cost benefit assessment of energy efficiency investments accounting for future resources savings and risks in the australian residential sector this article focuses on the impact of the discount rate on cost benefit assessment of investment options for residential building efficiency an integrated thermal modeling life cycle costing approach is applied to an extensive sample of dominant house designs for australian conditions the relative significance of predicted thermal performance and the applied discount rate on the present value of energy savings from alternative investment scenarios is investigated costs and benefits are also evaluated at the economy wide scale including carbon pricing considerations and for a test case household faced with alternative investment options at the point of construction the influence of the applied discount rate on produced cost benefit calculations is investigated as is the interaction between critical cost benefit input parameters findings support that the discounting framework is the primary driver of difference in estimates about costs and benefits of higher standards of efficiency in the residential sector results demonstrate that agreement on a low discount rate based on sustainability principals would prioritise those projects with significant environmental benefits

discounting in a world of limited growth this paper explores the consequences fordiscounting of assuming limits to growth one of the main determinants of the discount rate is the rate of economic growth if growth rates decline in the future then the discount rate should not be constant but also decline over time in fact we would then need not a single discount rate but rather a variable discount schedule this would imply higher present values for the distant future the paper analyses how discount rates would vary with different assumptions about the patterns of growth and the pure rate of time preference

environmental significance of development theory abstract after briefly summarizing the reason for concluding that conventional development has been a failure and analysing the central mechanisms responsible this paper outlines some of the main ways in which this approach has led to serious environmental impacts it is argued that an approach to development based on market forces and growth maximisation is one of the most significant causes of global ecological destruction appropriate and ecologically sustainable development require a shift to principles of development which focus on local economic self sufficiency independence from global economic forces and the abandonment of rich world living standards as the goal of development

the valuation of options on yields abstract many contingent claims incorporate options on yield levels i derive closed form expressions for european yield option prices using a general equilibrium model in which the underlying yield is the relevant state variable the properties of these options differ markedly from those of conventional options on traded assets for example yield call values can be less than their intrinsic value and can be decreasing functions of the underlying yield these features have important hedging implications i examine the empirical implications of the model using price data for the 13 week t bill options traded on the chicago board options exchange

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

reconciling sustainability and discounting in cost benefit analysis a methodological proposal abstract the incorporation of the intergenerational equity objective has rendered the traditional cost benefit analysis cba approach obsolete for the evaluation of projects presenting an important number of environmental externalities and for those whose impacts extend throughout a long period of time based on the assumption that applying a discount rate rewards current consumption and therefore that it is only possible to introduce a certain intergenerational equity in a cost benefit analysis in this work we propose an approach to discounting based on a different rationale for tangible and intangible effects we designed two indicators of environmental profitability a the intergenerational transfer amount ita which quantifies in monetary units what the current generation is willing to pass on future generations when an environmental restoration project is carried out and b the critical environmental rate cer measures the implicit environmental profitability these concepts were tested through an empirical case study pertaining to the assessment of an erosion control project in the southeast of spain the results yield traditional profitability indicators that are higher and probably closer to the real values set by the contemporary society the information provided by the environmental profitability indicators proposed renders more transparency to the quantification of the levels of intergenerational equity applied thereby facilitating the difficult reconciliation of the cba technique with the objective of sustainability

system optimization for eco design by using monetization of environmental impacts a strategy to convert bi objective to single objective problems abstract eco design is an essential way to reduce the environmental impacts and economic cost of processes and systems as well as products until now the majority of eco design approaches have employed multi objective optimization methods to balance between environmental and economic performances however the methods have limitations because multi objective optimization requires decision makers to subjectively assign weighting factors for objectives i e environmental impacts and economic cost this implies that depending on decision makers preference and knowledge different design solutions can be engendered for the same design problem thus this study proposes an eco design method which can generate a single design solution by developing mathematical optimization models with a single objective function for environmental impacts and economic cost for the formulation of the single objective function environmental impacts are monetized to external cost by using the environmental priority strategies this enables the tradeoffs between environmental impacts and economic cost in the same unit i e monetary unit as a case study the proposed method is applied to the eco design of a water reuse system in an industrial plant this study can contribute to improving the eco efficiency of various products processes and systems

environmental resource planning under cap and trade models for optimization abstract under the conditions of a cap and trade c t program manufacturers are restricted in total greenhouse gas emissions but allowed with options to acquire and dispose environmental resource e g certified emission quota ceq or commercialized permit for emission of certain pollutant via a market system or conduct self purification sp to reduce emission level to satisfy their overall emission needs due to production or service activities this paper analyzes the operational decisions of production systems under cap and trade conditions in which the problem is modeled as a multi stage dynamic optimization problem for each planning period the model specifically addresses the decisions on purchasing ceq reducing emission via sp and carrying over surplus emission quota seq to meet the required emission level driven by production demand for the period it also makes sure that the sum of reduced emission over the whole planning horizon meets exactly a goal of emission reduction specified at the manufacturers discretion other important problem characteristics addressed include the unit cost for reducing emission level via sp to reflect the fact that the cost increases as accumulated emission reduction increases i e the more reduced the more difficult to reduce and time related cost associated with green investment for emission reduction e g interest cost of short term loans these characteristics make the model and related analysis useful for both practitioners and researchers in this area numerical experiments were designed and carried out to verify and validate the proposed concepts

the damage costs of climate change a note on tangibles and intangibles applied to dice economic cost benefit analysis of the costs of greenhouse gas emission abatement and climate change often points towards limited abatement this note elucidates one reason why this result is obtained the way in which the intangible damages are treated and the utility function is specified on the basis of the dice model it is shown that by putting the intangible damages directly into the utility function and by assuming them to grow with per capita income the optimal reduction increases and in the second case more than triples compared to nordhaus s original results

a damped diffusion framework for financial modeling and closed form maximum likelihood estimation abstract asset price bubbles can arise unintentionally when one uses continuous time diffusion processes to model financial quantities we propose a flexible damped diffusion framework that is able to break many types of bubbles and preserve the martingale pricing approach damping can be done on either the diffusion or drift function oftentimes certain solutions to the valuation pde can be ruled out by requiring the solution to be a limit of martingale prices for damped diffusion models monte carlo study shows that with finite time series length maximum likelihood estimation often fails to detect the damped diffusion function while fabricates nonlinear drift function an alternative method based on ait sahalia s specification test on parametric models is proposed

economics of sustainability or the sustainability of economics different paradigms this article reviews different views of neo classical and ecological economics on the sustainability of economic growth and welfare neo classical economics concludes that due to substitution and technical progress consumption can be sustained even if production depends on a natural resource that is being depleted if production depends on an essential renewable resource there is a level of consumption that can be sustained forever pollution lowers the level of consumption that can be sustained if production depends on an exhaustible resource recycling of waste is insufficient for sustaining consumption unless 100 recycling is possible sustainable economic development is possible if the resource growth potential exceeds the sum of the discount rate minus the rate of exogenous technical progress and if resource productivity is sufficiently high in addition intial levels of environmental quality a composite of pollution and natural resources and man made capital influence the possibilities for sustainable economic development if the resource stock itself affects utility or if irreversibilities occur optimal consumption and extraction are lowered ecological economics states that substitution possibilities are restricted full recycling of waste is impossible and the limited influx of solar energy poses an additional constraint on the level of production that can be sustained since the functions of the environment production factor consumer good and waste sink are intertwined this life support function poses a restriction on economic growth as well in ecological economics development is viewed as an evolutionary process with continuous feedbacks between a changing economy and environment welfare is not merely the sum of discounted individual preferences but requires environmental compatibility and the explicit collective formulation of policies regarding the conservation of species ecosystems and natural resources

valuing the future recent advances in social discounting the perplexing issue of discounting prescriptive economics requires that unless there are very good reasons to the contrary economic policy should be based on the principle that individuals preferences should count indeed the entire body of welfare economics centres round the formal identity of the statement x prefers a to b and the statement x has higher welfare in a rather than b this combination of a seemingly innocuous and democratic value judgement preferences should count and a formal definition about the meaning of welfare improvement involves many complications the entire history of policy analysis focuses on those complications whose preferences should count over what time period what constitutes a legitimate attenuation of the basic value judgement one of the problem areas concerns timediscounting the process whereby society places a lower value on a future gain or loss than on the same gain or loss occurring now the rationale for time discounting follows logically from the basic value judgement of welfare economics if people s preferences count and if people prefer now to the future those preferences must be integrated into social policy formulation time discounting is thus universal in economic analysis but it remains as it always has controversial the controversy has a parallel in another form of discounting spatial discounting when translated into economic terms the ethical principle

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

displaced diffusion option pricing this paper develops a new option pricing formula that pushes the underlying source of risk back to the risk of individual assets of the firm the formula simultaneously encompasses differential riskiness of the assets of the firm their relative weights in determining the value of the firm the effects of firm debt and the effects of a dividend policy with both constant and random components although this setting considerably generalizes the black scholes 1 analysis it nonetheless produces a formula via riskless arbitrage arguments that given estimated inputs is as easy to use as the black scholes formula

a decade s debate on the nexus between corporate social and corporate financial performance a critical review of empirical studies 2002 2011 abstract theoretical discussions and empirical studies on the nexus between corporate social responsibility corporate social performance and corporate financial performance have never ceased since the origin of the concepts the development trajectories of such studies should be articulated with a view to informing practical corporate social responsibility applications and theoretical studies in the future this paper presents a critical review of relevant empirical research articles on the nexus between corporate social performance and corporate financial performance published during the ten year period from 2002 to 2011 using mixed methods of content analyses and statistical analyses the paper reviews 84 empirical studies of this kind published during the period the results indicate that despite the enormous amount of previous studies the corporate social performance and corporate financial performance nexus is a line of inquiry that remains inconclusive the pattern of corporate social performance corporate financial performance relationship research in the decade examined has shifted towards exploring the linkages between specific aspects of the two constructs the positive relationships between these specific aspects in dual directions are confirmed by most of the studies examined in this paper the paper also examines the impact of time and space change on the corporate social performance corporate financial performance nexus the findings show that researchers have gradually recognized that the relationship is not static but changes over time furthermore the paper finds that corporate social responsibility has been increasingly debated in developing countries and in specified industrial settings the review concludes that to explore the corporate social performance corporate financial performance nexus by contextualizing it in a specified community and or examine its dynamics is a promising research area that can yield significant academic and practical values

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

synthesis of environmentally benign energy self sufficient processes under uncertainty abstract this contribution presents a multi objective mixed integer linear programming milp synthesis of a dynamic supply network under uncertainty applied to food industry the previously developed multi objective model for achieving energy self sufficiency by integrating renewables into companies supply networks has now been extended to account for the dynamic consideration of variable supply and demand over the year for uncertainties related to products demand and sun radiation and for multi objective optimisation in order to obtain the most sustainable company s supply network the sustainable synthesis of a company s network is performed regarding the integration of renewables such as biomass and other wastes and solar energy the obtained solutions are those reflecting maximal profit reflecting constantly changing dynamic market conditions accounting for several uncertain parameters and protecting the environment

the new approach to wilderness preservation through benefit cost analysis over the last 15 years economists of resources for the future led by john krutilla have been developing a new approach to wilderness preservation this paper offers a concise exposition of their approach and adds a few new steps the basic ingredient of the new approach is a perception of declining net benefits of wilderness development and rising net benefits of wilderness preservation over time these alter the entire shape of the benefit cost analysis of potential development the new steps involve reversibility postponability and recognition of multiple interest rates

the environment and the ethics of discounting an empirical analysis abstract this paper examines the application of discount rates by individuals and by governments when they make decisions about environmental resource use the paper is presented in the context of ethics as determined by what is good and also by what is right for society since in this instance there appears to be no conflict between the two perspectives in addition the paper assesses whether ethical considerations are included in decision making frameworks at the individual and community levels consistency of discount rate applications between individuals and governments is also investigated since consistency is an element of ethical arguments empirical data from a study of soil conservation adoption by philippines upland farmers are used in the analysis individual discount rates are assessed in relation to income and poverty interest rates paid on debt purpose of borrowings land tenure income inequality and soil conservation adoption some of the results appear to be counter intuitive and reasons for this phenomenon are sought the overall results have policy implications and suggestions are made about how an ethical perspective might be developed by governments to help ensure that decision making criteria are more consistent with the practices of individuals within the communities they serve it is suggested that this approach would lead to greater intergenerational and intragenerational equity and better environmental quality

trade offs in energy and environmental policy abstract the energy sector is undeniably undergoing a critical period faced with multiple challenges whether economic political or technological these challenges are related to the requirements set on the sector to meet a wide range of social demands associated with the three traditional dimensions of a sustainable energy system i e environmental sustainability security of energy supply and economic sustainability in particular the environmental pillar has gained ground after the paris agreement which has reinforced the requirement of a low carbon transformation of the sector a main challenge is to balance trade offs among competing goals when designing energy and environmental policies although making the energy sector greener is a common aspiration of governments and many countries are indeed being successful in this regard the success comes at a price in terms of the other non environmental dimensions of a sustainable energy system the aim of this special issue is to look in detail on some of the most pressing environmental challenges faced by the energy sector as well as the trade offs involved in reaching a greener energy system

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

time preference in global warming calculations a proposal for a unified index abstract many aspects of the calculation of the impacts of greenhouse gas ghg emissions and the costs and benefits of possible response options are highly sensitive to the way in which time preference is incorporated into the computations the intergovernmental panel on climate change ipcc used global warming potentials gwps to standardize inputs of different gases with differing radiative forcings and atmospheric lifetimes in the results emphasized by the ipcc s second assessment report a 100 year time horizon and no discounting is used and this has been adopted by the kyoto protocol for use in the first commitment period 2008 2012 here an alternative unified index is proposed that assigns explicit weights to the interests of different generations in contrast to discounting including the zero discount rate used by the ipcc the generationally weighted index forces policy makers to face the moral assumptions that underlie their choices related to global warming

global warming discounting is not the issue but substitutability is the cost benefit study of nordhaus 1994 is representative for the neoclassical approach towards global warming nordhaus found that no substantial emission cuts are warranted most of his critics have concentrated on the issue of discounting and demanded that a lower discount rate should be applied these criticisms first miss the point and second lead to ethically dubious inconsistent conclusions and inefficient policy choices they miss the point because the real problem of nordhaus s methodology is his implicit underlying assumption of perfect substitutability between natural and other forms of capital given the validity of this assumption lowering the rate of discount is inconsistent with current savings behaviour is ethically dubious because future generations will be much richer than the current one anyway and is inefficient because scarce financial resources are channelled into emissions abatement that exhibits rates of return far inferior to alternative public investments any call for aggressive emission abatement must therefore directly attack the perfect substitutability assumption of neoclassical economics the real disagreement is about whether consumption growth can compensate for environmental degradation caused by global warming discounting is not the issue but substitutability is

rates of time preference for saving lives an important characteristic of many environmental programs is that their benefits extend far into the future the primary purpose of cleanups at hazardous waste disposal sites for example is often to prevent the contamination of groundwater that could pose risks to future residents at these sites such cleanups typically involve considerable capital and other costs which are incurred at the front end of the project and yield a stream of health benefits often in the form of cancer cases avoided that may not be recognized for many years this would not pose unusual problems for program evaluation if everyone were comfortable with the assignment of dollar values to these reductions in future risk see cropper and portney 1990 however regulatory agencies are sometimes reluctant to make such monetary valuations preferring instead to evaluate programs on a cost per life saved cpls basis office of management and budget 1991 this raises an interesting question should lives saved in the future be discounted for the purpose of calculating cpls or should they be counted the same as those saved tomorrow to shed light on this over the last year we have asked members of the public hypothetical questions that enable us to infer the rate at which they implicitly discount future lives saved john k horowitz and richard t carson 1990 asked similar questions of students in the remainder of this paper we summarize the results of this research details of which can be found elsewhere cropper et al 1991 1992

static hedging and pricing american knock in put options abstract this paper extends the static hedging portfolio shp approach of derman et al 1995 carr et al 1998 to price and hedge american knock in put options under the black scholes model and the constant elasticity of variance cev model we use standard european calls puts to construct the shps for american up and in down and in puts we also use theta matching condition to improve the performance of the shp approach numerical results indicate that the hedging effectiveness of a bi monthly shp is far less risky than that of a delta hedging portfolio with daily rebalance the numerical accuracy of the proposed method is comparable to the trinomial tree methods of ritchken 1995 boyle and tian 1999 furthermore the recalculation time the term is explained in section 1 of the option prices is much easier and quicker than the tree method when the stock price and or time to maturity are changed

zero discounting can compensate future generations for climate damage abstract in cost benefit analysis of climate policy there are two main approaches to discounting each with implications conflicting with our moral intuitions thus discounted utilitarianism implies that we hardly need to protect future generations against climate change while classical utilitarianism implies that we should reduce our consumption across the board to benefit future generations the insolubility of the debate derives from the fact that both classical and discounted utilitarianism permit only a single discount rate for all consequences occurring in the same future year while our intuitions clearly do distinguish between consequences depending on whether we cause adverse effects on other people s interests and violate their rights most people share the moral intuition that we ought to refrain from harming others and ought to compensate them if we were unable to prevent harm to regain a reflective equilibrium between such deontological intuitions and economic theory there is a need to accept different discount rates for different situations a zero consumption discount rate in the case of cost benefit analysis of measures to prevent wrongful harm to future generations and standard discounting in all other cases applying a zero consumption discount rate means that future generations are automatically largely compensated for climate damage that remains unmitigated

integrated ecological economic and social impact assessment of alternative flood protection measures in the netherlands abstract the main objective of this paper is to combine and integrate environmental economic and social impact assessment procedures in order to support decision making in the context of flood control policy in the netherlands the hydraulic hydrological ecological economic and social effects of alternative flood control policies such as land use change and floodplain restoration are evaluated using a combination of advanced quantitative modelling techniques and qualitative expert judgement the results from the ecological economic and social impact assessment are evaluated in an integrated way through cost benefit analysis cba and multi criteria analysis mca as expected these methods produce different outcomes although traditional flood control policy building higher and stronger dikes is a cost effective option investment in alternative flood control policy land use changes and floodplain restoration can be justified on the basis of both cba and mca when including the additional ecological and socio economic benefits in the long run the outcome of the mca appears to be especially sensitive to the inclusion of the qualitative scores for the expected social impacts of land use change and floodplain restoration an important research question remains how to assess integrate and trade off 1 significantly different types of impacts in a methodologically sound way in both cost benefit and multi criteria analysis and 2 significantly different types and quality of available knowledge and information about these impacts

intergenerational discounting a new intuitive approach abstract this paper proposes a new intergenerational discounting approach for computing net benefits from the use of environmental resources the approach explicitly incorporates the perspectives of both the current and future generations as argued for by pigou pigou a c 1920 the economics of welfare 1952 4th edition london macmillan and ramsey ramsey f p 1928 a mathematical theory of saving econ j 38 543 559 and required by most national and international laws related to the use of these resources an equation for use in the calculation of net discounted benefits is developed which provides a middle position whereby both the reality of personal discounting and that of social discounting are included in a social welfare function

discounting and distributional considerations in the context of global warming the economics of global warming is reviewed with special emphasis on how the cost depends on the discount rate and on how costs in poor and rich regions are aggregated into a global cost estimate both of these factors depend on the assumptions made concerning the underlying utility and welfare functions it is common to aggregate welfare gains and losses across generations and countries as if the utility of money were constant but it is not if we assume that a e co2 equivalent dlubling implies costs equal to 1 5 of the income in both high and low income countries a pure rate of time preference equal to zero and a utility function which is logarithmic in income then the marginal cost of co2 emissions is estimated at 260 590 usd ton c for a time horizon in the range 300 1000 years an estimate which is large enough to justify significant reductions of co2 emissions on purely economic grounds the estimate is approximately 50 100 times larger than the estimate made by nordhaus in his dice model and the difference is almost completely due to the choice of discount rate and the weight given to the costs in the developing world as well as a more accurate model of the carbon cycle finally the sensitivity of the marginal cost estimate with respect to several parameters is analyzed

approximate arbitrage free option pricing under the sabr model abstract the stochastic alpha beta rho sabr model introduced by hagan et al 2002 provides a popular vehicle to model the implied volatilities in the interest rate and foreign exchange markets to exclude arbitrage opportunities we need to specify an absorbing boundary at zero for this model which the existing analytical approaches to pricing derivatives under the sabr model typically ignore this paper develops closed form approximations to the prices of vanilla options to incorporate the effect of such a boundary condition different from the traditional normal distribution based approximations our method stems from an expansion around a one dimensional bessel process extensive numerical experiments demonstrate its accuracy and efficiency furthermore the explicit expression yielded from our method is appealing from the practical perspective because it can lead to fast calibration pricing and hedging

changes of numeraire for pricing futures forwards and options a change of numeraire argument is used to derive a general option parity or equivalence result relating american call and put prices and to obtain new expressions for futures and forward prices the general parity result unifies and extends a number of existing results the new futures and forward pricing formulas are often simpler to compute in multifactor models than existing alternatives we also extend previous work by deriving a general formula relating exchange options to ordinary call options a number of applications to diffusion models including stochastic volatility stochastic interest rate and stochastic dividend rate models and jump diffusion models are examined a self financing portfolio is called a numeraire if security prices measured in units of this portfolio admit an equivalent martingale measure the most commonly used numeraire is the reinvested short rate process the corresponding equivalent martingale measure is the risk neutral measure geman el karoui and rochet 1995 show that other numeraires can simplify many asset pricing problems in this article we build on their results and using the reinvested asset price as the numeraire unify and extend the literature on option parity or equivalence results relating american call and put prices for asset and futures options the same numeraire change is used to obtain new pricing formulas for futures and forwards that are often simpler to compute in multifactor models finally we use a numeraire change to simplify exchange option pricing extending a similar result in geman el karoui and rochet to dividend paying assets the change of numeraire method is most intuitive in the context of foreign currency derivative securities as discussed by grabbe 1983 an american call option to buy 1 dm with dollar price process s for k dollars is equivalent to an american put option to sell k dollars with dm price process k s for a strike price of 1 dm the dollar price of the call must therefore equal the product of the current exchange rate s0 and the dm price of the put the call price is computed using the dollar value of a u s i am grateful to kerry back the editor and costis skiadas for their many helpful suggestions thanks also to peter demarzo matt jackson naveen khanna david marshall robert mcdonald jim moser phyllis payette and an anonymous referee for their comments this article subsumes schroder 1992

discounting of long term costs what would future generations prefer us to do decisions with intergenerational consequences may leave future generations worse off i e not be pareto optimal if costs and benefits are not discounted correctly we point out that this happens if the conventional social discount rate is applied to intergenerational costs with that rate the justification of intergenerational costs benefits of a project are invested and the proceeds can cover future costs leads to an inconsistency over the long term eventually the supposed benefits of any project become larger than the entire gnp the conventional approach commits an error by treating the time preference component of the discount rate as if it represented creation of wealth while it really involves only redistribution the time horizon of the redistribution is limited by the duration of market transactions especially loans thus we recommend a two step discounting procedure with the conventional social discount rate for the short term about 30 years and the growth rate of the economy for the long term data for gnp per capita growth in the us the uk france germany japan and the soviet union since the industrial revolution combined with data for net economic welfare per capita suggest an intergenerational discount rate in the range of 1 to 2 for practical application the rate at which costs and benefits will grow over time is just as important as the discount rate only the difference between these two rates matters for many environmental costs these rates may be close to each other during the next few generations this implies that some of the uncertainty in the prediction of rates cancels and one can treat the problem as if the effective rate were close to zero the consequence for costs such as global warming or nuclear power can be very significant the valuation can increase by more than an order of magnitude compared to values based on conventional discounting

the ideology of efficiency searching for a theory of policy analysis the potential pareto improvement criterion and other measures of economic efficiency do not pass the test of consistency and coherence within economic theory nor do such measures accord with what public decision makers seek in policy advice from economists such efficiency measures are nonetheless durable components of the ideology of economics in general and benefit cost analysis in particular the objectivity of the policy scientist has been confused with the objectivity of the science while economic efficiency has no claim to objectivity the policy scientist can be an objective analyst of policy choices

empirical and public choice evidence for hyperbolic social discount rates and the implications for intergenerational discounting the derivation of the correct discount rate for intergenerational projects in cost benefit analysis is particularly contentious public choice has resulted in lower discretionary exponential discount rates for many intergenerational projects in britain and the usa this is shown to be strong indirect evidence that the true social discount rate may be a hyperbolic rather than an exponential function there is also empirical evidence for this hypothesis the hyperbolic nature of discounting is also a standard finding in the behavioural sciences for intergenerational time frames hyperbolic discount rates should be employed together with exponential discount rates in cost benefit sensitivity analyses

social choice uncertainty about external costs and trade off between intergenerational environmental impacts the emblematic case of gas based energy supply decentralization abstract the performance of the small natural gas fired power technologies has improved remarkably over the last decade this has aroused the interest of operators regulators and legislators in natural gas fired distributed generation gas fired dg namely the integrated or stand alone use of small modular gas fired power generation close to the point of consumption as an alternative to large power generation and electricity transport over long distances gas fired dg can provide an important benefit from the environmental point of view customer proximity in fact greatly increases the potential for combined heat and power generation involving energy saving and reduced greenhouse gas ghg emissions unfortunately this kind of decentralized supply also determines higher non ghg emissions mainly nox compared to the best available central power technology which occur in urban areas high populated instead of extra urban areas where large power plants are generally located it is therefore difficult to make a reliable evaluation of gas fired dg environmental benefits without comparing centralized and decentralized models in terms of external costs that is without an analysis which allows us to compare the extent of global and local regional impacts in terms of monetary damage if on the one hand this underlines the potential importance of the methods adopted to assess the economic value of environmental externalities even for policy decisions that are binary i e the choice between different energy technologies on the other it raises the crucial question of the uncertainty about the economic estimates this article aims at demonstrating that the uncertainty about external costs even if large does not undermine the possibility of verifying whether gas fired dg is preferable or not to centralized supply the paper compares centralized and decentralized models in terms of the external environmental costs which are calculated by using the results of the available studies in this field in particular the results of the dissemination process of the so called externe project one of the most recent and accurate methodologies and the results of a meta analysis with regard to the marginal cost of ghg emissions the uncertainty about external costs is substantial but not so large that it is not possible to say anything about the environmental raking of alternative technology solutions involving trade off between the impacts of different pollutants or between different kinds of impacts the literature on external costs provides several studies accounting for a large part of uncertainty by means of appropriate statistical and sensitive analysis by using and elaborating these results the analysis described in this paper seems to support the conclusion that centralized supply and especially the completely electric solution based on the reversible electric heat pump is still preferable to natural gas fired chp distributed generation this is not a definitive conclusion but we hope a useful scientific based contribution for policy decisions under the state of the art in fact this result has an interesting policy implication it suggests unless questioning the current enthusiasm on natural gas fired chp distributed generation deployment e g the european commission is indeed advocating dg as a contribution to ghg emission reduction and helps us to reflect upon gas fired dg supporting environmental policies which focus on the reduction of ghg emissions and totally disregard the possible trade off between the impacts of global and local regional pollutants unless one denies the rationality attributed to making tradeoffs on the basis of ethical limits of economic valuations even in this case however cost benefit analysis seems to be legitimate and a necessary step of the public discourse we think that the results of this paper are emblematic from this point of view

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

a review of progress in empowerment of women in rural water management decision making processes abstract the authors of this paper explore the links between water infrastructure water policies processes and protections along with mechanisms for women s leadership and decision making for contributing to rural well being the broad brush strokes approach is our attempt to reveal the breadth and complexity of the interdisciplinary nature of problems which canonly be solved via interdisciplinary and collaborative approaches poor rural women are disproportionally and adversely impacted by domestic and public gendered roles in relation to water accessibility system design and management as well as by the high costs of water distribution the inadequacy of fair water distribution channels is compounded by the growing influence of water privatization advocates the significant changes in climate and global warming also threaten accessibility to safe water and add levels of competitiveness and vulnerability for people in many regions of the world the recommendations proposed in this paper underscore the need for proper management of water resources to prevent and to reduce water conflicts and to increase all dimensions of well being this paper builds upon literature from four interconnected strategies 1 investing in water infrastructure to increase well being 2 establishing policies and legislation to protect the global commons human rights and enhance economic well being 3 embedding gender equality and women s leadership in water management and 4 developing strategic interventions to reduce and mitigate adverse global affects by educating for sustainable development preventing and planning around climate change and enhancing local water management through resisting global privatization approaches

corporate social responsibility sustainable water use freshwater scarcity is no longer limited to sub saharan developing countries also in western society access to unlimited amounts of freshwater is not assured at all times it has been argued and laid down in many national legal systems that access to freshwater is a basic human right what if corporate freshwater use threatens to interfere with this human right the main focus of the article is to explore the role of today s companies in relation to freshwater a number of tools have been developed to attend to the necessity to reduce corporate use of freshwater the article discusses specialised water reporting instruments such as the 2007 global water tool and the water footprint calculation method in addition attention is paid to a ceres report 2010 revealing that the majority of the 100 world s leading companies in water intensive industries still has weak management and disclosures of water related risks and opportunities to obtain concrete information about corporate water strategies and practices an explorative analysis was conducted on 20 dutch multinational companies the article highlights various innovative practices in sum it is demonstrated that companies are expected to bear responsibility for their impact on water resources in particular when it influences public access to water in areas with freshwater scarcity and or weak government notwithstanding the critical conclusions of the ceres report it is interesting to see an evolution in corporate research concerning sustainable water use and the development of greener products and greener ways of production

on the environmental discount rate abstract in this paper i show that environmentalism itself can provide a rigorous foundation for the low and declining discount rates that environmentalists seem to favor in long term cost benefit calculations if indeed it is a stylized fact that we are moving toward a world where environmental spending is increasingly important that scenario per se may significantly lower the social rate of return a formula is derived for the ratio of social to private discount rates as a simple function of two operational environmental parameters the formula is used to explain why the social rate of return ought to be lower than the private rate and why this gap called environmental drag when measured in terms of equivalent evaporation of national income may be expected to increase over time

choices without prices without apologies valuing is usually regarded as a process of compressing information about attributes into a single metric armed with this reduced form of compact information the consumer can consider a particular object with a particular price attached or implied and make an informed decision but the process of valuing is less straightforward than we ordinarily suppose when environmental goods and services become the object of information compaction it is possible that important information is lost we comment on the choice problem germane to environmental goods and services and challenge the presumption that environmental choices made without explicit pricing are inferior to those in which hypothetical valuation studies are undertaken

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

innovations in the water chain experiences in the netherlands innovations in water chain are discussed based on experiences in the netherlands the available and new technological options as well as their dissemination in the netherlands are presented for the prevailing system with add on technologies elongation and for the emerging separation system with technologies at the source numerous new options are available for both systems but these options are rarely used the low use is explained using economic theories and with practical examples from the netherlands in order to foster innovations the mainstream evolutionary and behavioral theories pinpoint respectively the pricing of common goods broad support of concerted action and support for innovators entry these actions may all be needed experiences with a stakeholder cluster in water management suggest that markets for high value water use invoke innovations and low cost technology adaptations the systematic development of services that foster high value water based activities is recommended

a techno economic analysis of eu renewable electricity policy pathways in 2030 the aim of this paper is to assess several pathways of a harmonised european policy framework for supporting renewable electricity res e in a 2030 horizon according to different criteria the pathways combine two main dimensions degrees of harmonisation and instruments and design elements a quantitative model based analysis with the green x model is provided the results of the simulations show that there are small differences between the evaluated cases regarding effectiveness all the policy pathways score similarly with respect to res e deployment i e with different degrees of harmonisation and whether using a feed in tariff a feed in premium a quota system with banding or a quota without banding scheme in contrast the policy costs clearly differ across the pathways but the differences can mostly be attributed to the instruments rather than to the degrees of harmonisation this is also the case with other criteria static and dynamic efficiency and the socioeconomic and environmental benefits in terms of co2 emissions and fossil fuels avoided both the degree of harmonisation and the choice of instrument influence the distribution of support costs across countries finally our findings suggest that keeping strengthened national support leads to similar results to other policy pathways

the economics of climate change and the theory of discounting this paper confronts the theory of discounting with climate change economics standard discounting would give long term damages a very low present value on the other hand low discount rates would imply more sacrifices for present generations although future generations may be richer and using multiple rates would lead to economic inefficiencies the paper first shows that arguments favouring a low or zero discount rate in general are weak even from an ethical point of view it goes on by considering different arguments in favour of discount rates decreasing over time and by recalling the argument that non reproducible environmental assets should be given a value growing over time through the example of climate change it finally shows that the latter argument not only implies that the costs of damages associated to climate change should not be underestimated but also reinforce the legitimacy of using decreasing discount rates

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

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

valuing the future one of the most controversial areas of economics is the practice of discounting attaching a lower weight to future costs and benefits than present costs and benefits discounting appears to offend notions of sustainable development and the interests of future generations recent advances in the theory of discounting hold out strong hope that the tyranny of discounting can be avoided through the use of time varying discount rates tvdrs this paper reviews the recent rationales for tvdrs and applies the results to issues such as nuclear power and global warming control

price competition short termism and environmental performance this paper studies the relationships between the intensity of price competition time horizon and environmental performance we hypothesize that more intense price competition discourages environmental performance by inducing short termism in companies we test the hypotheses on a sample of 3152 companies from twelve european countries using structural equation modeling test results show that price competition significantly shortens the time horizon that companies apply in strategic decisions and that long time horizon significantly increases their environmental performance however the net negative effect of the intensity of price competition on environmental performance is small in absolute terms the policy implication is that there is no serious dilemma between fostering environmental performance on one hand and increasing consumer surplus by encouraging price competition on the other hand

discounting the distant future how much do uncertain rates increase valuations abstract we demonstrate that when the future path of the discount rate is uncertain and highly correlated the distant future should be discounted at significantly lower rates than suggested by the current rate we then use two centuries of us interest rate data to quantify this effect using both random walk and mean reverting models we compute the certainty equivalent rate that summarizes the effect of uncertainty and measures the appropriate forward rate of discount in the future under the random walk model we find that the certainty equivalent rate falls continuously from 4 to 2 after 100 years 1 after 200 years and 0 5 after 300 years at horizons of 400 years the discounted value increases by a factor of over 40 000 relative to conventional discounting applied to climate change mitigation we find that incorporating discount rate uncertainty almost doubles the expected present value of mitigation benefits

renewable energy policies in europe converging or diverging abstract nations today are urgently challenged with achieving a significant increase in the deployment of renewable energies in europe that need has given rise to a debate about the most effective and efficient support strategy whilst the different interests debate whether full european harmonisation or strengthening of national support policies for electricity from renewable energy sources res e is the best way forward individual national support schemes are rapidly evolving this study investigates how the eu member states have applied support policy types over the last decade by identifying predominant developments in the application of feed in tariffs premiums tradeable green certificates tax incentives investment grants and financing support for specific technologies wind biomass pv this study shows that europe is currently experiencing certain tendencies towards a bottom up convergence of how national policy makers design res e policy supports while some outliers remain the policy supports of most countries become more similar in the policy types applied dominance of feed in tariffs and in their scope of implementation differentiation for installation sizes and stacking of multiple instruments these trends in national decision making which show tendencies of convergence could make an eu driven top down harmonisation of support either dispensable or at least depending on the agreement less controversial

can corporate social responsibility resolve the sanitation question in developing asian countries abstract the existing state of sanitation in developing asian countries fails to deliver a level of service that is adequate for meeting the human right to a standard of living consistent with dignity and health or for sustaining the capacity for future generations to have access to clean water resources and healthy ecosystems we argue that translating the current neo centralised technologies and institutional arrangements mainstreamed by industrialised countries would not resolve the problem in the context of developing countries instead it is necessary to leap frog to the emerging technological and institutional arrangements that are responsive to current needs and contexts and to potential risks the sustainability focus and often decentralised technologies of this emergent stage in sanitation present many opportunities for new actors to enter the urban sanitation industry at the same time there are many barriers to entry particularly from the perspective of conventional business management focused on increasing shareholder value we propose that perspectives from the corporate social responsibility discourse have the potential to provide both the pull for seizing the business opportunity for profit while serving social needs and the push to overcome the barriers in order to serve a wider social purpose for corporations the wealth of nations at least as reported in ubiquitous gdp terms has greatly increased through the activities of corporations driven by a profit motive but the increased poverty injustice and ecosystem degradation that have resulted from economic activity suggest that corporations perhaps ought to have regard for broader concerns beyond shareholder value we explore how the alternative relational view of a corporation as a metaphorical person within society who adopts a moral code consistent with both buddhist economics and adam smith s philosophy may facilitate profitable corporations that provide better economic ecological and social outcomes in serving the need for sustainable sanitation services in developing asian countries

sustainable utilization of water resources in china a system dynamics model water resources play an important role in demographic social and economic development the present study divides the macroeconomic factors that affect the sustainable use of water resources into five major subsystems economy population water supply and demand land resources and water pollution and management it then constructs a feedback loop and stock flow chart of the systems with the system dynamics model to simulate water supply and demand conditions and future changes in the gap between supply and demand from 2005 to 2020 further this study designs different development programs to simulate the changes to the key variables by changing the value of important model parameters it is found that a balanced development program can achieve not only steady economic growth provide a demographic dividend and protect arable land resources but also maximize the sewage treatment rate and improve the reutilization efficiency of water moreover we find that the fundamental way in which to bridge the gap between the supply and demand of water resources is to improve water supply rather than control demand

beyond homo economicus evidence from experimental economics environmental policies are generally based on a model of the human actor taken from neoclassical economic theory this paper reports on laboratory experiments suggesting weaknesses in this model and describes alternative models correcting these weaknesses one finding is that economic actors tend to be hyperbolic as opposed to exponential discounters who discount the immediate future at a higher rate than the more distant future another finding is that economic actors are not self regarding but rather in many circumstances are strong reciprocators who come to strategic interactions with a propensity to cooperate respond to cooperative behavior by maintaining or increasing cooperation and respond to free riders by retaliating against the offenders even at a personal cost and even when there is no reasonable expectation that future personal gains will flow from such retaliation we discuss some implications for policy analysis 2000 elsevier science b v all rights reserved

weak comparability of values as a foundation for ecological economics the main argument of this paper is that weak comparability of values should be seen as one characteristic feature of ecological economics the formal properties of the concepts of strong comparability implying strong or weak commensurability and weak comparability implying incommensurability will be clarified multicriteria evaluation offers the methodological and mathematical tools to operationalize the concept of incommensurability at both macro and micro levels of analysis the concept of incommensurability of values already has a long tradition in economics moreover we will show that analytic philosophy theories of complexity post normal science and the recent theories of rationality lead with different trajectories to a non algorithmic approach which in our view could be implemented by some forms of multicriteria evaluation 1998 elsevier science b v all rights reserved

quality of life and the wtp for an increased life expectancy at an advanced age abstract in this study we report an attempt to measure the value adult swedes impute to an increased survival probability at high ages a rating scale between the worst possible quality of life 1 and the best possible quality of life 10 is used to indicate the quality of life a person expects to achieve at an advanced age we find a highly significant correlation between this quality measure and the insurance premium a person is willing to pay in exchange for a programme increasing the expected length of life by one year conditional on having survived until the age of 75 years the maximum insurance premium the average person is willing to pay for such a programme is less than 1500 the willingness to pay increase with a person s age but at a low rate the implied average marginal rate of time preference is about 1 percent

harmonization of renewable electricity feed in laws in the european union this paper focuses on the harmonization of feed in laws in the european union as a support mechanism for the promotion of renewable electricity in particular it proposes a methodology for harmonization based on a feed in law with a modular and transparent premium for renewable electricity producers this premium considers technology costs some grid services political incentives and national priorities the proposed approach includes flexibility mechanisms to update and revise premiums to avoid windfall profits for producers and to share technology innovation benefits with electricity consumers while maintaining incentives for innovation our approach is based on the review of the main features of the german and spanish feed in laws and takes into account other necessary considerations for harmonization such as grid access funding definitions and standards ownership of rights derived from renewables and exceptions for small non commercial producers and energy intensive industries

pricing american options under the constant elasticity of variance model and subject to bankruptcy this paper proposes an alternative characterization of the early exercise premium that is valid for any markovian and diffusion underlying price process as well as for any parameterization of the exercise boundary this new representation is shown to provide the best pricing alternative available in the literature for medium and long term american option contracts under the constant elasticity of variance model moreover the proposed pricing methodology is also extended easily to the valuation of american options on defaultable equity and possesses appropriate asymptotic properties

discount rates inferred from decisions an experimental study two hundred and four students of economics and finance participated in an intertemporal choice experiment which manipulated three dimensions in a 4 4 4 factorial design scenario postponing a receipt postponing a payment expediting a receipt expediting a payment time delay 0 5 1 2 and 4 years and size of cashflow 40 200 1000 and 5000 individual discount rates were inferred from the responses and then used to test competitively four hypotheses regarding the behavior of discount rates the classical hypothesis asserting that the discount rate is uniform across scenarios time delays and sums of cashflow was flatly rejected a market segmentation approach was found lacking the results support an implicit risk hypothesis according to which delayed consequences are associated with an implicit risk value and an added compensation hypothesis which asserts that individuals require compensation for a change in their financial position

model free hedge ratios and scale invariant models a price process is scale invariant if and only if the returns distribution is independent of the price measurement scale we show that most stochastic processes used for pricing options on financial assets have this property and that many models not previously recognised as scale invariant are indeed so we also prove that price hedge ratios for a wide class of contingent claims under a wide class of pricing models are model free in particular previous results on model free price hedge ratios of vanilla options based on scale invariant models are extended to any contingent claim with homogeneous pay off including complex path dependent options however model free hedge ratios only have the minimum variance property in scale invariant stochastic volatility models when price volatility correlation is zero in other stochastic volatility models and in scale invariant local volatility models model free hedge ratios are not minimum variance ratios and our empirical results demonstrate that they are less efficient than minimum variance hedge ratios

empirical measures of factors affecting social rates of discount economists have long considered possible divergences between private and social rates of time preferences in this paper we investigate factors hypothesized to affect this potential divergence results indicate that time preferences of individuals may be influenced by 1 whether the resource in question is publicly or privately managed respondents tend to have lower rates of time prefernce for publicly managed resources and 2 the type of good being managed respondents tend to have lower rates of time preference for income derived from a forest than for income derived from a portfolio of stocks and bonds additional factors which may influence the revealed rate of time preference include the pattern of benefits derived over time and various personal characteristics of the respondent although numerous methodological problems cloud the issues our results suggest that capital markets may fail to aggregate utility over individuals and between goods and that it may therefore be appropriate for governments to consider using lower rates of discount than the private sector and to vary the rate used according to the type of good being evaluated

identification of environmental and financial cost efficient heating and ventilation services for a typical residential building in belgium abstract assisted by designers and contractors dwelling owners have historically based their decisions including the choice of building services on investment costs given the increasing interest in the environmental dimension of the built environment it is also important to include environmental impact in the decision making process this paper focuses on the life cycle environmental impact and financial costs of heating and ventilation alternatives for new dwellings in belgium insight into the environmental impact and financial costs of correctly dimensioned configurations over the entire life cycle could enable better choices commonly used alternatives are considered as well as more advanced ones these are compared and the optima are determined identifying the best choice within a limited budget the analysis indicates that in addition to energy efficiency measures regarding the building skin a well designed heating and ventilation system plays an important role in reducing financial costs and environmental impact over the lifespan of a dwelling different heating and ventilation solutions are likely to be selected when initial and life cycle costs are juxtaposed with environmental financial and total costs nevertheless preferences based on total costs generally coincide with those based on financial costs

multiple attribute decision analysis for ecosystem management abstract implementation of an ecosystem approach to natural resource management requires evaluation of a broad array of ecological services in a multidimensional community based watershed approach that empowers people to make informed management decisions conventional economic approaches that assign values to ecological services contingent valuation or that evaluate the efficiency of preserving and restoring those services cost benefit analysis are quite limited for this purpose in addition to the methodological difficulties encountered in applying contingent valuation and cost benefit analysis several problems occur when nonmarket values of ecological services are estimated independently of ecosystem planning and management multiple attribute decision making madm is an alternative conceptual framework for evaluating and selecting land and water resource management systems lwrms advantages of madm are that it facilitates community based collaborative decision making avoids some of the ethical theoretical and practical shortcomings of conventional economic approaches does not require assigning monetary values to ecological services allows consideration of multiple attributes and is not culturally biased the madm model described in this paper explains how a property manager selects the most preferred lwrms for a property based on their multiple stochastic attributes application of the model requires determination of the technically feasible lwrms for a property and specification of the socially acceptable ranges of attributes this information is combined with economic biophysical simulations to derive the efficient combination of attributes and lwrms for a property the property manager then selects the most preferred combination of attributes from the efficient combinations of attributes for a property using utility maximization surrogate worth tradeoff free iterative search analytical hierarchy process aspiration reservation based decision support system or stochastic dominance a watershed alliance can evaluate the sustainability of the most preferred lwrms for properties in a watershed based on a weak or strong sustainability criterion if the alliance determines that the most preferred lwrms are not sustainable then an index of attributes is used to evaluate the cost effectiveness of alternative public policies for stimulating the adoption of more sustainable lwrms

the valuation of options on coupon bonds abstract we derive simple closed form expressions for european options on coupon bonds using the general equilibrium term structure framework of cox ingersoll and ross the properties of these options are very different from those implied by the black scholes model for example bond call and put values can move in the same direction as the value of the underlying bond changes this has important implications for hedging interest rate risk with bond options furthermore bond option values can be decreasing functions of interest rate volatility as well as their time to expiration we also examine the properties of american bond options

individual versus social discount rates in allocating depletable natural resources over time abstract this paper demonstrates that individuals express different preferences with respect to intertemporal allocation of depletable natural resources those who obtain direct private control of these resources may be relatively less likely to conserve than society in general

stochastic design of biorefinery supply chains considering economic and environmental objectives abstract biomass is a renewable resource that has attractive characteristics for energy production but the corresponding supply chain could be subject of several uncertain factors that can affect drastically the optimal configuration and those have not been properly accounted in previous publications therefore this work presents a new approach for the optimal planning under uncertainty for a biomass conversion system involving simultaneously economic and environmental issues the environmental impact was measured via the eco indicator99 method and the economic aspect was determined through the net annual profit the proposed method considered the uncertainty involved in the raw material price by the stochastic generation of scenarios using the latin hypercube method followed by the implementation of the monte carlo method where a deterministic optimization problem was solved for each single scenario to select the structure of the more robust supply chain relying on statistical data the proposed approach was applied to a case study for a distributed biorefinery system in mexico the results showed that the behavior of the profit values for the stochastic case is not associated to the behavior of the raw material price also it is possible to observe that the supply chain topology could be affected for the uncertainty in the raw material price however the environmental and economic objectives did not present significant changes

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

exploring new ways of assessing the effect of regulation on environmental management abstract studies indicate that while a variety of factors positively influence voluntary environmental management regulatory pressures are among the most important however most research examines samples representing large manufacturers or single industries essentially assuming a level of regulatory constraint using a sample of heterogeneous facilities this study finds that facilities can be classified according to the level of regulatory constraint and that group membership impacts the choice of environmental management strategy when assessed within a utility maximization framework more extensively regulated facilities implement more individual environmental management practices but participate in fewer formal voluntary environmental programs veps compared to other facilities

a component based approach to discounting for natural resource damage assessment abstract the paper proposes a component based approach to guide the choice of the social discount rate in natural resources damage assessment where time and discounting are key features it is a multi rate discounting scheme which draws on concepts from dual rate and time declining approaches each damage component is discounted at a component specific constant rate related to its time trajectory assuming a normatively defined declining schedule of rates as a starting reference components with longer time profiles generally represented by welfare losses are discounted at lower rates than short term damage components mainly remedial costs the rationale behind this choice is that the longer the duration of the damage component the higher the related nonincident specific uncertainty on the resource values and the more relevant the equity issues when estimating the total damage the resulting implicit average discount rate depends on the duration of each component and its relative relevance in the total damage in each moment from an operational point of view anchoring the rates to government prescriptions would support the robustness of the damage estimates in a court of law whereas the dual based environmental discount rate is based on ad hoc assumptions that are more difficult to justify

cost effects of international trade in meeting eu renewable electricity targets abstract the european market for renewable electricity received a major stimulus from the adoption of the directive on the promotion of renewable electricity the directive specifies the indicative targets for electricity supply from renewable energy sources res e to be reached in european union eu member states in the year 2010 it also requires member states to certify the origin of their renewable electricity production this article presents a first eu wide quantitative evaluation of the effects of meeting the targets using an eu wide system for tradable green certificates tgc we calculate the equilibrium price of green certificates and identify which countries are likely to export or import certificates cost advantages of participating in such an eu wide trading scheme are determined for each of the member states moreover we identify which choice of technologies results in meeting targets at least costs results are obtained from a model that quantifies the effects of achieving the res e targets in the eu with and without trade the article provides a brief insight in this model as well as the methodology that was used to specify cost potential curves for renewable electricity in each of the 15 eu member states model calculations show that within the eu wide tgc system the total production costs of the last option needed to satisfy the overall eu res e target equals 9 2 eurocent kwh assuming that the production price of electricity on the european power market would equal 3 eurocent kwh in the year 2010 the indicative green certificate price equals 6 2 eurocent kwh we conclude that implementation of an eu wide tgc system is a cost efficient way of stimulating renewable electricity supply

the policy implications of the different interpretations of the cost effectiveness of renewable electricity support abstract the cost effectiveness of support for renewable electricity is a main criterion to assess the success of policy instruments together with effectiveness the costs of support are also a source of significant concern for governments all over the world however significant confusion exists in the literature on the cost effectiveness of public support for renewable electricity while some authors define the concept of cost effectiveness as that which complies with the equimarginality principle many others including documents from relevant organisations european commission international energy agency intergovernmental panel on climate change define it as the lowest costs of support generally equating it with the minimisation of consumer costs the aim of this paper is to clarify the differences between both approaches and their policy implications regarding the choice of instruments and design elements it is shown that they partly overlap and that their policy implications clearly differ leading to very different policy prescriptions while the former favours technology neutral instruments and design elements the minimisation of consumer costs approach favours instruments and design elements which adjust support levels to the costs of the technologies

reconsidering the relevance of social license pressure and government regulation for environmental performance of european smes whereas social license pressure is held as a strong motive for the corporate social performance csp of large enterprises it is argued in literature that it will not sufficiently motivate small and medium sized enterprises smes in this view government regulation is the most effective way to improve the environmental performance of smes other studies argue that social license pressure is also important for smes because of the strong embeddedness of smes in their local communities a large scale empirical study into the effects of social license pressures and government regulation on the environmental performance of smes that could help solve this debate is however still lacking this paper contributes to the scientific literature by using structural equation modeling on a sample of 4929 smes from twelve european countries to test both views for micro small and medium sized enterprises another contribution to scientific literature is that our model includes direct as well as indirect effects from social license pressures on environmental performance the indirect effects are mediated by perceived market benefits of csr the estimation results show that social license pressures as perceived by smes significantly affect the environmental performance of micro small and medium sized enterprises directly as well as indirectly through mediation by perceived market benefits of csp in all cases the perceived social license pressure provides a stronger stimulus to improving environmental performance than the motive to comply with government regulation the policy implication is that governments should not rely on direct regulation of environmental performance only but also aim to improve the transparency of environmental performance by soft regulations that induce smes to publish key performance indicators on environmental issues

pricing interest rate derivatives a general approach the relationship between affine stochastic processes and bond pricing equations in exponential term structure models has been well established we connect this result to the pricing of interest rate derivatives if the term structure model is exponential affine then there is a linkage between the bond pricing solution and the prices of many widely traded interest rate derivative securities our results apply to m factor processes with n diffusions and l jump processes the pricing solutions require at most a single numerical integral making the model easy to implement we discuss many options that yield solutions using the methods of the article

perspectives of natural resource sector firms on collaborative approaches to governance for water firms in the natural resource sector forestry mining oil and gas and hydroelectric power production are dependent on water in their operations they also affect water quality and quantity through their practices in response to rising costs increasingly restrictive regulations reduced water availability and growing public criticism of industrial water use and management practices companies are attempting to improve their environmental performance one approach being used by firms in the natural resource sector is participation in collaborative multi actor approaches to governance for water a policy delphi survey of 22 representatives from firms in canada s natural resource sector was used to explore the benefits and challenges flowing from natural resource sector firm participation in multi actor collaborative processes the panel identified and then evaluated 67 positions regarding roles benefits and challenges panelists clearly saw many benefits and challenges to companies from becoming engaged in collaborative processes they also were also aware of ways in which the participation of large firms in multi actor collaborative initiatives can create both benefits and challenges for those initiatives the fact that natural resource sector firms do not have to give up their traditional avenues of influence to participate in collaborative initiatives raises concerns about the long term viability of collaboration as a governance strategy

the valuation of american options for a class of diffusion processes we present an integral equation approach for the valuation of american style derivatives when the underlying asset price follows a general diffusion process and the interest rate is stochastic our contribution is fourfold first we show that the exercise region is determined by a single exercise boundary under very general conditions on the interest rate and the dividend yield second based on this result we derive a recursive integral equation for the exercise boundary and provide a parametric representation of the american option price third we apply the results to models with stochastic volatility or stochastic interest rate and to american bond options in one factor models for the cases studied explicit parametric valuation formulas are obtained finally we extend results on american capped options to general diffusion prices numerical schemes based on approximations of the optimal stopping time such as approximations based on a lower bound or on a combination of lower and upper bounds are shown to be valid in this context