properties of defaultable adjustable rate mortgages is provided in all cases a comparison is made with standard fixed rate mortgages coauthors are donald c keenan walter j muller iii and james f epperson copyright 1993 by university of chicago press

practice prize winner pricing digital content product lines a model and application for the national academies press we examine the problem of how a content provider specifically the national academies press nap can optimally price the different forms of its product print and pdf that it sells online whereas products in the traditional product line generally tend to be substitutes the different content product forms could range from being substitutes to being complements across customers thus the content provider can possibly sell bundles of the product forms leading to additional revenue we first discuss nap s decision context and describe the model we proposed for developing nap s optimal pricing policies for its different forms we describe the choice experiment we conducted on the publisher s website that maximally uses the online interface to collect relevant data needed to estimate our model we show how nap embraced the results from the model for developing a new business model and how it used the insights derived from the study to set pricing policies and monitor sales performance as a function of pricing finally we perform validation of the model and the implemented policies using dynamic modeling of sales data from nap s website the paper illustrates how e commerce technologies can lead to the development of optimal policies using marketing models

a general choice model for bundles with multiple category products application to market segmentation and optimal pricing for bundles abstract the attribute based approach to study customer choices cannot deal with bundles of heterogeneous components which are usually drawn from different product categories the authors develop the comparability based balance model which is a unified framework for modeling bundle choices the model can be employed for any bundle regardless of the heterogeneity of bundle components under a pure bundling strategy the conjoint model and balance model are special cases of the general model the authors use mixture distributions in a hierarchical bayesian framework to incorporate consumer heterogeneity in a more flexible manner than the extant approaches such as latent class and random coefficient models the empirical tests of the model show that most attribute effects are significant and consistent with the model s predictions the model is superior to those that do not consider the issues of comparability of attributes latent class structure and heterogeneity among respondents the authors show how

the pricing of multiclass commercial mortgage backed securities this paper considers the pricing of multiclass commercial mortgage backed securities a contingent claims pricing methodology that overcomes state variable dimensionality problems is developed to examine mortgage pools with many distinct underlying assets and whose loan cash flow values are subject to interest rate uncertainty security structure and the correlation structure of collateralizing assets within a pool are found to be important determinants of tranche price and required yield spread by disentangling default loss risk from default related call risk we show it is possible that mezzanine investment classes may require lower yield spreads than higher priority investment classes of particular interest is the finding that reduced cash flow volatility obtained through pool diversification may actually decrease the value of the first loss junior tranche when examining the relationship of pool size and tranche value we find that five to 10 distinct mortgages are required to realize most of the effects of asset diversification

time varying risk premium further evidence in agricultural futures markets research has provided mixed results regarding the presence of a time varying risk premium in agricultural futures markets in this article we test for the presence of a time varying risk premium focusing on the properties of the underlying data our results show that accounting for the structural break in the 1970s plays a key role in the findings in contrast to recent research we find only limited evidence of time varying risk premium for a two month horizon the corn soybean meal and hog markets show no signs of a risk premium while very weak support for a time varying premium emerges in live cattle for the four month horizon no evidence of a time varying risk premium appears for any of the markets