operating flexibility global manufacturing and the option value of a multinational network the multinational corporation is a network of activities located in different countries the value of this network derives from the opportunity to benefit from uncertainty through the coordination of subsidiaries which are geographically dispersed we model this coordination as the operating flexibility to shift production between two manufacturing plants located in different countries a stochastic dynamic programming model treats explicitly this flexibility as equivalent to owning an option the value of which is dependent upon the real exchange rate the model is extended to analyze hysteresis effects and within country growth options we show that the management of across border coordination has led to changes in the heuristic rules used for performance evaluation and transfer pricing

food versus fuel an updated and expanded evidence abstract this paper replicates the study of zhang et al 2010 food versus fuel what do prices tell us energy policy 38 pp 445 451 we confirm the findings of the original paper that there was only a weak relationship between ethanol and food commodities in the period between march 1989 and july 2008 in addition we extend that study and examine the cointegration relationship between biofuels and related commodities for a considerably enlarged dataset 3 vs 1 market 26 vs 8 commodities analysis up till 2017 vs 2008 weekly vs monthly data frequency focusing on the biofuel markets of brazil the eu and the usa in the three separate periods before during and after the food crisis of 2007 and 2008 we show that studying the time variation of the relationships plays an essential role in their proper understanding our results help to clarify the wide extensive discussion about the role of biofuels prices in food shortages manifested particularly during the food crises in agreement with the original study we confirm that price series data do not support strong statements about biofuels uniformly serving as main leading source of high food prices and consequently the food shortages

option pricing with downward sloping demand curves the case of supply chain options this article investigates the role of option contracts in a supply chain when the demand curve is downward sloping we consider call put options that provide the retailer with the right to reorder return goods at a fixed price we show that the introduction of option contracts causes the wholesale price to increase and the volatility of the retail price to decrease in general options are not zero sum games conditions are derived under which the manufacturer prefers to use options when this happens the retailer is also better off if the uncertainty in the demand curve is low however if the uncertainty is sufficiently high then the introduction of option contracts alters the equilibrium prices in a way that hurts the retailer

bayesian estimation and selection of nonlinear vector error correction models the case of the sugar ethanol oil nexus in brazil nonlinear adjustment toward long run price equilibrium relationships in the sugar ethanol oil nexus in brazil is examined we develop generalized bivariate error correction models that allow for cointegration between sugar ethanol and oil prices where dynamic adjustments are potentially nonlinear functions of the disequilibrium errors a range of models are estimated using bayesian monte carlo markov chain algorithms and compared using bayesian model selection methods the results suggest that the long run drivers of brazilian sugar prices are oil prices and that there are nonlinearities in the adjustment processes of sugar and ethanol prices to oil price but linear adjustment between ethanol and sugar prices

how does increased corn ethanol production affect us natural gas prices abstract in recent years there has been a push to increase biofuel production in the united states the biofuel of choice so far has been ethanol produced from corn the effects of increased corn ethanol production on the consumer prices of food and energy continue to be studied and debated this study examines in particular the effects of increased corn ethanol production on us natural gas prices a structural model of the natural gas market is developed and estimated using two stage least squares a baseline projection for the period 2007 2018 is determined and two scenarios are simulated in the first scenario current biofuel policies including eisa mandates tariffs and tax credits are removed in the second scenario we hold ethanol production to the level required only for largely obligatory additive use the results indicate that the increased level of corn ethanol production occurring as a result of the current us biofuel policies may lead to natural gas prices that are as much as 0 25 higher on average than if no biofuel policies were in place a similar comparison between the baseline and second scenario indicates natural gas prices could be as much as 0 5 higher on average for the same period

valuing fixed price supply contracts abstract this article considers the problem of valuing a supply contract that requires the manufacturer to deliver fixed quantities of a product according to a predetermined schedule at fixed prices given that the raw material costs fluctuate randomly the producer has capacity constraints production costs depend on production rates and that switching production rates result in additional charges the problem is to establish an optimal production and inventory policy such that the schedule is met and the value of the contract to the firm is maximized

biodiesel as a motor fuel price stabilization mechanism abstract this article studies the capacity of biofuels to reduce motor fuel price fluctuations for this purpose we study dependence between crude oil and biodiesel blend prices in spain copula models are used for this purpose results suggest that the practice of blending biodiesel with diesel can protect consumers against extreme crude oil price increases

ambiguity aversion in buyer seller relationships a contingent claims and social network explanation negotiations between buyers and sellers or suppliers of goods and services have become increasingly important due to the growing trend towards international purchasing outsourcing and global supply networks together with the high uncertainty associated with them this paper examines the effect of ambiguity aversion on price negotiations using multiple priors based real options with non extreme outcomes we study price negotiation between a buyer and seller in a dual contingent claims setting call option holding buyer vs put option holding seller to derive optimal agreement conditions under ambiguity with and without social network effects we find that while higher ambiguity aversion raises the threshold for commitment for the seller it has equivocal effects on the buyer s negotiation prospects in the absence of network control conversely when network position and relative bargaining power are accounted for we find the buyer s implicit price or negotiation threshold decreases or increases unequivocally with increasing aversion to ambiguity extending extant real options research on price negotiation to the case of ambiguity this set of results provides new insights into the role of ambiguity aversion and network structures in buyer seller relationships including how they influence the range of negotiation agreement between buyers and sellers the results also help assist managers in formulating robust buying selling strategies for bargaining under uncertainty by knowing their network positions and gathering background information or inferring the other party s ambiguity tolerance beforehand buyers and sellers can anticipate where the negotiation is heading in terms of price negotiation range and mutual agreement possibilities

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

supply contracts profit sharing switching and reaction options a common theme in the studies of flexible supply contracts has been the producer s profit maximization problem without regard to the suppliers reactions however suppliers do react and protect their downside against producer s operating policies by revising their strategies in a manner consistent with their profitmaximization objectives this fact motivates our work using a real options contingent claims approach we analyze and value supply contracts in a setting characterized by exchange rate uncertainty supplier switching options order quantity flexibility profit sharing and supplier reaction options we also use basic diversification concepts from portfolio theory to analyze risk reduction in a unique framework given this setup we explicitly model how flexibility can be mutually beneficial to both the producer and the suppliers using this model we concurrently solve and examine the dual optimization problem for the suppliers and the producer our approach also endogenizes the extent and degree of profit sharing through the resulting optimal policies we also analyze what induces the producer and the suppliers to accept flexibility in their contracts

evolution of international stock and bond market integration influence of the european monetary union abstract this paper examines the dynamic relationship between daily stock and government bond returns of selected countries over the past decade to infer the state and progress of inter financial market integration we proceed to empirically investigate the influence of the european monetary union emu on time variations in inter stock bond market integration segmentation dynamics using a two step procedure first we document the downward trends in time varying conditional correlations between stock and bond market returns in european countries japan and the us second we investigate the causality and determinants of this interdependent relationship in particular whether the various macroeconomic convergence criteria associated with the emu have played a significant role we find that real economic integration and the reduction in currency risk have generally had the desired effect on financial integration but monetary policy integration may have created uncertain investor sentiments on the economic future of the emu thereby stimulating a flight to quality phenomenon

asymmetric volatility spillovers between oil and stock markets evidence from china and the united states abstract the relationship between oil and stock markets is a hot topic but little research has focused on the time varying asymmetric volatility spillover in a quantitative manner in this study we use a new spillover directional measure and asymmetric spillover measures to investigate the dynamic asymmetric volatility spillover between oil and stock markets during the period of 2007 to 2016 using the intra day data of wti future prices the sp the results also show strong evidence of asymmetries in volatility shocks between the oil and stock markets due to bad volatility

flexible and risk sharing supply contracts under price uncertainty we study supply contracts for deterministic demand but in an environment of uncertain prices we develop valuation methodologies for different types of supply contracts a time inflexible contract requires the firm to specify not only how many units it will purchase but also the timing of the purchase a time flexible contract allows the firm to specify the purchase amount over a given period of time without specifying the exact time of purchase other than time flexibility the suppliers may offer quantity flexibility to the firm as well i e purchase quantities could be within a prespecified quantity window finally risk sharing features can be incorporated in the contract in terms of the purchase price that the firm eventually pays to a supplier within a prespecified price window the firm pays the realized price but outside of it the firm shares in an agreed way added costs or benefits given the structure of a supply contract we study the firm s decision when to purchase and how many units in each purchase such that the expected net present value of the purchase cost plus inventory holding cost is minimized we discuss optimal purchasing strategies for both time flexible and time inflexible contracts with risk sharing features other interesting results include the analysis of two supplier sourcing environments and the exploitation of quantity flexibility in such contracts our discussion illustrates how time flexibility quantity flexibility supplier selection and risk sharing when carefully exercised can effectively reduce the sourcing cost in environments of price uncertainty

price cycles and asymmetric price transmission in the u s pork market economists have proposed several plausible explanations for observed price transmission asymmetries in commodity markets unfortunately the econometric methods commonly used in such studies cannot empirically distinguish pricing behavior under the competing theories we argue that the theories may be classified by firm responses to high and low frequency price cycles and use engle s band spectrum regression to test the symmetry of high and low frequency cycles in weekly pork prices the findings indicate that changes in wholesale prices are asymmetrically transmitted to retail prices in relatively low frequency cycles which does not support search costs and other high frequency explanations conversely wholesale pork prices asymmetrically adjust to changes in farm prices at all frequencies copyright 2001 oxford university press

food energy nexus in europe price volatility approach abstract the literature on food biofuel price volatility spillovers is growing published articles so far have widely ignored nonlinearities and the influence of exogenous variables on volatility patterns this article allows for these issues when characterizing eu biodiesel industry price dynamics while brazilian and us ethanol markets have been thoroughly investigated less attention has been paid to eu biodiesel markets pure eu biodiesel and rapeseed oil prices are the object of our research two different methods are applied to model these data a parametric approach and long et al s 2011 semiparametric approach empirical results suggest significant asymmetries in volatility spillovers between pure biodiesel and rapeseed oil prices rapeseed stock levels and euro dollar exchange rates are found to play a significant role in reducing food and biofuel price volatilities

global production planning under exchange rate uncertainty motivated by an aggregate production planning problem in an actual global manufacturing network we examine the impact of exchange rate uncertainty on the choice of optimal production policies when the allocation decision can be deferred until the realization of exchange rates this leads to the formulation of the problem as a two stage recourse program whose optimal policy structure features two forms of flexibility denoted as operational hedging 1 production hedging where the firm deliberately produces less than the total demand and 2 allocation hedging where due to unfavorable exchange rates some markets are not served despite having unused production our characterization of the optimal policy structure leads to an economic valuation of production and allocation hedging we show that the prevalence of production hedging is moderated by the degree of correlation between exchange rates a comprehensive examination under the following four generalized settings provides the depth scope and relevancy that our proposed operational hedges play to facilitate aggregate planning 1 multiple periods 2 demand uncertainty 3 price setting or monopolistic pricing and 4 price setting under demand uncertainty we show that production and allocation hedging are robust for these generalizations and should be integrated into the overall aggregate planning strategy of a global manufacturing firm

renewable energy policy alternatives for the future the united states has been subsidizing ethanol since 1978 in the last decade a subsidy has been added for biodiesel the ethanol subsidy has ranged from 40 to 60 cents per gallon over the entire time period tyner and taheripour 2007 the ethanol subsidy is currently 51 cents per gallon and the biodiesel subsidy is 50 cents for biodiesel made from recycled materials such as cooking grease or tallow and 1 per gallon for biodiesel made from oilseed crops such as soybeans over the years the objectives for biofuel subsidies have included in

multinomial approximating models for options with k state variables contingent claims whose values depend on multiple sources of uncertainty arise in many financial contracts and in the analysis of real projects unfortunately closed form solutions for these options are rare and numerical methods can be computationally expensive this article extends the literature on multinomial approximating models specifically new multinomial models are presented that include as special cases existing models the more general models are shown to be computationally more efficient

explaining international stock correlations with cpi fluctuations and market volatility this paper investigates the dynamic correlations among six international stock market indices and their relationship to inflation fluctuation and market volatility the current research uses a newly developed time series model the double smooth transition conditional correlation with conditional auto regressive range dstcc carr model findings reveal that international stock correlations are significantly time varying and the evolution among them is related to cyclical fluctuations of inflation rates and stock volatility the higher lower correlations emerge between countries when both countries experience a contractionary expansionary phase or higher lower volatilities

how do exchange rates co move a study on the currencies of five inflation targeting countries abstract this paper does three things first it explores the type of asymmetry in exchange rate correlation for five inflation targeting countries we show their currencies co move more closely with the currencies of some influential foreign countries during joint appreciations than joint depreciations against a world currency second it establishes empirically the linkage between interest rate differentials and exchange rate correlation we find evidence that both widening and narrowing interest rate differentials will reduce the correlation third it proposes a new version of the asymmetric dynamic conditional correlation model the model proves to be capable of providing great insight into the two issues investigated

a lagrange multiplier test for causality in variance we adapt the lagrange multiplier lm principle to test for noncausality in variance of financial returns the new test is compared with a portmanteau statistic cheung y w ng l k 1996 a causality in variance test and its application to financial market prices journal of econometrics 72 33 48 a monte carlo study reveals superior power of the lm test

forecasting financial volatilities with extreme values the conditional autoregressive range carr model we propose a dynamic model for the high low range of asset prices within fixed time intervals the conditional autoregressive range model henceforth carr the evolution of the conditional range is specified in a fashion similar to the conditional variance models as in garch and is very similar to the autoregressive conditional duration acd model of engle and russell 1998 extreme value theories imply that the range is an efficient estimator of the local volatility e g parkinson 1980 hence carr can be viewed as a model of volatility out of sample volatility forecasts using the s p500 index data show that the carr model does provide sharper volatility estimates compared with a standard garch model

capacity reservation under spot market price uncertainty abstract capacity reservation contracts and spot markets are two alternative purchasing practices we focus on the cost effective management of the combined use of these two procurement sources due to the variability of the spot market prices and demand uncertainty the flexibility of combined sourcing can be advantageous spot market purchasing is a benefit in case of low spot market prices or insufficient reserved capacity and the capacity reservation contract is an operational risk hedging for high spot market price incidents the structure of the optimal combined purchasing policy is complex in this paper we consider a simple and easy to implement capacity reservation base stock policy and compare it to single sourcing options we examine the joint effect of demand and spot market price uncertainty our analysis shows that in the case of large spot market price variability the combined sourcing is superior over spot market sourcing even in the case of low average spot price the combined sourcing is also superior over long term sourcing even in the case of high average spot price if there is large spot market price variability analytical and simulation results are presented to show the effect of the different price cost and uncertainty parameters on the optimal capacity reservation base stock policy and on the expected percentage gain over single sourcing

biofuel related price transmission literature a review abstract in this article an extensive review of the rapidly growing biofuel related time series literature is carried out the data used the modeling techniques and the main findings of this literature are discussed providing a review of this flourishing research area is relevant as a guidepost for future research this literature concludes that energy prices drive long run agricultural price levels and that instability in energy markets is transferred to food markets

international market correlation and volatility international correlations for stocks and bonds fluctuate widely over time as previous studies have found volatility appears to be contagious across markets in addition international correlation increases in periods of high market volatility although the correlation of individual foreign stock markets with the u s stock market has generally increased slightly over the past 37 years it has not increased during the past 10 years similarly the international correlation of bond markets increased in the early 1980s but it has had no discernible trend in the past 10 years the fairly low levels of international correlation among stocks or bonds suggests that national factors still strongly affect local asset prices the link between correlation and market volatility is bad news for global money managers because when the domestic market is subject to a strong negative shock is when the benefits of international risk diversification are needed most

how do policy and information shocks impact co movements of china s t bond and stock markets abstract we investigate the impacts of policy and information shocks on the correlation of china s t bond and stock returns using originally the asymmetric dynamic conditional correlation dcc model that allows for the coexistence of opposite signed asymmetries the co movements of china s capital markets react to large macroeconomic policy shocks as evidenced by structural breaks in the correlation following the drastic 2004 macroeconomic austerity we show that the t bond market and the bond stock correlations bear more of the brunt of the macroeconomic contractions we also find that the bond stock correlations respond more strongly to joint negative than joint positive shocks implying that investors tend to move both the t bond and stock prices in the same direction when the two asset classes have been hit concurrently by bad news but tend to shift funds from one asset class to the other when hit concurrently by good news however the stock stock correlation is found to increase for joint positive shocks indicating that investors tend to herd more for joint bullish than joint bearish stock markets in shanghai and shenzhen

export restrictions do consumers really benefit the wheat to bread supply chain in serbia abstract our approach combines price transmission and gross margin analysis at different stages of the wheat to bread supply chain results suggest that the effects of export restrictions on the end consumer prices for bread and thus food price inflation heavily depend on the price behavior of the intermediates in contrast to theory consumers in serbia experienced welfare losses despite comprehensive governmental market interventions in particular consumers were confronted with increasing flour and bread prices which cannot be fully explained by increasing production costs whereas mills bakeries and retailers increased their profits thus export controls in combination with high price volatility in the supply chain have to be considered as a further factor driving food price inflation

price formation in the german biodiesel supply chain a markov switching vector error correction modeling approach changing linkages between agricultural and energy markets have attracted considerable attention in research and policy discussions during recent years as one of the largest biofuel markets worldwide the german biodiesel market is of particular interest it has grown rapidly since the beginning of the new millennium with this growth being driven mainly by political interventions vertical price transmission channels along the biodiesel supply chain are analyzed in this study we examine the relationship between diesel and biodiesel prices and between rapeseed oil soy oil and biodiesel prices between 2002 and 2008 due to pronounced changes in market conditions and the policy framework a regime dependent markov switching vector error correction model is used the regimes are characterized by markedly different price adjustment behaviors before 2005 and from late 2007 onward a regime characterized by the strong orientation of biodiesel prices toward diesel prices dominates between 2005 and 2007 biodiesel and rapeseed oil prices are mutually interdependent frequent switches between the regimes of the price dynamics during this period indicate a high extent of uncertainty and instability in the market

the impact of diesel price on upstream and downstream food prices evidence from sao paulo abstract the literature on the transmission of oil price shocks to prices along the food supply chain has widely ignored how shocks upstream differ from downstream ones this article examines this issue by modelling upstream and downstream diesel price shocks along the nutritional high value food supply chain in sao paulo using a vector error correction approach and monthly data from july 2001 to december 2013 we estimate short run and long run dynamics in producer and retail prices of meat eggs dairy and fats oil due to changes in the average monthly price of diesel the results of the granger causality analysis show that the price of diesel cannot be used to predict the behaviour of producer prices in all the markets under study and the price of diesel predicts retail price only in the egg market this result is in line with the nature of price controls in brazil as of january 2002 the prices charged by distributors and retailers have been liberalized although wholesale prices of the derivatives including that of diesel continue to be set by the state oil company with the objective of controlling inflationary pressures the results of the response of food prices to diesel price shocks show a positive response of both upstream and downstream prices of egg and dairy products both upstream and downstream while the opposite direction occurs in the fat and meat markets albeit the initial positive shock of the producer price of meat the findings of the study show the important role of public policy in determining the nature of price transmission along the food supply chain

supplier commitment and production decisions under a forecast commitment contract manufacturing firms in capital intensive industries face inherent demand volatility for their products and the inability to change their capacity quickly to cope with these challenges manufacturers often enter into contracts with their customers that offer greater certainty of supply in return for more predictable orders in this paper we study a forecast commitment contract in which the customer provides a forecast the supplier makes a production commitment to the customer based on the forecast and the customers minimum order quantity is a function of the forecast and committed quantities we provide a complete analysis of the suppliers decisions when there is a single customer facing uncertain demand we first show that the supplier has two dominant commitment strategies committing to the forecast or committing to the production quantity we then characterize the jointly optimal commitment and production strategy for the supplier and extend the results to consider a capacity constraint we show that the proposed contract can moderate the suppliers motivation to underproduce and due to the structure of the contract and the form of the suppliers optimal strategy also limits the customers incentive to overforecast we also provide results for a capacitated two customer example which show that the suppliers choice of production quantity for each customer is not necessarily nondecreasing in the total available capacity

how does germany s green energy policy affect electricity market volatility an application of conditional autoregressive range models abstract based on a dynamic model for the high low range of electricity prices this article analyses the effects of germany s green energy policy on the volatility of the electricity market using european energy exchange data from 2000 to 2015 we find rather high volatility in the years 2000 2009 but also that the weekly price range has significantly declined in the period following the year 2009 this period is characterised by active regulation under the energy industry law enwg the eu emissions trading directive etd and the renewable energy law eeg in contrast to the preceding period price jumps are smaller and less frequent especially for day time hours implying that current policy measures are effective in promoting renewable energies while simultaneously upholding electricity market stability this is because the regulations strive towards a more and more flexible and market oriented structure which allows better integration of renewable energies and supports an efficient alignment of renewable electricity supply with demand

optimal exercise of jointly held real options a nash bargaining approach with value diversion this paper provides a two stage decision framework in which two or more parties exercise a jointly held real option we show that a single party s timing decision is always socially efficient if it precedes bargaining on the terms of sharing however if the sharing rule is agreed before the exercise timing decision is made then socially optimal timing is attained only if there is a cash payment element in the division of surplus if the party that chooses the exercise timing can divert value from the project then the first best outcome may not be possible at all and the second best outcome may be implemented using a contract that is generally not optimal in the former cases our framework contributes to the understanding of a range of empirical regularities in corporate and entrepreneurial finance

volatility spillovers between food and energy markets a semiparametric approach previous literature on volatility links between food and energy prices is scarce and mainly based on parametric approaches this article examines these links by using a semiparametric garch model recently proposed by long et al 2011 which is essentially a nonparametric correction of the parametric conditional covariance function the analysis focuses on price links between crude oil ethanol and sugar prices in brazil results suggest strong volatility links between the prices studied parametric approximations of the conditional covariance matrix may lead to misleading results that can be improved upon by using nonparametric techniques

are correlations of stock returns justified by subsequent changes in national outputs abstract in an integrated world capital market the same pricing kernel is applicable to all securities we apply this idea to the stock returns of different countries we investigate the underlying determinants of cross country stock return correlations first we determine for a given measured degree of commonality of country outputs what should be the degree of correlation of national stock returns we propose a framework that contains a statistical model for output and an intertemporal financial market model for stock returns we then attempt to match the correlations generated by the model with measured correlations our results show that under the hypothesis of market segmentation the model correlations are much smaller than observed correlations however assuming world markets are integrated our model correlations can be matched with observed correlations

dual sourcing using capacity reservation and spot market optimal procurement policy and heuristic parameter determination abstract this contribution focuses on the cost effective management of the combined use of two procurement options the short term option is given by a spot market with random price whereas the long term alternative is characterized by a multi period capacity reservation contract with fixed purchase price and reservation level a reservation cost proportional with the reservation level has to be paid for the option of receiving any amount per period up to the reservation level a long term decision has to be made regarding the reserved capacity level and then it has to be decided period by period which quantities to procure from the two sources considering the multi period problem with stochastic demand and spot price the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming exploiting these structural properties an advanced heuristic is developed to determine the respective policy parameters this heuristic is compared with two rolling horizon approaches which use the one period and two period optimal solution a comprehensive numerical study reveals that the approaches based on one period and two period solutions have considerable drawbacks while the advanced heuristic performs very well compared to the optimal solution finally by exploiting our numerical results we give some insights into the system s behavior under problem parameter variations

contracting in supply chains a laboratory investigation the coordination of supply chains by means of contracting mechanisms has been extensively explored theoretically but not tested empirically we investigate the performance of three commonly studied supply chain contracting mechanisms the wholesale price contract the buyback contract and the revenue sharing contract the simplified setting we consider utilizes a two echelon supply chain in which the retailer faces the newsvendor problem the supplier has no capacity constraints and delivery occurs instantaneously we compare the three mechanisms in a laboratory setting using a novel design that fully controls for strategic interactions between the retailer and the supplier results indicate that although the buyback and revenue sharing contracts improve supply chain efficiency relative to the wholesale price contract the improvement is smaller than the theory predicts we also find that although the buyback and revenue sharing contracts are mathematically equivalent they do not generally result in equivalent supply chain performance

flexible supply contracts under price uncertainty abstract this article develops supply contracts covering environments with changing prices we investigate characterization properties of the price processes while considering costs and discount factors we determine expressions of the contract s expected low price and its second moment for a given horizon we then employ these expected price and second moment values to identify an expected optimum time before the contract expires at which the lowest price occurs simulation experiments verify our analysis and they illustrate how the optimum purchase time decreases as the drift term increases

world oil and agricultural commodity prices evidence from nonlinear causality abstract the increasing co movements between the world oil and agricultural commodity prices have renewed interest in determining price transmission from oil prices to those of agricultural commodities this study extends the literature on the oil agricultural commodity prices nexus which particularly concentrates on nonlinear causal relationships between the world oil and three key agricultural commodity prices corn soybeans and wheat to this end the linear causality approach of toda yamamoto and the nonparametric causality method of diks panchenko are applied to the weekly data spanning from 1994 to 2010 the linear causality analysis indicates that the oil prices and the agricultural commodity prices do not influence each other which supports evidence on the neutrality hypothesis in contrast the nonlinear causality analysis shows that i there are nonlinear feedbacks between the oil and the agricultural prices and ii there is a persistent unidirectional nonlinear causality running from the oil prices to the corn and to the soybeans prices the findings from the nonlinear causality analysis therefore provide clues for better understanding the recent dynamics of the agricultural commodity prices and some policy implications for policy makers farmers and global investors this study also suggests the directions for future studies

nonlinearities in the u s corn ethanol oil gasoline price system we use a smooth transition vector error correction model to assess price relationships within the u s ethanol industry monthly ethanol corn oil and gasoline prices from 1990 to 2008 are used in the analysis results indicate the existence of long run relationships among the prices analyzed strong links between energy and food prices are identified

international co movements of real and financial economic variables this study presents a first attempt at investigating whether the international co movements of real economic activity conform to the same international co movements of financial activity this study tests the international co movements of real economic activity on the one hand and financial variables such as stock returns interest rates inflation rates and risk premiums on the other hand we employ a dynamic correlation model on data from oecd countries for the period 1980 2010 our findings demonstrate that international stock markets co react in accordance with the underlying international economic forces we also document three other results first the correlation among countries with respect to real economic activity is statistically positive but the level of this correlation is lower than that of financial variables second there is a significant increase over time in the international correlation level with respect to the financial variables finally the creation of the euro monetary union

risk sharing and counter cyclical variation in market correlations abstract i present a consumption based dynamic asset pricing model in which international market correlations vary counter cyclically over time the driving force in the model is the time varying effective risk aversion induced by external habit formation market returns are driven by fundamental outputs and discount rates when risk aversion is high the effect of discount rates on market returns rises with the market price of risk to the extent that countries share risk the cross country correlation of discount rates exceeds the cross country correlation of fundamental outputs in bad times market correlations rise as returns are mostly driven by discount rates thus consistent with the empirical evidence periods of high risk aversion are associated with high market correlations and high market volatility after calibration my model is consistent with the observed variation in market correlations as well as other features of asset prices including the equity premium and market volatility

dynamic impacts of high oil prices on the bioethanol and feedstock markets this study investigates the impacts of high international oil prices on the bioethanol and corn markets in the us between 2007 and 2008 the prices of major grain crops had increased sharply reflecting the rise in international oil prices these dual price shocks had caused substantial harm to the global economy employing a structural vector auto regression model svar we analyze how increases in international oil prices could impact the prices of and demand for corn which is used as a major bioethanol feedstock in the us the results indicate that an increase in the oil price would increase bioethanol demand for corn and corn prices in the short run and that corn prices would stabilize in the long run as corn exports and feedstock demand for corn decline consequently policies supporting biofuels should encourage the use of bioethanol co products for feed and the development of marginal land to mitigate increases in the feedstock price

how market efficiency and the theory of storage link corn and ethanol markets this article uses the theories of market efficiency and supply of storage to develop a conceptual link between the corn and ethanol markets and explores statistical evidence for the link we propose that a long run no profit condition is established in distant futures markets for ethanol corn and natural gas and then use the theory of storage to define an inter temporal equilibrium among these prices the relationship shows that under certain conditions future price expectations will influence nearby futures prices and that a short term relationship between input and output prices will exist we demonstrate validity of the theory using a structural price model and then by means of time series techniques

are biofuels the culprit opec food and fuel the food commodity price boom of 2003 2008 was the most notable in the past several decades having a substantial impact on global economic activity it affected developing nations by impacting real output the balance of payments government budgetary positions and most important the well being of the very poor high commodity prices also affected developed countries by transmitting business cycle disturbances and creating inflationary pressures several recent studies tried to identify and quantify the factors that caused the food commodity price boom of 2003 2008 see for instance isabel vansteenkiste 2009 these studies suggest that one key factor is growth in demand which since the 1980s has outpaced growth in supply other studies argued that biofuel is the culprit since it increases demand for staple crops see for instance donald mitchell 2008 all these studies however assumed competitive markets and did not consider the impact of biofuel on energy costs to farmers moreover they ignored the organization of petroleum exporting countries opec these studies leave us perplexed regarding the true impact of biofuel on food commodity prices was it or was it not an important contributor to the recent food commodity boom we believe that to answer this question the interactions between energy and food must be modeled and opec introduced and the impact of biofuels compared with other factors that are argued by the literature to be important this paper aims to analyze the multiple contributions of energy and biofuels to the increase are biofuels the culprit opec food and fuel

dynamics of international integration of government securities markets abstract this paper investigates the dynamics of international government bond market integration in six of the g7 economies over two decades leading up to the global crisis it examines whether such integration had been significant the extent to which integration at the short and long end of the yield curve differed the nature of such integration and the extent of the decoupling of the long rates from short rates these issues are investigated using the rigorous smooth transition copula garch model framework the results show that integration at the long end of the yield curve had been increasing had become pronounced and was significantly greater than at the short end decoupling between the short and long end of the yield curve was notable with important implications for the efficacy of monetary policy in the period before the crisis

dynamic correlation and equicorrelation analysis of global financial turmoil evidence from emerging east asian stock markets abstractthis study investigates the dynamic conditional correlations dccs between eight emerging east asian stock markets and the us stock market and analyses the dynamic equicorrelation among these nine stock markets we find a significant increase in the conditional correlations and equicorrelation in the first phase of the global financial crisis we refer to this finding as contagion from the us stock market to the emerging east asian markets we also find an additional significant process of increasing correlations and equicorrelation herding in the second phase of the global financial crisis further we employ two new models namely dccx mgarch a dcc multivariate garch model with exogenous variables and decox mgarch a dynamic equicorrelation multivariate garch model with exogenous variables to identify the channels of contagion we find that an increase in the vix index increases the conditional correlations and equicorrelation while increases in ted spreads decrease the conditional corre

assessing the impact of us ethanol on fossil fuel markets a structural var approach abstract despite the growing importance of biofuels the effect of biofuels on fossil fuel markets is not fully understood we develop a joint structural vector auto regression var model of the global crude oil us gasoline and us ethanol markets to examine whether the us ethanol market has had any impact on global oil markets the structural var approach provides a unique method for decomposing price and quantity data into demand and supply shocks allowing us to estimate the distinct dynamic effects of ethanol demand and supply shocks on the real prices of crude oil and us gasoline ethanol demand in the us is driven mainly by government support in the form of tax credits and blending mandates shocks to ethanol demand therefore reflect changes in policy more than any other factor in contrast ethanol supply shocks are driven by changes in feedstock prices a principle finding is that a policy driven ethanol demand expansion causes a statistically significant decline in real crude oil prices while an ethanol supply expansion does not have a statistically significant impact on real oil prices this suggests that even though us ethanol market is small the influence of us biofuels policy on the crude oil market is pervasive we also show that ethanol demand shocks are more important than ethanol supply shocks in explaining the fluctuation of real prices of crude oil and us gasoline

volatility spillover between oil and agricultural commodity markets abstract this study examines volatility transmission between oil and selected agricultural commodity prices wheat corn soybeans and sugar we apply the newly developed causality in variance test and impulse response functions to daily data from 01 january 1986 to 21 march 2011 in order to identify the impact of the food price crisis the data are divided into two sub periods the pre crisis period 01 january 1986 to 31 december 2005 and the post crisis period 01 january 2006 21 march 2011 the variance causality test shows that while there is no risk transmission between oil and agricultural commodity markets in the pre crisis period oil market volatility spills on the agricultural markets with the exception of sugar in the post crisis period the impulse response analysis also indicates that a shock to oil price volatility is transmitted to agricultural markets only in the post crisis period this paper thereby shows that the dynamics of volatility transmission changes significantly following the food price crisis after the crisis risk transmission emerges as another dimension of the dynamic interrelationships between energy and agricultural markets

optimal operating policies in the presence of exchange rate variability we study the structure of the optimal policies for a firm operating plants in different countries the relative costs of production between the plants are assumed to vary over time due to economic and political factors such as exchange rates inflation taxes and tariffs based on the costs the firm can alter the quantity produced in each plant we determine the structure of the optimal policies for deciding when and by how much to alter the production quantities when the switch over costs are linear or step functions regardless of whether the variable production costs are concave or piece wise linear convex and regardless of whether the firm is supplying one or more markets the optimal policy is always a barrier policy the optimal barriers can be determined by using linear programming techniques and the optimal costs can be computed by solving a system of linear equations when the number of optimal barriers is two the optimal expected costs and the condition that determines the optimal barriers are explicitly derived

transfer costs spatial arbitrage and testing for food market integration conventional tests for food market integration ask often misleadingly whether prices in different locations move together in this paper an alternative methodology the parity bounds model pbm is developed which uses information on transfer costs in addition to food prices to assess the efficiency of spatial arbitrage monte carlo experiments using data generated by a point space spatial price equilibrium model show the pbm to be statistically reliable an application to philippine rice markets demonstrates that the pbm detects efficient arbitrage when other tests do not

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

the dark side of global integration increasing tail dependence abstract we measure stock market coexceedances using the methodology of cappiello gerard and manganelli 2005 ecb working paper 501 this method enables us to measure comovement at each point of the return distribution first we construct annual coexceedance probabilities for both lower and upper tail return quantiles using daily data from 1974 2006 next we explain these probabilities in a panel gravity model framework results show that macroeconomic variables asymmetrically impact stock market comovement across the return distribution financial liberalization significantly increases left tail comovement whereas trade integration significantly increases comovement across all quantiles decreasing exchange rate volatility results in increasing lower tail comovement the introduction of the euro increases comovement across the entire return distribution thereby significantly reducing the benefits of portfolio diversification within the euro area

vegetable oil market and biofuel policy an asymmetric cointegration approach abstract the present paper analyses the long run relationship between vegetable oil prices and conventional diesel prices in the eu for the period 2005 2007 we applied recent developments in the threshold cointegration approach to investigate the presence of asymmetric dynamic adjusting processes between the prices of rapeseed oil sunflower oil and soybean oil and the price of a mineral oil diesel the results presented suggest a two regime threshold cointegration model only for the rapeseed oil diesel price pair thus the rapeseed oil price adjusts rapidly to its long run equilibrium determined by fossil diesel prices but this adjustment is asymmetric it differs if the divergence between the two prices is above or below a critical threshold consequently rapeseed oil appears particularly exposed to external shocks deriving from global political scenarios suggesting the reassessment of the high quota 80 of eu biodiesel represented by this vegetable oil

valuing operational flexibility under exchange rate risk in this paper we develop a stochastic dynamic programming formulation for the valuation of global manufacturing strategy options with switching costs overall we adopt a hierarchical approach first exchange rates are modeled as stochastic diffusion processes that exhibit intercountry correlation second the firm s global manufacturing strategy determines options for alternative product designs as well as supply chain network designs product options introduce international supply flexibility supply chain network options determine the firm s manufacturing flexibility through production capacity and supply chain network linkages third switching costs determine the cost of operational hedging i e the costs associated with reducing downside risks overall the firm maximizes its expected discounted global after tax value through the exercise of product and supply chain network options and or through exploitation of operational flexibility contingent on exchange rate realizations in this environment the firm must trade off fixed operating costs switching costs and the economic benefits derived from exploiting differentials in factor costs and corporate tax rates a multinomial approximation of correlated exchange rate processes is proposed that leads to a consistent and tractable lattice model for this compound option valuation problem we then demonstrate how the global manufacturing strategy planning model framework can be utilized to analyze financial and operational hedging strategies

numerical evaluation of multivariate contingent claims we develop a numerical approximation method for valuing multivariate contingent claims the approach is based on an n dimensional extension of the lattice binomial method closed form solutions for the jump probabilities and the jump amplitudes are obtained the accuracy of the method is illustrated in the case of european options when there are three underlying assets article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

world oil prices and agricultural commodity prices evidence from an emerging market abstract oil prices are thought to have direct effect on agricultural prices followed by an indirect effect through the exchange rate this paper examines the short and long run interdependence between world oil prices lira dollar exchange rate and individual agricultural commodity prices wheat maize cotton soybeans and sunflower in turkey to this end the toda yamamoto causality approach and generalized impulse response analysis for identification of the long and short run interrelationships are applied to the monthly data spanning from january 1994 to march 2010 the impulse response analysis suggests the turkish agricultural prices do not significantly react to oil price and exchange rate shocks in the short run the long run causality analysis reveals that the changes in oil prices and appreciation depreciation of the turkish lira are not transmitted to agricultural commodity prices in turkey hence our results support neutrality of agricultural commodity markets in turkey to both direct and indirect effects of oil price changes

mean variance convergence around the world abstract in this paper we show i that the risk return characteristics of our sample of 17 developed stock markets of the world have converged significantly toward each other during our study period 1974 2007 and ii that this international convergence in risk return characteristics is driven mainly by the declining country effect rather than the rising industry effect suggesting that the convergence is associated with international market integration specifically we first compute the risk return distance among international stock markets based on the euclidean distance and find that the distance thus computed has been decreasing significantly over time implying a mean variance convergence in particular the average risk return distance has decreased by about 50 over our sample period we also document that the risk return characteristics of our sample of 14 emerging markets have been converging rapidly toward those of developed markets in recent years this development notwithstanding emerging markets still remain as a distinct asset class lastly we show that the convergence in risk return characteristics has exerted a negative impact on the efficiency of international investment during our sample period

modeling asymmetric comovements of asset returns existing time varying covariance models usually impose strong restrictions on how past shocks affect the forecasted covariance matrix in this article we compare the restrictions imposed by the four most popular multivariate garch models and introduce a set of robust conditional moment tests to detect misspecification we demonstrate that the choice of a multivariate volatility model can lead to substantially different conclusions in any application that involves forecasting dynamic covariance matrices like estimating the optimal hedge ratio or deriving the risk minimizing portfolio we therefore introduce a general model which nests these four models and their natural asymmetric extensions the new model is applied to study the dynamic relation between large and small firm returns article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies