rural urban poverty differences in transition countries summary this paper uses new poverty data based on household level surveys to analyze changes in rural poverty and rural urban poverty differences in 23 transition countries of central and eastern europe and the former soviet union the paper presents a series of hypotheses to explain differences across countries and changes over time

transition economies performance and challenges i present data and assess the first twelve years of the transition from plan to market transformations have taken place but the income gap between the transition and advanced economies has widened transition countries further east have performed worse than those further west but policies matter all countries carried out quickly type i reforms such as macroeconomic stabilization price liberalization small scale privatization and breakup of state owned enterprises they differed in type ii reforms such as large scale privatization and development of banking and legal systems countries that developed a functioning legal framework and corporate governance have performed better than others

collective agreements wages and firms cohorts evidence from central europe using a large matched employer employee data set the authors investigate the impact of company and industry collective bargaining agreements on wages in the czech republic hungary and poland ce3 they also examine the changing characteristics of the union wage premium in different cohorts of establishments their results challenge the common idea of weak unions in the ce3 by revealing a union wage premium whose characteristics depend on the level at which collective bargaining occurs they find that industry agreements increase wages for low skilled workers while company agreements increase medium and high skilled wages their second finding is that the union wage premium is unevenly distributed between cohorts with substantial cross country variation wage premiums are concentrated in the transitional cohorts in the czech republic and poland and to a lesser extent in the pre transitional cohort in hungary

inferring future volatility from the information in implied volatility in eurodollar options a new approach we study the information content of implied volatility from several volatility specifications of the heath jarrow morton 1992 hjm models relative to popular historical volatility models in the eurodollar options market the implied volatility from the hjm models explains much of the variation of realized interest rate volatility over both daily and monthly horizons the implied volatility dominates the garch terms the glosten et al 1993 type asymmetric volatility terms and the interest rate level however it cannot explain that the impact of interest rate shocks on the volatility is lower when interest rates are low than when they are high article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

market related reforms and increased energy efficiency in transition countries empirical evidence energy efficiency improvement is a desirable response to growing climate change and security of energy supply concerns this article studies the impacts of a varied set of macro level market oriented reforms as well as structural change on economy wide measure of energy efficiency across a group of the transition countries these countries experienced a rapid marketization process which since the early 1990s transformed their economies from central planning towards market driven models we use a bias corrected fixed effect analysis technique to estimate this effect for the period 1990 to 2010 the results suggest that reforms aimed at market liberalization financial sector and most infrastructure industries drove energy efficiency improvements we find significant differences in improvements in energy efficiency between transitional central european and baltic states south east europe ones and the commonwealth of independent states the reasons for these differences are also discussed

interest rate volatility and the term structure a two factor general equilibrium model we develop a two factor general equilibrium model of the term structure the factors are the short term interest rate and the volatility of the short term interest rate we derive closed form expressions for discount bonds and study the properties of the term structure implied by the model the dependence of yields on volatility allows the model to capture many observed properties of the term structure we also derive closed form expressions for discount bond options we use hansen s generalized method of moments framework to test the cross sectional restrictions imposed by the model the tests support the two factor model there are essentially two approaches to the modeling of the term structure of interest rates in continuous time the equilibrium approach pioneered by

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

unemployment and the social safety net during transitions to a market economy evidence from the czech and slovak republics the authors investigate the remarkably short unemployment spells in the czech republic compared to slovakia and other central and east european economies they estimate hazard functions and find that 40 to 5o percent of the difference in unemployment durations between the two republics is accounted for by differences in demographics and demand conditions the remainder is explained by differences in coefficients proxying the behavior of firms individuals and institutions in both republics the unemployment compensation system has a moderately negative effect on the exit rate from unemployment policymakers hence have latitude in providing adequate social safety nets without jeopardizing efficiency copyright 1998 by american economic association

an analytically tractable interest rate model with humped volatility abstract some of the most recent empirical studies on interest rate derivatives have found humped shapes in the volatility structure of interest rates however this realistic feature has been hardly addressed in theoretical works in this paper we propose an interest rate model which allows for a humped volatility structure and which is analytically tractable in that it leads to explicit formulae for european options on discount bonds empirical evidence supporting the model is also provided

monte carlo methods for security pricing the monte carlo approach has proved to be a valuable and flexible computational tool in modern finance this paper discusses some of the recent applications of the monte carlo method to security pricing problems with emphasis on improvements in efficiency we first review some variance reduction methods that have proved useful in finance then we describe the use of deterministic low discrepancy sequences also known as quasi monte carlo methods for the valuation of complex derivative securities we summarize some recent applications of the monte carlo method to the estimation of partial derivatives or risk sensitivities and to the valuation of american options we conclude by mentioning other applications

a political economy approach to the neoclassical gradualist model of transition a political economy approach to the neoclassical gradualist model of transition requires the exposition of what i define the primary elements of the model which are economic analysis definition of a good society speed political structure ideological structure and whether the initial conditions were incorporated in the model after the identification of the primary elements of the neoclassical gradualist model the next step is to identify secondary elements the desired changes with respect to price liberalization stabilization privatization institutional structure monetary policy and the financial system fiscal policy international trade and foreign aid and social policy the analytical framework developed makes possible to understand the neoclassical gradualist model from a new and more enlightening perspective we are better able to comprehend the complexities involved and the disagreements about the reform process the adoption of a gradual process of transition did not only involve specifying the required policies of a successful transition but also entailed a process a sequence by which the reforms should be introduced as such a process of transition consistent with the policies recommended by the neoclassical gradualists economists is developed the conclusion reveals the inconsistencies in the model copyright blackwell publishers ltd 2005

comparison of two periodic review models for stochastic and price sensitive demand environment abstract in this paper we study two periodic review inventory models which primarily differ in terms of how backordering cost is charged time independent backordering tib model where the backordering cost is charged per unit backordered and is independent of the length of time for which backorders persist and the time dependent backordering tdb model where the backordering cost is charged based on the number of backorders as well as the length of time for which they are on the books i e it is charged per unit per unit time our objective is to investigate the impact of these two different backordering cost structures on the optimal decisions of a firm in a stochastic and price sensitive demand environment in order to do so we first develop a general framework where both such costs exist in a profit maximizing context subsequently we analyze two special cases of this general framework with either one of the costs that is tib and tdb models and derive some analytical results regarding the values and behavior of the optimal decisions for both of them we then concentrate on comparing the two models through extensive numerical experiments our investigation demonstrates that the tib model generally results in longer review periods and lower retail prices as far as the base stock level is concerned we show that it can be higher in either setting however the safety stock is considerably lower for the tib model lastly indeed if a firm s backordering cost is indeed time dependent then use of the tib model for making decisions results in significant profit penalty under most market operating conditions specifically for innovative products except when demand uncertainty and or the backordering cost are quite low i e for mature commodity products

a new class of duration measures abstract this paper presents a definition of duration for continuous time term structure models based on proportional bond price changes for instantaneous changes in spot rates we apply this definition to derive a duration measure for heath et al s econometrica 1992 60 77 105 dynamic term structure model

generalized solutions of higher order duration measures abstract higher order duration measures have been shown to permit near perfect immunization this paper presents formulae for these measures which are valid not only at coupon payment dates but between these dates as well we show that errors caused by using formulae valid only at the coupon payment dates increase as one advances from lower order to higher order duration measures a portfolio immunization example comparing both traditional and generalized closed form solutions is given

a tale of two reforms i identify the absence of well functioning product markets in transition economies as a sufficient condition under which big bang reduces output initially while a chinese style reform increases output big bang dismantles central planning or centralized organization of production permitting monopolistic and vertically interdependent enterprises to pursue their own monopoly profits by restricting output and inter firm trade to the detriment of the economy as a whole the chinese reform by maintaining central planning but allowing enterprises to produce for the emerging product markets after they have fulfilled their output quotas under planning gives enterprises incentives to expand output beyond planned targets

dynamics of russian regional clubs the time of divergence carluer f 2005 the dynamics of russian regional clubs the time of divergence regional studies 39 713 726 this paper examines the evolution of russian regional disparities in the light of the theory of convergence clubs the first part presents the limits of the methodology traditionally used in most studies of the convergence process for example the choice of indicators usually per capita income or labour productivity and the statistical test applied beta or sigma convergence strongly influence the results obtained sometimes adversely then following the works of quah and fingleton the superiority of an analysis of distribution dynamics especially one based on markov chains is explained the second part presents the main results based on the per capita regional income of the russian database 88 regions over a fairly long period 1985 99 the key conclusion is the strong diversity of regional evolutions which are characterized by both inertia rich regions remain rich poor regions

turnpike policies for periodic review inventory model with emergency orders abstract this paper presents a periodic review capacitated lot sizing model with limited backlogging and a possibility of emergency orders the main intention of placing emergency orders is to satisfy the demand as soon as a shortage occurs it is assumed that the demands are independently distributed in successive periods there are two resupply modes available a regular mode and an emergency mode hence no lead time of emergence orders is assumed the purchase price could be high the measure of effectiveness is the total or average per period expected cost which includes holding cost shortage cost and both types of order costs the minimum cost is obtained by considering this system as a discrete time markov decision process we use this model to describe a simple and efficient value function algorithm for finding optimal policies we find propositions on specially structured optimal policies generalizing classical results on s s policies some connections of the turnpike policies and optimal infinite policies are presented computational results are given through numerical examples

optimal ordering policies for periodic review systems with replenishment cycles in this paper we consider inventory models for periodic review systems with replenishment cycles which consist of a number of periods by replenishment cycles we mean that an order is always placed at the beginning of a cycle we use dynamic programming to formulate both the backorder and lost sales models and propose to charge the holding and shortage costs based on the ending inventory of periods rather than only on the ending inventory of cycles since periods can be made any time units to suit the needs of an application this approach in fact computes the holding cost based on the average inventory of a cycle and the shortage cost in proportion to the duration of shortage for the backorder model and remedies the shortcomings of the heuristic or approximate treatment of such systems hadley and whitin analysis of inventory systems prentice hall englewood cliffs nj 1963 we show that a base stock policy is optimal for the backorder model while the optimal order quantity is a function of the on hand inventory for the lost sales model moreover for the backorder model we develop a simple expression for computing the optimal base stock level for the lost sales model we derive convergence conditions for obtaining the optimal operational parameters

some insights regarding the optimal reorder period in periodic review inventory systems abstract the periodic review inventory system is not only pervasive but also has an extensive literature dealing with various aspects from its theoretical underpinnings through to its performance however the selection of the best review period and its behaviour with respect to basic inventory parameters such as demand and supply variability appears to be poorly understood in this paper we treat the normal and gamma distributions which are probably the two most commonly used distributions of demand over the key protection time interval in a periodic review system we show that the total cost function is not necessarily well behaved as a function of the review period in particular it can be non convex which complicates the determination of the best value of the review interval also we demonstrate and explain how the best review period changes as the values of various parameters are modified some of these changes are initially counterintuitive in nature managerially oriented interpretations should also be helpful to organisations seeking improvement in inventory system performance

probing theoretically into central and eastern europe transactions resources and institutions since the 1990s central and eastern europe cee has provided unique societal quasi experiments which represent opportunities to test the applicability of existing theories in international business and management studies and to develop new ones specifically three lines of theorising have been advanced 1 organisational economics theories 2 resource based theories and 3 institutional theories for each of these theories we discuss how they contribute to the understanding of key issues such as entry strategies of foreign investors restructuring strategies of local incumbents and entry and growth strategies of entrepreneurs on this basis we assess how cee research has influenced the overall trajectories of theory development cee research has in particular highlighted the importance of contextual influences such as institutions thus scholars have aimed at incorporating institutions into theories such as organisational economics theories and resource based theories and advancing an institution based view of business strategy as a complementary perspective we outline how future research in cee and other emerging economies may advance this research agenda further

a periodic review model with serially correlated inventory level dependent demand abstract it has been established that the demand rates of many consumer products are serially correlated and are dependent on the amount of inventory displayed to the customer a periodic review model is developed that considers both of these effects an adaptive base stock policy based on the critical fractile is presented and a solution methodology is developed the effect of this demand pattern on the safety stock requirement is investigated

social insurance and transition the authors study the general equilibrium effects of social insurance on transition in a model in which the process of moving workers from matches in the state sector to new matches in the private sector takes time and involves uncertainty as might be expected adding social insurance to an economy without any improves welfare contrary to standard intuition however adding social insurance may slow transition the authors show that this result depends crucially on general equilibrium interactions of interest rates and savings under alternative market structures copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

business cycle convergence in emu a first look at the second moment we analyse the dynamics of the standard deviation of demand and supply shocks as well as of the demand component of gdp across countries in the european monetary union emu this analysis allows us to evaluate the patterns of cyclical comovement in emu and compare them the cyclical performance of the new members of the eu and other oecd countries we make use of sigma convergence methods to identify synchronization patterns in business cycles the eurozone has converged to a stable lower level of dispersion across business cycles during the end of the 80s and the beginning of the 90s the new eu members have also experienced a strong pattern of convergence from 1998 to 2005 when a strong divergence trend appears an enlargement of the emu to 22 members would not significantly decrease its optimality as a currency area there is evidence for some europe specific characteristics as compared to global comovements in business cycles authors abstract

hedging against interest rate risk reconsidering volatility adjusted immunization abstract it is well known that long term interest rates display a lower volatility than short term interest rates the imperfect correlation between changes in long term and short term interest rates is also well documented simple immunization techniques based on duration and convexity do not take such factors into account this paper suggests an approach which considers unequal volatility and imperfect correlation when building immunizing portfolios our results suggest that this approach may lead to significant improvements over both duration based and convexity based immunization strategies volatility adjusted and correlation adjusted immunization also outperform strategies based on factor analysis of interest rates changes

lost sales problems with stochastic lead times convexity results for base stock policies we consider a single location inventory system with periodic review and stochastic demand it places replenishment orders to raise the inventory position that is inventory on hand plus inventory in transit to exactly s at the beginning of every period the lead time associated with each of these orders is random however the lead time process is such that these orders do not cross demand that cannot be met with inventory available on hand is lost permanently we state and prove some sample path properties of lost sales inventory on hand at the end of a period and inventory position at the end of a period as functions of s the main result is the convexity of the expected discounted sum of holding and lost sales costs as a function of s this result justifies the use of common search procedures or linear programming methods to determine optimal base stock levels for inventory systems with lost sales and stochastic lead times it should be noted that the class of base stock policies is suboptimal for such systems and we are primarily interested in them because of their widespread use

a markovian framework in multi factor heath jarrow morton models we consider the general n factor heath jarrow and morton model 1992 and provide a sufficient condition on the volatility structure for the spot rate process to be markovian with 2 n state variables the price of a discount bond is also markovian with the same state variables and hence claims against the term structure can be efficiently priced using standard simulation techniques our results extend earlier works such as ritchken and sankarasubramanian 1995 where the one factor model is treated and carverhill 1994 where the volatility structure is non random numerical experiments show that our model can explain the volatility smile observed in the interest rate options market and also overcome the biases noted by flesaker 1993

stabilization and growth in transition economies the early experience this paper analyzes the growth and stabilization experience in 26 transition economies in eastern europe the former soviet union and mongolia for the period 1989 1994 inflation rates have declined significantly in most countries following an inflation stabilization program growth resumes after stabilization occurs typically with a lag of about two years reducing inflation thus appears to be a precondition for growth an econometric analysis of the short run determinants of inflation and growth illustrates the key roles of fixed exchange rates improved fiscal balances and structural reforms in spurring growth and lowering inflation and confirms that inflation stabilization programs have been beneficial for growth even after controlling for structural reforms

an empirical examination of the convexity bias in the pricing of interest rate swaps abstract this paper examines the convexity bias caused by the non linearity of payoffs in the pricing of interest rate swaps off the eurocurrency futures curve the evidence from four major currencies dm and during 1987 1996 suggests that swaps were initially being priced off the futures curve ignoring the convexity adjustment subsequently the market swap rates drifted below the rates implied by futures prices after rejecting alternative explanations we use alternative term structure models to show that the convexity bias is related to the empirically observed swap futures differential we interpret these results as evidence of mispricing of swap contracts during the early years which was eliminated over time

testing the heath jarrow morton ho lee model of interest rate contingent claims pricing this paper presents empirical tests of the constant volatility version of the heath jarrow and morton model which is also the continuous time limit of the ho and lee model using a generalized method of moments gmm test on three years of daily data for eurodollar futures and futures options the model can be rejected for most subperiods various biases in the fitted option prices relative to the market prices are documented through a regression study the small sample properties and power of the gmm framework to this setting are also studied through simulations

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

on environmental impacts of market based reforms evidence from the european and central asian transition economies global warming and other adverse climate change impacts induced by anthropogenic carbon dioxide emissions are a major public policy concern around the world including transitional economies this paper therefore examines the impacts of market based economic reforms on per capita co2 emissions in the european and central asian transition economies where environmental degradation was pervasive prior to these reforms a dynamic panel data model is employed for this purpose for 28 countries covering 22 years from 1990 to 2012 our overall results suggest that economic openness may not necessarily result in sustainable development although reforms in competition policy and corporate governance were the significant drivers of emissions reductions in the region hence advances in competition policy and governance reforms are desirable given the available scope to extend these reforms the structural shift to and emergence of light industries also contributed to declining co2 emissions in the transition process the direct impact of the kyoto protocol in reducing emissions is debatable which also raises doubts on the effectiveness of the paris agreements

term structure movements and pricing interest rate contingent claims this paper derives an arbitrage free interest rate movements model ar model this model takes the complete term structure as given and derives the subsequent stochastic movement of the term structure such that the movement is arbitrage free we then show that the ar model can be used to price interest rate contingent claims relative to the observed complete term structure of interest rates this paper also studies the behavior and the economics of the model our approach can be used to price a broad range of interest rate contingent claims including bond options and callable bonds

immunization strategies for funding multiple liabilities a number of recent papers have shown that it is possible for an investor to immunize a portfolio of default and option free coupon bonds so that the return realized over a given planning period will never be less than that promised at the time the bonds were purchased in this way a future fixed dollar liability may be discharged with certainty by acquiring an asset portfolio with a market value equal to the present value of the liability and setting its appropriate duration equal to the time remaining to the date of discharge 1 however most investors have more than one liability to discharge in his seminal article in 1952 f m redington showed that a stream of liabilities may be immunized if an asset portfolio having the same present value as the liabilities is selected so that 1 its duration is equal to the duration of the liabilities and

empirical tests of two state variable heath jarrow morton models models for pricing interest rate claims developed under the heath jarrow morton paradigm differ according to the volatility structure imposed on forward rates for most general hjm structures the resultant path dependence creates implementation problems ritchken and sankarasubramanian have recently identified necessary and sufficient conditions on the class of volatility structures of forward rates that enable the term structure dynamics to be captured by a finite set of state variables the class is quite rich the instantaneous spot rate volatility may be quite general but the model curtails the structure of forward rate volatilities relative to this spot rate volatility this article provides empirical tests for this class of volatility structures unlike other studies the volatility structure is examined over a broad section of maturities in the yield curve using treasury data over the period 1982 94 we find support for this class furthermore unlike other studies no evidence of a volatility hump is identified copyright 1996 by ohio state university press

the pricing of options on default free bonds recent developments in the finance literature dealing with the valuation of contingent claims have been triggered by black and scholes 2 with their valuation of european options on corporate stocks the type of valuation model derived by black and scholes is attractive because it is independent of preferences this independence is possible due to the fact that the contingent claims are usually assumed to be contingent on traded assets or traded state variables for example a european call option is a claim contingent on the value of the corresponding stock to maintain the independence of the claim from preferences however some variables have to be discarded and considered as constants for example the rate of interest which is not a traded state variable is considered a constant in most of the literature see black and scholes 2 merton 11 and ingersoll 9 though this approximation might not cause important discrepancies in the case of corporate liabilities and options on corporate liabilities the effect of such an approximation on the value of default free bonds and options on default free bonds is more important since these liabilities depend only on the rate of interest

the political economy of transition the overriding importance of political constraints in the transition process has led to developments of the theory of the political economy of reform what are the main insights from that theory how does it reflect the transition reality what have we learned and what do we still need to learn the present article will attempt to answer those questions

peasants against private property rights a review of the literature land is the main if not the only asset for a majority of people in developing countries the definition and allocation of rights over land are thus naturally essential aspects of individuals daily lives as well as critical determinants of social and economic development the privatization of land rights has long been seen as a necessary process enhancing both efficiency and equity however privatized land rights have not always emerged endogenously while exogenously driven programs of land privatization have not always been successful nor popular this has raised questions about the expected benefits of land rights privatization this paper aims at summarizing the main arguments and studies both theoretical and empirical on this issue with a specific focus on the factors that can make privatization inefficient or detrimental for the most concerned individuals

a dynamic model of privatization with endogenous post privatization performance this paper presents a dynamic model of privatization driven by improved institutional protection of private property rights and constrained by the buyer s financial constraints government ownership is more efficient than private ownership when private property rights are insecure improved institutional protection of property rights over time creates the need to privatize the buyer s financial constraints affect the timing of privatization causing the firm s post privatization performance either to improve or to deteriorate in the short run financial constraints also have the possibility of inducing an underpricing phenomenon during privatization where the firm is priced below both what the buyer is willing to pay and the buyer s ability to pay faster institutional development calls for earlier privatization but it also has the potential to either create or exacerbate deadweight losses associated with inefficient privatization a host of empirically testable implications are derived copyright wiley blackwell

bond and option pricing when short rates are lognormal this article describes a one factor model for bond and option pricing that is based on the short term interest rate and that allows the target rate mean reversion and local volatility to vary deterministically through time for any horizon the distribution of possible short rates is lognormal so the rate neither falls below zero nor reflects off a barrier at zero a model like this allows one to match the yield curve the volatility curve and the cap curve surprisingly adding to future local volatility lowers the volatility curve a conventional binary tree with probabilities of 0 5 but variable time spacing is used to value bonds and options when the inputs are constant the slope of the yield curve starts out positive and ends up negative while its curvature shifts from negative to positive even when mean reversion is zero the volatility curve has a negative slope the differential cap curve rises steeply through the effects of volatility and then falls steeply through the effects of discounting and a falling forward rate used as the strike price

an empirical comparison of forward rate and spot rate models for valuing interest rate options our main goal is to investigate the question of which interest rate options valuation models are better suited to support the management of interest rate risk we use the german market to test seven spot and forward rate models with one and two factors for interest rate warrants for the period from 1990 to 1993 we identify a one factor forward rate model and two spot rate models with two factors that are not significantly outperformed by any of the other four models further rankings are possible if additional criteria are applied

lattice models for pricing american interest rate claims this article establishes efficient lattice algorithms for pricing american interest sensitive claims in the heath jarrow and morton paradigm under the assumption that the volatility structure of forward rates is restricted to a class that permits a markovian representation of the term structure the class of volatilities that permits this representation is quite large and imposes no severe restrictions on the structure for the spot rate volatility the algorithm exploits the markovian property of the term structure and permits the efficient computation of all types of interest rate claims specific examples are provided

credible commitment and property rights evidence from russia most managers said that state arbitration courts did not work badly in disputes with other businesses but few expected these courts to protect their rights in disputes with state officials more importantly managers who expressed confidence that state arbitration courts could constrain state officials invested at higher rates even controlling for the perceived effectiveness of state institutions thus tightening constraints on state agents can increase the security of property and bolster state capacity these results generate insights into debates on the role of state in the economy the origins of secure property rights the nature of state capacity the importance of informal institutions and the process of legal reform

intertemporal analysis of employment decisions on agricultural holdings in slovenia the article attempts to quantify determinants influencing the dynamics of employment decisions on agricultural holdings in slovenia and to test specific aspects of labor reallocation during the transition period by the application of an agricultural household model through the use of a 1991 2000 longitudinal data set for 22 055 farm households quantitative analysis of intertemporal employment decisions by farm holders is carried out using probit techniques the determinants tested relate to the personal characteristics of farm holders gender age education level and potential off farm income household characteristics size structure characteristics of the agricultural holding economic size labor intensity and local labor market conditions the model results generally confirm existing empirical evidence on asymmetrical and irreversible participation of holders on the labor market despite intensive restructuring of agriculture and profound changes in the nonfarm labor market in the analyzed period labor supply of farm holders remains rigid the mobility of labor supply is lower than expected which can be attributed to the importance of structural problems constraining intersectoral mobility low labor mobility reduces the efficiency of labor allocation on agricultural holdings in slovenia elements of this problem emerge on both supply e g low level of educational and professional attainment of reference persons and demand sides of the labor market e g unfavorable local labor market conditions a marked tendency toward maintaining the same employment status is more distinct in the case of holders employed on farm only

single factor heath jarrow morton term structure models based on markov spot interest rate dynamics this paper considers the class of heath jarrow morton term structure models where the spot interest rate is markov and the term structure at time t is a function of time maturity and the spot interest rate at time t a representation for this class of models is derived and i show that the functional forms of the forward rate volatility structure and the initial forward rate curve cannot be arbitrarily chosen i provide necessary and sufficient conditions indicating which combinations of these functional forms are allowable i also derive a partial differential equation representation of the term structure dynamics that does not require explicit modeling of both the market price of risk and the drift term for the spot interest rate process using the analysis presented in this paper a class of intertemporal term structure models is derived

dynamic models of the term structure in the past 25 years tremendous progress has been made in modeling the dynamics of the term structure of interest rates which play an instrumental role in determining prices and hedging portfolios of fixed income derivative securities this article reviews the theoretical development of the dynamic models of the default free term structure and their applications in pricing interest rate options classic models sometimes termed equilibrium models and their multifactor extensions are outlined these models provide clear economic intuitions connecting the term structure with economic fundamentals they also lay a foundation for the framework of the arbitrage models that price interest rate derivatives on the basis of the market prices of bonds this framework has been expanded and enriched by recent advances in directly modeling observable market rates through the market models and in incorporating an internally consistent correlation structure through the infinite dimensional models

bond pricing and the term structure of interest rates a discrete time approximation this paper studies the binomial approximation to the continuous trading term structure model of heath jarrow and morton 1987 the discrete time approximation makes the original methodology accessible to a wider audience and provides a computational proce dure necessary for calculating the contingent claim values derived in the continuous time paper this paper also extends and generalizes ho and lee s 1986 model to include multiple random shocks to the forward rate process and to include an analysis of continu ous time limits the generalization provides insights into the limitations of the existing empirical implementation of ho and lee s model

the great divide and beyond financial architecture in transition a growing and deepening divide has opened up between transition countries where economic development has taken off and those caught in a vicious cycle of institutional backwardness and macroeconomic instability this great divide is visible in almost every measure of economic performance gdp growth investment government finances growth in inequality general institutional infrastructure and increasingly in measures of financial development strategies for financial development have differed dramatically across countries and over time offering interesting opportunities to study the links between real and financial sector development

development aid and growth in transition countries empirical studies normally analyze diverse and heterogeneous groups of countries producing very mixed evidence on the effectiveness of development aid in promoting growth we focus on whether aid promotes economic growth in transitional economies we find that aid on average has had a positive impact on growth for this specific group of countries this result is robust to samples estimators and the use of alternate instruments to address endogeneity aid effectiveness is not conditional on good policy and there is little evidence of non linear growth effects arising from aid

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

restructuring of firms in transition ownership institutions and openness to trade we develop a theoretical framework for defensive and strategic restructuring and provide estimates of restructuring in privatized firms in an advanced transition economy slovenia our rich data point to both types of restructuring as well credit rationing and bargaining with respect to investment privatized firms display profit maximizing behavior and a firm s export orientation and institutional features such as insider vs outsider privatization employee ownership and employee control do not affect the firm s employment and investment behavior the results suggest that a major exposure to world competition induces similar economic behavior in firms with different structural and institutional characteristics

recent advances in estimating term structure models in the past 10 years increasingly sophisticated statistical techniques have been applied to the estimation of increasingly complex models of the term structure of interest rates in reviewing this literature we highlight the facts that have been established and the key unresolved issues the data indicate that within a wide range of interest rates mean reversion in rates is at best weak whether mean reversion is stronger for very high or very low levels of rates is an unresolved issue the absolute volatility of rates increases as the level of rates increases but the strength of this effect and the role and nature of either stochastic volatility or regime switching components in rates are still unclear unfortunately these unresolved issues have important implications for fixed income option pricing and risk measurement including value at risk calculations

enterprise breakups and performance during the transition from plan to market using firm level data we estimate the effects of the major wave of 1991 breakups of czechoslovak state owned enterprises on the subsequent performance of the master enterprises and spun off divisions we estimate the performance effects of spinoffs by comparing the performance of enterprises that remained intact throughout the 1990 1992 period to the performance of the master enterprises that experienced spinoffs and the newly spun off subsidiaries our estimates suggest that the breakups had a significant immediate effect on the productive efficiency and on the profitability of industrial firms in 1991 and that the effect became much less significant in 1992 the effect is a negative function of the size of the spinoff being positive for small to slightly above average sized spinoffs and negative for very large ones we cannot reject the hypothesis that the estimated effect was identical for the spun off subsidiaries and the master enterprises that experienced the spinoffs our 1991 estimates sugges

inventory performance under staggered deliveries and autocorrelated demand production plans often span a whole week or month even when independent production lots are completed every day and service performance is tallied daily such policies are said to use staggered deliveries meaning that the production rate for multiple days are determined at a single point in time assuming autocorrelated demand and linear inventory holding and backlog costs we identify the optimal replenishment policy for order cycles of length p with the addition of a once per cycle audit cost we optimize the order cycle length p via an inverse function approach in addition we characterize periodic inventory costs availability and fill rate as a consequence of staggering deliveries the inventory level becomes cyclically heteroskedastic this manifests itself as ripples in the expected cost and service levels nevertheless the cost optimal replenishment policy achieves a constant availability by using time varying safety stocks this is not the case with suboptimal constant safety stock policies where the availability fluctuates over the cycle

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

implied volatility functions in arbitrage free term structure models abstract we test six term structure models in the heath jarrow and morton 1992 class using eurodollar futures and options data from 1987 1992 we study the time series of implied interest rate volatilities from these models using one day lagged implied volatilities our one and two parameter models simultaneously price an average of 18 5 options each day with an average absolute error of one and a half to two basis points although the models fit well we document systematic strike price and time to maturity biases for all models we also implement simple trading strategies to test whether the models identify genuine biases

theoretical foundations of emerging economy business research in probing theoretically into central and eastern europe transactions resources and institutions we outlined the contributions of research in central and eastern europe cee to theoretical debates in business research in this retrospective we reflect upon the evolution of the field over the past decade with the fading impact of cee s distinct shared history we suggest that cee best be analyzed as emerging economies rather than as a distinct geographic entity emerging economy business research is converging on common themes and shared theoretical ideas while identifying critical variations that constrain generalizations among and beyond emerging economies this research thus highlights the need to develop a better understanding of the boundary conditions of scholarly theories of business knowledge over the past decade the institution based view has emerged from distinct intellectual traditions in institutional economics organizational theory and the analysis of business government bargaining research in these converging lines of theorizing places contextual variations at the center of explanations of business phenomena around the world we suggest that the institution based view is evolving toward a paradigm and offer suggestions on how to advance this research agenda further in particular by exploring how firms engage with different sets of potentially conflicting institutions at multiple levels and locations

pricing interest rate derivative securities this article shows that the one state variableinterest rate models of vasicek 1977 and cox ingersoll and ross 1985b can be extended sothat they are consistent with both the current termstructure of interest rates and either the currentvolatilities of all spot interest rates or the currentvolatilities of all forward interest rates theextended vasicek model is shown to be very tracta ble analytically the article compares option pricesobtained using the extended vasicek model withthose obtained using a number of other models