branching and competition in the european banking industry in this study branching costs and competitiveness of european banks are measured by fitting a monopolistic competition model to a representative sample drawn from nine eec banking industries in the period from 1990 to 1996 in the theoretical model banks decide strategically the size of their branching network anticipating the degree of competition faced on interest rates from the structural equations of the model an econometric test is derived in order to measure branching costs and degree of competition in banking services the empirical analysis captures their changing over time together with the impact of various european directives aiming at deregulating the banking industry furthermore the study shows persistence of segmentation acoss eec banking industries

testing for nonlinear dependence in daily foreign exchange rates the purpose of this article is to investigate whether daily changes in five major foreign exchange rates contain any nonlinearities although the data contain no linear correlation evidence indicates the presence of substantial nonlinearity in a multiplicative rather than additive form further examination reveals that a generalized autoregressive conditional heteroskedasticity model can explain a large part of the nonlinearities for all five exchange rates copyright 1989 by the university of chicago

private information deposit interest rates and the stability of the banking system abstract the regulation of deposit interest rates has received little support from economists the same is true for the original rationale for such regulation that bank competition for deposits generates inherent instability in the banking system this paper develops an adverse selection model of banking in which this rationale is correct moreover in this model instability in the banking system can arise despite the presence of a lender of last resort and despite the absence of any need for deposit insurance however in the world described the regulation of deposit interest rates is shown to be an appropriate response to instability in the banking system finally it is argued that adverse selection models of deposit interest rate determination can confront a number of observed phenomena that are not readily explained in other contexts

hedging interest rate risk with futures portfolios under full rank assumptions a spot portfolio of rate sensitive assets can be hedged by a portfolio of interest sensitive futures contracts the hedge ratios of minimum variance portfolios are unique when the fixed cash flows of underlying instruments are linearly independent and when the covari ance matrix of unexpected changes in spot rates over the term of the cash flows is of full rank hilliard s 1984 full rank model has produced smaller portfolio variances than a duration model in a short term hedging context however the methodology typically re quires extensive econometric analysis this paper develops a structured covariance matrix of full rank that requires only one parameter estimate hedging examples are provided

location and competition in retail banking abstract we investigate the impact of banking deregulation during the 1990s on consumer welfare we estimate a spatial model of consumer demand for retail bank deposits that explicitly accounts for consumer disutility from distance traveled this is important given the substantial changes in banks branch networks observed in the data our model indicates that cross price elasticities between banks whose branches are close to consumers close banks are larger than those between far banks and more than double the cross price elasticity of close banks with respect to far banks we distinguish between thrifts and other banks and find that within thrift competitive effects are stronger than within bank effects or those between thrifts and banks we use our estimates to predict the effect of changes in market structure on consumer welfare following the branching deregulation of the riegle neal act of 1994 our results indicate that the median household gained around 60 per year from the changes approximately two thirds of the gains come from within market changes in market structure the gains were greater in markets with high initial numbers of banks than elsewhere

what explains long memory in futures price volatility long memory in futures price volatility is a well documented stylized fact with implications for market efficiency risk management forecasting and option pricing bias the implications of long memory differ however based on whether it is of a fractional or of a stochastic type the aims of this article are to determine in the case of agricultural commodity futures data which type better describes price volatility and also to evaluate several competing explanations for findings of long memory the evidence presented here finds little support for three out of four potential explanations namely excessive noise in the volatility measure bias in the long memory estimator and understated ses of the long memory parameter for the data considered price volatility appears to be most likely generated by a nonfractional long memory process such as a stochastic break or stochastic unit root

predictable behavior in financial markets some evidence in support of heiner s hypothesis recently ronald heiner 1983 has proposed a theory of predictable behavior which has its roots in what heiner labels a competence difficulty gap hereafter called a c d gap this gap is a measure of the spread between an economic agent s competence to make an optimizing decision and the difficulty of the decision problem heiner argues that as the c d gap widens the agent is increasingly likely to follow rule governed behavior and it is this rule governed behavior that produces observed regularities in economic behavior if there is no c d gap heiner argues that rule governed behavior would disappear and along with it the observed regularities instead unpredictable behavior characterized by constant perturbation would replace predictable behavior furthermore the dynamic properties of heiner s theory are characterized in his words by sudden switching behavior this switching behavior is described as a sudden reversal of previous behavior and a persistent movement in another direction or behavior of a different kind one of the casual or intuitive examples heiner offers for support of his theory is the switching between buying and selling strategies in financial markets resulting in sudden movement in stock prices p 582 this paper explores this idea and argues that there is more than intuitive support for heiner s speculation that in fact the behavior of daily price changes in financial markets conforms better to the prediction of heiner s theory than to standard efficient market theory predictions

a reexamination on the effect of bank competition on bank non performing loans this article examines whether competition in the deposit and loan markets results in a more stable or fragile banking industry following the assumption that deposit and loan competitions are not s

fractional integration in agricultural futures price volatilities revisited jin and frechette 2004 examined the degree to which agricultural price volatilities exhibited evidence of fractional integration and concluded it was important to consider both long run and short run memory when modeling conditional variances the purpose of this note is to revisit the issue using new methods and techniques which generally reaffirm the view that return volatilities are fractionally integrated and conditionally heteroskedastic with many exhibiting significant leverage effects a result not previously reported

non price strategic behavior the case of bank branches abstract we perform an empirical study of banks branching decisions as a strategic non price variable in an oligopolistic setting using panel data of banks from norway we find clear evidence that banks act strategically in their branching decisions taking into consideration the future response from rival banks the analysis is applied to a unique data set which covers the entire banking sector during both pre and post banking crisis periods where very different types of conduct are found in each of these periods both for banks and borrowers moreover we find that a bank specific branch network does not confer externality on other banks as a result branch network affects only market shares but not market size

multimarket competition in banking with an example from the portuguese market abstract banks typically have more than one branch and their activities usually span over several markets this multilocational nature of banks generates equilibrium price dispersion the paper proposes a spatial competition model to explain price differences across banks in the deposits market the model allows to separate two different sources of observed market power collusion in the industry and product differentiation induced by location in local markets an application to portuguese commercial banking is reported as an illustration

some relations between volatility and serial correlations in stock market returns this article explores the relation between serial correlation and volatility for several different stock return series at daily and weekly frequencies it is found that serial correlations are changing over time and are related to stock return volatility an extension to the garch model is proposed and estimated revealing parameters consistent with other findings in this article copyright 1992 by university of chicago press

dynamic branching and interest rate competition of commercial banks evidence from hungary abstract i supplement previous models of bank competition by incorporating the endogenous branching choices of commercial banks i apply a dynamic structural model of banks branching and interest rate choices to a unique bank level dataset on hungarian commercial banks during 2004 2007 i find that banks charge a premium in interest rates for relative branch network dominance and banks with relatively smaller networks are less likely to close branches i present significant and robust estimates of branch setup costs and scrap values and discuss the potential use of branching restrictions as regulatory tools to alter lending rates and consumer surplus

analysing inflation by the fractionally integrated arfima garch model this paper considers the application of long memory processes to describing inflation for ten countries we implement a new procedure to obtain approximate maximum likelihood estimates of an arfima garch process which is fractionally integrated i d with a superimposed stationary arma component in its conditional mean additionally this long memory process is allowed to have garch type conditional heteroscedasticity on analysing monthly post world war ii cpi inflation for ten different countries we find strong evidence of long memory with mean reverting behaviour for all countries except japan which appears stationary for three high inflation economies there is evidence that the mean and volatility of inflation interact in a way that is consistent with the friedman hypothesis

do wheat futures returns exhibit long range dependence the efficient market hypothesis where asset prices follow a random walk and incorporate all relevant information is often invoked in financial economics there is some evidence however to suggest that some asset prices do not follow random walks but display long range dependence such systematic behavior of past returns is of interest to traders this article examines long range dependence in wheat futures prices using rescaled range analysis and the hurst exponent since this estimate is biased when long range dependence is absent and its distribution is unknown a monte carlo simulation approach is proposed results show that wheat futures prices show no evidence of long range dependence and there are no profitable trading rules

asymmetric information and the structure of the banking industry abstract we analyze the effects of informational asymmetries on the market structure of the banking industry in a multi period model of spatial competition in the process of lending incumbent banks gather proprietary information about their clients acquiring an advantage over potential entrants we show that these informational asymmetries are important determinants of the industry structure and of banks strategic behavior contrary to traditional models of horizontal differentiation the steady state equilibrium is characterized by a finite number of banks even in the absence of exogenous fixed costs in addition less concentrated industry structures may be associated with higher interest rates

testing the martingale hypothesis in deutsche mark futures with models specifying the form of heteroscedasticity summary we examine the form of heteroscedasticity in deutsche mark futures price data and compare different specifications of the particular way that the variance is changing over time the martingale hypothesis is tested with daily and weekly rates of change of futures prices for the deutsche mark and some evidence is found against this hypothesis in analyses of daily data from 1981 to 1985 this rejection of the martingale hypothesis may be attributed to trading day effects in foreign currency prices and the resulting day of the week patterns in futures prices when the martingale hypothesis is tested with weekly data the null hypothesis is retained

fractional integration in agricultural futures price volatilities this article tests whether the volatility of agricultural futures prices exhibits fractional integration volatility series were constructed for fourteen agricultural futures price series with over 5 300 observations per series the volatility series exhibit strong long term dependence which is an indicator of fractional integration a fractional integration model figarch 1 d 1 performs significantly better than a traditional volatility model garch 1 1 in modeling agricultural futures price volatility

modelling volatility spillovers for bio ethanol sugarcane and corn spot and futures prices the recent and rapidly growing interest in biofuel as a green energy source has raised concerns about its impact on the prices returns and volatility of related agricultural commodities analyzing the spillover effects on agricultural commodities and biofuel helps commodity suppliers hedge their portfolios and manage the risk and co risk of their biofuel and agricultural commodities there have been many papers concerned with analyzing crude oil and agricultural commodities separately the purpose of this paper is to examine the volatility spillovers for spot and futures returns on bio ethanol and related agricultural commodities specifically corn and sugarcane the diagonal bekk model is used as it is the only multivariate conditional volatility model with well established regularity conditions and known asymptotic properties the daily data used are from 31 october 2005 to 14 january 2015 the empirical results show that in 2 of 6 cases for the spot market there were significant negative co volatility spillover effects specifically corn on subsequent sugarcane co volatility with corn and sugarcane on subsequent corn co volatility with sugarcane in the other 4 cases there are no significant co volatility spillover effects there are significant positive co volatility spillover effects in all 6 cases namely between corn and sugarcane corn and ethanol and sugarcane and ethanol and vice versa for each of the three pairs of commodities it is clear that the futures prices of bio ethanol and the two agricultural commodities corn and sugarcane have stronger co volatility spillovers than their spot price counterparts these empirical results suggest that the bio ethanol and agricultural commodities should be considered as viable futures products in financial portfolios for risk management

demand fluctuations in the ready mix concrete industry i investigate the role of demand shocks in the ready mix concrete industry using census data on more than 15 000 plants i estimate a model of investment and entry in oligopolistic markets these estimates are used to simulate the effect of eliminating short term local demand changes a policy of smoothing the volatility of demand has a market expansion effect the model predicts a 39 increase in the number of plants in the industry since bigger markets have both more plants and larger plants a demand smoothing fiscal policy would increase the share of large plants by 20 finally the policy of smoothing demand reduces entry and exit by 25 but has no effect on the rate at which firms change their size

immunization using a stochastic process independent multi factor model the portuguese experience abstract in this paper we evaluate the relative immunization performance of the m vector proposed by nawalkha and chambers 1997 nawalkha s k chambers d r 1997 the m vector model derivation and testing of extensions to m squared the journal of portfolio management 23 92 98 using data for the portuguese government debt market empirical results show that i immunization models single and multi factor remove most of the interest rate risk underlying a more naive maturity strategy ii duration matching portfolios constrained to include the maturity bond and formed using a single factor model provide the best immunization performance overall particularly in highly volatile term structure environments and shorter holding periods iii varying the rebalancing frequency and the investment horizon shows that these results are less robust for portugal than for other countries

a search for long memory in international stock market returns abstract a major issue in financial economics is the behavior of stock returns over long as opposed to short horizons this study provides empirical evidence from the perspective of long memory analysis international evidence on long memory is explored using the morgan stanley capital international stock index data for eighteen countries two tests that are robust to short term dependence and conditional heteroskedasticity are employed a modified rescaled range test and a fractional differencing test the empirical results in general provide little support for long memory in international stock returns the findings are not sensitive to inflation adjustments in stock returns data sources and statistical methods used

alternative duration specifications and the measurement of basis risk empirical tests dramatic increases in interest rate levels and volatility since the early 1970s have renewed interest in fixed income securities and have motivated much study of the appropriate measure of risk for bonds many authors have expanded on macaulay s 1938 concept of duration as a surrogate for risk measurement and have developed a variety of new measures of duration numerous commercial duration based immunization programs are now available purporting to explain returns to provide good measures of risk and to protect fixed income portfolios from volatile interest rates e g leibowitz 1979 leibowitz and weinberger 1981 this paper tests the explanatory power of a number of recently proposed duration measures we show that despite the flood of articles and commercial programs claiming superiority for particular measures of duration the measures studied were virtually indistinguishable empirically in fact none of them did much better than this paper empirically investigates seven duration measures and their role in explaining price volatility caused by interest rate movements that is basis risk the data analysis does not support the important testable implications of the various durations as measures of basis risk all seven durations fail linearity and single risk factor tests from which their advantages are supposed to derive fixed income performance comparisons and immunization strategies based on these durations have not been worthwhile

the strategic analysis of intermediation the importance and the special character of intermediation were recognized as early as in the eighteenth century and have been stressed by many authors afterwards in spite of this long tradition comparatively little work has been done on the details of the economic theory of intermediation instead it was assumed that intermediation can simply be treated like any other economic activity in contrast i will argue that the theory of intermediation requires a specific game theoretic analysis and moreover that many preconceptions that one might have on the basis of standard microeconomic theory are wrong

the money and bond markets in france abstract when rates of return on bonds are computed over extremely short holding periods the ex post cross sectional relationship between realized return and risk is linear it is therefore possible at any time to extrapolate the cross sectional relationship to a zero risk level and thus to determine the implied instantaneous riskless rate of interest we apply this technique to french bond price data using a rather unique data set in which prices are sampled daily we are able to compare the overnight rate implied in bond price data to the actual overnight money market rate we conclude that the two rates are significantly different which is evidence of segmentation between the two markets the institutional set up prevailing in france during the sample period explains the segmentation result

commodity price fluctuations price dependent delays and nonlinearities as explanatory factors this paper develops a price adjustment model for a single commodity market with state dependent production and storage delays conditions for the equilibrium price to be stable are derived in terms of a variety of economic parameters when stability of the equilibrium price is lost a hopf bifurcation occurs giving rise to an oscillatory commodity price with a period between two and four times the equilibrium production storage delay

commodity prices and bric and g3 liquidity a sfavec approach this paper investigates the influence of liquidity in the major developed and major developing economies on commodity prices liquidity is taken to be m2 a novel finding is that unanticipated increases in the bric countries liquidity is associated with significant and persistent increases in commodity prices that are much larger than the effect of unanticipated increases in g3 liquidity and the difference increases over time over 1999 2012 bric liquidity is strongly linked with global energy prices and global real activity whereas g3 liquidity is not the impact of bric liquidity on mineral and metal prices is twice as large as that of g3 liquidity granger casualty goes from liquidity to commodity prices bric and g3 liquidity and commodity prices are cointegrated bric and g3 liquidity and global output and global prices are cointegrated we construct a structural factor augmented error correction sfavec model

imperfect competition in bank retail markets deposit and loan rate dynamics and incomplete pass through this paper examines determinants of pass through from the market interest rate to bank retail deposit and loan rates a dynamic adjustment cost model with imperfect competition implies that these rates depend on own lagged values and on lagged current and expected future values of the security rate greater competition in retail markets reduces the impact of lagged and expected rates on current retail rates while raising the effect of the current security rate yielding greater pass through these results have important implications for both the specifications used in empirical work and biases introduced into estimates of pass through effects

government bond returns measurement of interest rate risk and the arbitrage pricing theory empirical tests are reported for ross arbitrage pricing theory using monthly data for u s treasury securities during the 1960 1979 period we find that mean returns on bond portfolios are linearly related to at least two factor loadings multivariate test results however are not consistent with the apt our sample data in the u s treasury securities market are also not consistent with either version of the capm one monthahead forecasts of excess returns using factor generating models are compared with corresponding naive predictions or predictions using the market model with various

commodity prices and unit root tests price theory suggests that commodity prices should be stationary series yet tests for unit roots rather frequently imply that these prices are not stationary this seeming inconsistency is investigated by applying alternative specifications of unit root tests to prices of corn soybeans barrows and gilts and milk the preponderance of evidence suggests that nominal prices do not have unit roots but the results are sensitive to the specification of the test equation accounting for a structural change that shifts the mean appears to be an important issue in unit root tests

branch banking and the geography of bank pricing we show that bank branching tends to mitigate localized market power by broadening the geographic scope of competition among banks even though branch banking allows banks to differentiate themselves through their choices of branch locations banking services at peripheral locations will be priced more competitively when those locales are served by branch networks we develop a theoretical model in support of this view and offer empirical evidence

banking competition housing prices and macroeconomic stability we develop a macroeconomic model with an imperfectly competitive bank loans market and collateral constraints that tie investors credit capacity to the value of their real estate holdings lending margins are optimally set by banks and have a significant effect on aggregate variables over the long run stronger banking competition increases output by triggering a reallocation of available collateral towards investors in the short run output credit and housing prices are more responsive on impact to shocks in an environment of highly competitive banks also stronger banking competition implies higher lower persistency of credit and output after a monetary credit crunch shock

spatial competition in the banking system localization cross subsidies and the regulation of deposit rates abstract the paper analyses a spatial competition model of the banking sector banks offer two kind of services deposits and credit and can either borrow or lend on the money market we investigate the consequences of the regulation of rates paid on deposits the main conclusions are as follows regulation first increases network size beyond social optimum in the long run it results in lower equilibrium credit rates because of increased competition secondly regulation generates tied sales contracts by which banks propose bundles of credit and deposit services tied sales in turn motivate the introduction of cross subsidies between the two activities the rent levied upon regulated deposits financing lower rates in the credit market finally it is shown that in a regulated environment the effectiveness of monetary policy is reduced in the sense that fluctuations of money market rates are less than fully transmitted in credit rates

the independent submarkets model an application to the spanish retail banking market abstract the aim of this paper is to test the predictions of sutton s independent submarkets model with data on the spanish retail banking market the prediction of this model for aggregates of submarkets is that the form of equilibrium outcome must involve some minimal degree of size inequality however within each submarket when three conditions hold the only form of equilibrium outcome will be an extreme fragmented structure to test these predictions firstly i propose methods to identify independent submarkets then i analyze the degree of inequality in bank sizes for markets with different levels of aggregation submarkets regions and national market using concentration by towns data i find that in single submarket towns the degree of inequality of the size among banks is zero moreover multimarket towns with a significant degree of concentration are shown to be formed by a different number of independent submarkets where each bank owns one branch nonetheless when the regional and the national bank markets are considered the degree of inequality in bank sizes becomes high these results are consistent with the predictions of the theoretical model

short and long run determinants of commodity price volatility to explain price volatility in the u s agricultural energy and metal futures markets we estimate a model of common and commodity specific high and low frequency factors by building on the spline garch model of engle and rangel 2008 a better model fit results from allowing the unconditional variance to slowly change over time moreover the persistence of volatility shocks is shown to be much weaker than what standard garch models imply combining the volatility results with monthly macroeconomic indicator data we find that decomposing realized volatility into high and low frequency components better reveals the impact of slowly evolving aggregate variables on price volatility moreover over the period 1990 2005 most of the macroeconomic variables had similar effects within the same commodity category e g grain but their effects differed across commodity groups e g grain versus livestock over the period 2006 2009 however commodity specific factors dominated common factors copyright 2013 oxford university press

the influence of biofuels economic and financial factors on daily returns of commodity futures prices abstract biofuels production has experienced rapid growth worldwide as one of the several strategies to promote green energy economies indeed climate change mitigation and energy security have been frequent rationales behind biofuel policies but biofuels production could generate negative impacts such as additional demand for feedstocks and therefore for land on which to grow them with a consequent increase in food commodity prices in this context this paper examines the effect of biofuels and other economic and financial factors on daily returns of a group of commodity futures prices using generalized autoregressive conditional heteroskedasticity garch family models in univariate and multivariate settings the results show that a complex of drivers are relevant in explaining commodity futures returns more precisely the standard and poor s s p 500 positively affects commodity markets while the us euro exchange rate brings about a decline in commodity returns it turns out in addition that energy market returns are significant in explaining commodity returns on a daily basis while monetary liquidity is not this would imply that biofuel policy should be carefully monitored in order to avoid excessive first generation subsidization which would trigger a fuel vs food conflict

long term dependence in stock returns abstract we test for long term dependence in us stock returns analyzing composite and sectoral stock indices and firms returns series to evaluate aggregation effects fractal dynamics are not detected in stock indices but are present in some firms returns series

immunizing default free bond portfolios with a duration vector dissatisfaction occasionally has been expressed with traditional measures of duration for immunization on conceptual grounds however more elegant duration measures have not been found to be superior to the traditional ones in empirical tests of immunization efficacy under the assumption that the term structure of continuously compounded interest rates can be expressed as a polynomial chambers and carleton 1981 demonstrate that the finite and noninstantaneous return of a default free bond can be expressed as a vector product of a duration vector and a shift vector this study derives immunization strategies from the model and tests them the results of the portfolio tests indicate that the tradi tional duration approach of macaulay provides enhanced immunization relative to matu rity approaches or naive approaches however the duration vector approach produces further improvements

accurate minimum capital risk requirements a comparison of several approaches in this paper we estimate for several investment horizons minimum capital risk requirements for short and long positions using the unconditional distribution of three daily indexes futures returns and a set of short and long memory stochastic volatility and garch type models we consider the possibility that errors follow a t student distribution in order to capture the kurtosis of the returns series the results suggest that accurate modelling of extreme observations obtained for long and short trading investment positions is possible with an autoregressive stochastic volatility model moreover modelling futures returns with a long memory stochastic volatility model produces in general excessive volatility persistence and consequently leads to large minimum capital risk requirement estimates finally the models predictive ability is assessed with the help of out of sample conditional tests

modeling regime dependent agricultural commodity price volatilities in stark contrast to financial markets relatively little attention has been given to modeling agricultural commodity price volatility in recent years numerous methodologies with various strengths have been proposed for modeling price volatility in financial markets we propose using a mixture of normals with unique garch processes in each component for modeling agricultural commodity prices while a normal mixture model is quite flexible and allows for time varying skewness and kurtosis its biggest strength is that each component can be viewed as a different market regime and thus estimated parameters are more readily interpreted we apply the proposed model to ten different agricultural commodity weekly cash prices both in sample fit and out of sample forecasting tests confirm that the two state nm garch approach performs better than the traditional normal garch model a significant and state dependent inverse leverage effect is detected only for pork in the regime where the price is expected to drop indicating the volatility in this regime tends to increase more following a realized price rise than a realized price drop

nonlinear dynamics of daily cash prices daily cash price changes are not normally distributed their empirical distributions have fat tails and most are skewed in addition they are not independent among the diffusion jump extended generalized autoregressive conditional heteroskedasticity garch and deterministic chaos processes a garch process with residuals following a student distribution is the most likely our garch model reduces leptokurtosis removes nonlinear dependence and provides a considerable improvement over the i i d normal model the garch process is not well calibrated because it cannot explain all the observed nonnormality but it does yield asymptotically valid hypothesis tests

the long memory of the forward premium abstract the estimation of arfima models by approximate maximum likelihood estimation methods reveals the forward premia for the currencies of canada germany and the uk vis a vis the us dollar to be well described by a fractionally integrated process these models imply that all the forward premia are mean reverting although their autocorrelations are quite persistent this degree of persistence has led other studies to erroneously conclude that the forward premia contains a unit root jel c22 e31

multiproduct monopoly commodity bundling and correlation of values through what selling strategy can a multiproduct monopolist maximize his profits when his knowledge about individual consumers preferences is limited one possibility extensively studied in the context of a single good monopoly is to use quantity dependent pricing as a means of discriminating among customers with differing tastes see for example oi 1971 and maskin and riley 1984 an alternative technique for price discrimination first suggested by stigler 1968 and analyzed further by adams and yellen 1976 is for the monopolist to package two or more products in bundles rather than selling them separately through a series of examples adams and yellen illustrate that bundling can serve as a useful price discrimination device even when all consumers willingnesses to pay for each of the goods individually are unaffected by whether they are also consuming the other product a typical example is illustrated in figure i adapted from figure iv in adams and yellen where there are two goods three consumers ab c who consume at most one unit of each good with reservation values for each good that are independent of whether the other good is consumed and zero costs of production there a bundle offered at a price of 100 fully extracts all potential surplus which would be impossible pricing the goods independently unfortunately though these authors do not provide any general characterization of the circumstances in which bundling is actually a multiproduct monopolist s optimal strategy their examples however such as figure i create the impression that the profitable use of bundling

the effect of three mile island on utility bond risk premia a note could be expected to react to the possibility of losses related to nuclear accidents and to the prospect of larger marginal costs associated with compliance with stricter regulation by public utility commissions this study tests for the effects of the tmi accident on bond risk premia in the public utility industry the following four null hypotheses are tested 1 bond risk premia did not increase in the industry as a whole because of the accident at tmi 2 bond risk premia were not affected by a firm s commitment to generate nuclear power 3 bond risk premia were not affected by the extent of the firm s commitment to nuclear power generation 4 bond risk premia were not influenced by the brand of reactor operated section i of the study briefly reviews the research that documents the effects of tmi on utility equities and considers previous models of bond risk premia based on those findings section ii specifies the null hypotheses in a testable form using a model of the risk premium that is consistent with the previous bond risk literature and is designed to control for bond specific factors and for the state of the economy results of the hypothesis testing appear in section iii section iv contains the study s conclusions

the performance of alternative interest rate risk measures and immunization strategies under a heath jarrow morton framework using a monte carlo simulation this study addresses the question of how traditional risk measures and immunization strategies perform when the term structure evolves in a heath jarrow morton 1992 manner the results suggest that for immunization purposes im munization strategies and portfolio formation strategies are more important than interest rate risk measures the performance of immunization strategies depends more on the transaction costs and the holding period than on the risk measures moreover the immu nization performance of bullet and barbell portfolios is not very sensitive to interest rate risk measures

caviar conditional autoregressive value at risk by regression quantiles value at risk var has become the standard measure of market risk employed by financial institutions for both internal and regulatory purposes var is defined as the value that a portfolio will lose with a given probability over a certain time horizon usually one or ten days despite its conceptual simplicity its measurement is a very challenging statistical problem and none of the methodologies developed so far give satisfactory solutions interpreting the var as the quantile of future portfolio values conditional on current information we propose a new approach to quantile estimation which does not require any of the extreme assumptions invoked by existing methodologies such as normality or i i d returns the conditional autoregressive value at risk or caviar model moves the focus of attention from the distribution of returns directly to the behavior of the quantile we specify the evolution of the quantile over time using a special type of autoregressive process and use the regression quantile framework introduced by koenker and bassett to determine the unknown parameters since the objective function is not differentiable we use a differential evolutionary genetic algorithm for the numerical optimization utilizing the criterion that each period the probability of exceeding the var must be independent of all the past information we introduce a new test of model adequacy the dynamic quantile test applications to simulated and real data provide empirical support to this methodology and illustrate the ability of these algorithms to adapt to new risk environments