the pricing of foreign currency options this study examines the assumption that the exchange rate follows a log normal probability distribution and it tests whether different stochastic specifications translate into important differences in implied option prices we investigate a class of processes which includes the log normal probability distribution as a limiting case none of the models performs particularly well the main problem appears to be that the volatility estimates from actual exchange rate data are significantly smaller than those implied by observed option prices la formation du prix des options sur des devises etrangeres cette etude examine le pos tulat que le taux de change suit une courbe de probabilite log normale et verifie si des specifications stochastiques differentes se traduisent en des diff6rences importantes dans les prix des options qui en decoulent les auteurs examinent une famille de processus dont le processus log normal est un cas limite aucun des modeles ne donne des resultats particu lierement bons le probleme principal semble etre que la volatilite des evaluations a partir des donnees sur les taux de change reel est plus faible et de maniere significative que celle des evaluations derivees des prix d options observes

on the desirability of compatibility with product selection the paper analyses a three stage game where two integrated system suppliers first decide whether to provide compatible system components then choose the product specifications of their two offered components and finally set prices contrary to results with exogenous product characteristics the achievement of compatibility does not improve social welfare here given the assumed distribution of the consumers preferences on the product space consumers losses from the changed product designs under compatibility outweigh the gains from these changes and from the availability of two additional system goods nevertheless one firm ensures compatibility if compatibility costs do not exceed a certain threshold

large option trades market makers and limit orders this article focuses on the difference between market makers and limit orders in their role as suppliers of liquidity for both sources of liquidity i analyze the price behavior of stocks and options around large option trades and i estimate the premium paid by the initiator of the large trade my findings suggest that limit orders for options are picked off after adverse changes in the underlying stock price furthermore i find that for these transactions there is a permanent change in quotations in the direction of the transaction after transactions where market makers supply liquidity quotes tend to return to their pretrade level article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

european natural gas market forces will bring about competition in any case the purpose is to analyze the emergent commercial forces that promote increasing competition in the european natural gas market the paper begins by describing the traditional market organization along with its monopolistic elements and inflexibilities it goes on to illuminate the destabilizing frustration among producers with fast growing supply potential caused by the limited growth in demand under prevailing market arrangements two emergent commercial forces promoting competition are then dealt with the first is the increasingly widespread effort by large consumers to procure gas on improved terms by circumventing the national transmission companies the important role played by wingas in this respect is reviewed in detail the second is the impending impact of the interconnector a gas pipe between the uk and the continent which becomes operational during 1998 the paper argues that these commercial developments are undermining existing monopolies and will bring about increasing competition even if the formal regulatory regime stays intact

the value line enigma extended an examination of the performance of option recommendations the authors extend the research on the value line enigma by examining the performance of call recommendations in value line options d galai s hedge decomposition procedure identifies the components of the calls returns abnormal call returns were most pronounced immediately following the purchase which is consistent with studies of value line s stock rankings the largest and most significant abnormal performance was by calls assigned the highest rank written on stocks judged by value line to be correctly priced abnormal call return performance by joint call and stock ranks was consistent with hypothesis that value line identifies underpriced call options copyright 1993 by university of chicago press

mining fool s gold we discuss the popular motley fool s foolish four portfolio as a case study in data mining we document the performance of the foolish four portfolio and use it to illustrate the mistaken inferences that can plague any investment research project we describe the warning signs of data mining and discuss the antidotes to it out of sample tests and the adjustment of returns for risk transaction costs and taxes finally we document that the foolish four and dow 10 trading rules have become popular enough to influence selected stock prices at the turn of the year

price discrimination with partial information does it pay off abstract this paper investigates the profit effects of price discrimination when firms have partial information about consumer preferences it shows that price discrimination can boost industry profit if firms have access to the right kind of information about consumer preferences while remaining ignorant of other relevant information

empirical tests of boundary conditions for toronto stock exchange options using option and stock transaction data for the period 1978 1979 three issues were investigated first the conformance of observed prices to various boundary conditions second the evolution of the market over time as the volume of trading and the number of listed options increased and third to test the efficiency of the market it was found that violations did occur using a trading rule based on the signal of observed violations the results suggest that even after transaction costs the market was inefficient over the sample period

suckers are born but markets are made individual rationality arbitrage and market efficiency on an electronic futures market the iowa electronic markets are specially designed futures markets that appear to aggregate information efficiently to predict events such as election outcomes yet in theory perfect information aggregation is impossible further the markets are populated by a nonrepresentative sample of mistake prone and biased traders that is traders are prone to the behavioral anomalies predicted by behavioral finance how can this be reconciled with market efficiency here we take a first step by analyzing the behavior of two self selected types of traders dramatic differences in mistake rates across traders can help us answer the question market making traders who set prices are less mistake prone and appear to be more rational than price taking traders this highlights an important feature of markets marginal in this case market making not average traders set prices this can drive the efficiency of market prices in spite of large numbers of traders who display patently suboptimal behavior

third degree price discrimination in oligopoly all out competition and strategic commitment price discrimination by imperfectly competitive firms may intensify competition leading to lower prices for all consumers the tradeoff of consumer groups welfare that is characteristic of monopolistic discrimination need not arise this escalation of competition may make firms worse off and as a result firms may wish to avoid the discriminatory outcome under conditions similar to those in which unambiguous price and welfare effects may arise unilateral commitments not to price discriminate including the adoption of everyday low pricing or no haggle policies may raise firm profits by softening price competition

russian gas exchange a new indicator of market efficiency and competition or the instrument of monopolist abstract russian government sanctioned the first gas trade at the saint petersburg international mercantile exchange spimex in 2012 as a part of the gas industry national strategy federal antimonopoly service fas proposed a reform aimed to boost competition among producers and to increase consumer welfare the proposal included lifting of price floor regulation for gazprom that supposed to be a vital element of transition from the government price regulation to spimex benchmark for over the counter otc segment structural reform of this scale has never happened in russia furthermore there are only descriptive studies in the existing literature this paper aims to fill this gap by testing market efficiency in spimex based on fama s theory with the well established model we test the consistency of gas futures and spot prices for unbiasedness we imply this methodology because in transition to exchange benchmark it is necessary that price is formed under market forces and is not influenced by players who have market power or dominance to make a reasonable conclusion we supplement the simulation by relevant qualitative analysis of liquidity price differentials between contracts and market concentration in the exchange the goal of the paper is to answer whether the exchange price today can be a benchmark and substitute for the state regulated price combined with qualitative analysis we argue that the scheduled deregulation counterintuitively may improve the dominance of gazprom in the domestic market

the efficiency of the finnish market for right issues abstract this paper analyzes the efficiency of the finnish market for right issues the rights traded on the helsinki stock exchange hse are similar instruments to warrants with some special features attached to them the paper first derives appropriate arbitrage conditions for these rights which must be satisfied in informationally efficient markets and then examines these conditions using both ex post and ex ante test procedures the ex post tests which jointly examine market efficiency and synchroneity of the rights and stock market show a staggering amount of violations against the arbitrage bounds however the ex ante tests reveal that high transaction costs prevent normal investors from benefitting from these violations stockbrokers themselves however seem to be able to earn arbitrage profits in the rights market

the gas deregulation process in europe economic and political approach this paper analyses the efforts to deregulate the market to remove the monopolies and introduce competition both at the european union level european commission and national levels the first part of the paper describes the present situation with an emphasis on the institutional disparities among the european countries it presents the outlines of the gas directive recently adopted by the european commission the second part analyzes the perspectives of such deregulation for europe particular attention is given to the strategies implemented by the oil companies on the market the third part of the paper insists on the pending questions the transposition of the gas directive into the national laws of the european countries gives rise to several questions which have yet to be answered

does the dow 10 investment strategy beat the dow statistically and economically a comparison of returns from 1946 to 1995 on a portfolio of the 10 dow jones industrial average stocks with the highest dividend yields the dow 10 with those from a portfolio of all 30 stocks in the djia the dow 30 shows that the dow 10 portfolio beats the dow 30 statistically that is the dow 10 has significantly higher average annual returns after adjusting for the dow 10 portfolio s higher risk extra transaction costs and unfavorable tax treatment however the dow 10 does not beat the dow 30 economically in some subperiods dow 10 performance is economically superior but the question is how to interpret this information in light of the potential for data mining and investor learning

transactions data tests of efficiency of the chicago board options exchange abstract this paper performs lower boundary condition tests based on rational pricing of call options and an implied standard deviation test based on the bid ask prices of options these efficiency tests attempt to closely approximate conditions in the option markets to avoid the pitfalls indicated by phillips and smith 1980 the tests use transactions data and account for the effects of stock and option bid ask prices simultaneity of stock and option prices depth of market execution lag and transaction costs the small and relatively infrequent profits due to market mispricing disappear in the lower boundary tests when transaction costs are taken into account frequent violations of the tighter boundary conditions in the implied standard deviation test are reported but the estimated profits cannot be unambiguously attributed to option market inefficiency

targeted pricing and customer data sharing among rivals it is increasingly observable that competitors in different industries share customer data which can be used for targeted pricing we propose a modified hotelling model with two dimensional consumer heterogeneity to analyze the incentives for such sharing and its ensuing welfare effects we show that these incentives depend on the type of customer data and on consumer heterogeneity in the strength of brand preferences only data on consumer transportation cost parameters is shared the incentives to do so are stronger if consumers are relatively homogeneous customer data sharing is most likely to be detrimental to consumer surplus while the effect on social welfare can be positive

should mobile marketers collect data other than geo location we take today s mobile marketing data landscape as a starting point and consider a duopoly model of third degree price discrimination in which firms can complement geo location information with data on consumer flexibility of varying quality we show that depending on consumer heterogeneity higher quality flexibility data affect profits according to three different patterns in equilibrium both firms tend to acquire data if the data are of high quality while only one acquires data if the data quality is low firms are likely to gain from additional data if consumers have similar preferences and or when data are precise although social welfare weakly improves consumers can be harmed

an empirical investigation of the eoe gold options market abstract on april 2 1981 the european option exchange introduced the first organized exchange trading of options on spot gold we study this new market for three months at its inception and in a parallel period a year later via various tests of rational boundary conditions additionally we use call put parity to infer implied risk free rates irfr s deviations of the irfr s from the prevailing risk free rate permit the possibility of arbitrage through positions known as forward and reverse conversions our tests are modified to allow for transaction costs to more fully address the question of market efficiency

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

pricing with customer recognition abstract this article studies the dynamic effects of behaviour based price discrimination and customer recognition in a duopolistic market where the distribution of consumers preferences is discrete consumers are myopic and firms are forward looking in the static and first period equilibrium firms choose prices with mixed strategies when price discrimination is allowed forward looking firms have an incentive to avoid customer recognition thus the probability that both will have positive first period sales decreases as they become more patient furthermore an asymmetric equilibrium sometimes exists yielding a 100 0 division of the first period sales as a whole price discrimination is bad for profits but good for consumer surplus and welfare

the systematic risk of discretely rebalanced option hedges this paper demonstrates that black scholes option pricing model hedge positions that are risk free when rebalanced continuously will frequently exhibit substantial systematic risk when rebalanced at finite intervals this systematic risk may have biased important empir ical tests of the option pricing model moreover this systematic risk means that the blackscholes option pricing model is inherently inconsistent with the discrete time version of the capital asset pricing model capm