order flow transaction clock and normality of asset returns the goal of this paper is to show that normality of asset returns can be recovered through a stochastic time change clark 1973 addressed this issue by representing the price process as a subordinated process with volume as the lognormally distributed subordinator we extend clark s results and find the following i stochastic time changes are mathematically much less constraining than subordinators ii the cumulative number of trades is a better stochastic clock than the volume for generating virtually perfect normality in returns iii this clock can be modeled nonparametrically allowing both the time change and price processes to take the form of jump diffusions the relations among trading volume stock prices and price volatility the subject of empirical and theoretical studies over many years have lately received renewed attention with the increased availability of high frequency data a vast amount of research has focused on issues such as news arrivals volume and price changes or volatility moves usually outside any framework of general or even partial equilibrium is the normality of returns a key issue for example in the mean variance paradigm for portfolio choice or the recent study of the problems of risk management e g in value at risk verified at any time horizon the evidence accumulated from a number of studies that document the presence of leptokurtosis and skewness in the distribution of returns of a wide variety of financial assets suggests that the answer is no studies as early as for example fama 1965 showed that daily returns are more long tailed than the normal density with the distribution of returns approaching normality as the holding period is extended to one month in the same manner volatility smiles and other observed

the macroeconomic news cycle and uncertainty resolution we examine the behavior of return volatility and trading at 5 minute intervals in the treasury bond futures market in the context of the monthly macroeconomic news cycle we advance and confirm the hypothesis that volatility and trading activity are higher in the first half of the month the data indicate that these patterns arise from at least two sources 1 a higher level of uncertainty regarding the value of news in announcements in the first half of the month and 2 improvement in efficiency of macroeconomic forecasts from the first to the second half of the month

risk aversion in contests in a contest participants spend money or effort to increase their chances of winning a prize the authors examine primarily the following question could the timid the more risk averse have a better chance of winning in contests under limited liability the answer is always positive in the absence of limited liability there is no single answer whereas when the prize is shared as a function of effort the outcome is independent of the contestants risk aversion the authors also relate their results to self protection and examine some other implications of risk aversion copyright 1995 by royal economic society

quantifying and understanding the economics of large financial movements abstract financial market data offer the exciting possibility of quantifying and understanding the physics of a complex dynamical system and the hope that this line of thinking may give some insights into understanding collective human behavior various measures of stock market activity have been found to exhibit puzzling features that have recently attracted much research attention these features include the power law distributions of return volume number of trades assets under management of trading institutions and other power law relations linking them here we review these empirical results and show that some of these findings can be usefully interpreted within the framework of a reduced form model gabaix x gopikrishnan p plerou v stanley h e 2003 a theory of power law distributions in financial market fluctuations nature 423 267 270 and an economic model gabaix x gopikrishnan p plerou v stanley h e 2006b institutional investors and stock market volatility quarterly journal of economics 121 461 504 the features not only present a challenge to models of market fluctuations but their specific power law nature also suggests new modeling directions which include ideas from statistical physics which proved useful in understanding similar relationships that occur in the physics of critical phenomena

structural changes in volatility and stock market development evidence for spain abstract in this paper we review the factors that lead to changes in stock market volatility and use alternative methodologies of endogenous breakpoint detection in order to analyze whether the volatility of the spanish stock market has changed significantly over the period 1941 2001 this period corresponds to years of profound development of both the financial and the productive sides of the economy in this country the analysis of the spanish stock market suggests that volatility has behaved in a different manner over the period 1941 2001 after three decades of low volatility a structural break in volatility is detected in 1972 coinciding with the opening of the spanish economy from 1972 to 2001 the years of more intense financial development the stock market presents a higher level of volatility and lower persistence this effect is partly attributable to the increased growth of trading volume brought about by the economic development process

the variance gamma v g model for share market returns a new stochastic process termed the variance gamma process is proposed as a model for the uncertainty underlying security prices the unit period distribution is normal conditional on a variance that is distributed as a gamma variate its advantages include long tailedness continuous time specification finite moments of all orders elliptical multivariate unit period distributions and good empirical fit the process is pure jump approximable by a compound poisson process with high jump frequency and low jump magnitudes applications to option pricing show differential effects for options on the money compared to in or out of the money copyright 1990 by the university of chicago

does the resource curse hold for growth in genuine income as well summary existing studies analyzing the so called resource curse hypothesis regress growth in gross domestic product gdp on some measure of resource intensity this is problematic as gdp counts natural and other capital depreciation as income deducting depreciation from gdp to arrive at genuine income we test whether the curse still holds true we find supporting evidence but the growth disadvantage of resource intensive economies is slightly weaker in terms of genuine income than gdp we suggest that this provides additional but somewhat weak and limited evidence in support of those who argue that the curse is partly due to unsustainable overconsumption

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

wages and human capital in the u s financial industry 1909 2006 we study the allocation and compensation of human capital in the u s finance industry over the past century across time space and subsectors we find that financial deregulation is associated with skill intensity job complexity and high wages for finance employees all three measures are high before 1935 and after 1980 but not in the interim period workers in the finance industry earn the same education adjusted wages as other workers until 1990 and significantly more afterward by 2006 the premium is 40 on average and 200 for top earners and ceos earnings risk and firm size effects account for some of the premium but the majority does not appear to be sustainable

the green paradox and budgetary institutions abstract we examine oil production strategies in response to the rise of alternative energy in context of saudi arabia and the united states in a unified simultaneous equation model sem over the period 1976 2015 we investigate the extent to which budget balance behaviour explains the nature of oil production strategies we find that green regulations have a positive impact on u s oil production while an inverse relationship holds for saudi arabia we argue that the nature of budgetary institutions prevents saudi arabia from following a profit maximising behaviour saudi arabia is incentivised to ensure political cohesion through adopting a procyclical fiscal policy rather regulators seem incentivised to channel surplus towards individuals to gain popularity in the united states a thriving shale oil industry is a plausible rationale for u s production strategies also known as a weak green paradox this is problematic for climate change initiatives to reduce global emissions climate experts may wish to pay more attention to the supply side of oil markets when designing decarbonisation plans the results challenge conventional wisdom of the green paradox neglecting the role of incentive structure between different types of oil producers

price volatility trading volume and market depth evidence from futures markets the relations between volume volatility and market depth in eight physical and financial futures markets are examined evidence suggests that linking volatility to total volume does not extract all information when volume is partitioned into expected and unexpected components the paper finds that unexpected volume shocks have a larger effect on volatility further the relation is asymmetric the impact of positive unexpected volume shocks on volatility is larger than the impact of negative shocks finally consistent with theories of market depth the study shows large open interest mitigates volatility

has consumption inequality mirrored income inequality we revisit to what extent the increase in income inequality since 1980 was mirrored by consumption inequality we do so by constructing an alternative measure of consumption expenditure using a demand system to correct for systematic measurement error in the consumer expenditure survey our estimation exploits the relative expenditure of high and low income households on luxuries versus necessities this double differencing corrects for measurement error that can vary over time by good and income we find consumption inequality tracked income inequality much more closely than estimated by direct responses on expenditures jel d31 d63 e21

the political economy of resource driven growth abstract in recent decades resource poor countries have out performed resource abundant ones a stylised facts model of competitive industrialisation describes the long run development of a resource poor country with a political state that is developmental only minor change is required to adapt the model to trace the development trajectory of a resource abundant country with a similar political state however most resource abundant countries engender a political state that is factional or predatory and distorts the economy in the pursuit of rents a staple trap model describes the development trajectory under these conditions the model predicts a growth collapse from which recovery is protracted especially for small economies that lack a niche trade link with a large economy

absorbing a windfall of foreign exchange dutch disease dynamics abstract the permanent income rule is seldom the optimal response to a windfall of foreign exchange such as that from a resource discovery absorptive capacity constraints require domestic investment and investment in structures requires non traded inputs the supply of which is constrained by the initial capital stock this particularly when combined with intra sectoral capital immobility delays adjustment and creates short run dutch disease symptoms as the real exchange rate sharply appreciates and overshoots its long run value optimal revenue management requires investing in the domestic non traded goods sector and a slow build up of consumption accumulation of foreign assets adjusts to accommodate the time paths of domestic consumption and investment

forward curves scarcity and price volatility in oil and natural gas markets the role of inventory in explaining the shape of the forward curve and spot price volatility in commodity markets is central in the theory of storage developed by kaldor kaldor n 1939 speculation and economic stability the review of economic studies 7 1 27 and working working h 1949 the theory of the price of storage american economic review 39 1254 1262 and has since been documented in a vast body of financial literature including the reference paper by fama and french fama e f and k r french 1987 commodity futures prices some evidence on forecast power premiums and the theory of storage journal of business 60 55 73 on metals the goal of this paper is twofold i validate in the case of oil and natural gas the use of the slope of the forward curve as a proxy for inventory the slope being defined in a way that filters out seasonality ii analyze directly for these two major commodities the relationship between inventory and price volatility in agreement with the theory of storage we find that i the negative correlation between price volatility and inventory is globally significant for crude oil ii this negative correlation prevails only during those periods of scarcity when the inventory is below the historical average and increases importantly during the winter periods for natural gas our results are illustrated by the analysis of a 15 year database of us oil and natural gas prices and inventory

competitive inventory management in treasury markets abstract we decompose us treasury bid ask spreads into inventory adverse selection and order processing costs by using the fact that inventory trades have different effects on spreads than do proprietary trades we exploit this asymmetry and develop a technique to identify the three components of the spread in order to test three hypotheses dealers make larger changes to inventory 1 following macroeconomic announcements 2 at the start and toward the end of the new york trading hours and 3 when transaction sizes are relatively large we test these predictions using govpx data for on the run 2 year and 10 year treasury notes all three predictions are supported we also assess how primary dealers react to the federal reserve s open market operations omos our findings reveal interesting intraday patterns in the inventory component for both securities

a direct test of the mixture of distributions hypothesis measuring the daily flow of information this paper proposes and conducts direct tests of the mixture of distributions model for stock prices by exploiting the model s bivariate conditional normality of price changes and trading volume these restrictions can be tested under very weak assumptions regarding the daily flow of information to the market as a technical by product important parameters governing the distribution of this unobservable information flow are estimated

from measure changes to time changes in asset pricing abstract the goal of the paper is to review the last 35 years of continuous time finance by focusing on two major advances i the powerful elegance of the martingale representation for primitive assets and attainable contingent claims in more and more general settings thanks to the probabilistic tool of probability change and the economic flexibility in the choice of the numeraire relative to which prices are expressed this numeraire evolved over time from the money market account to a zero coupon bond or a stock price lastly to strictly positive quantities involved in the libor or swap market models and making the pricing of caps or swaptions quite efficient ii the persistent central role of brownian motion in finance across the 20th century even when the underlying asset price is a very general semi martingale the no arbitrage assumption and monroe theorem monroe i 1978 processes that can be embedded in brownian motion annals of probability 6 42 56 allow us to write it as brownian motion as long as we are willing to change the time the appropriate stochastic clock can be shown empirically to be driven by the cumulative number of trades hence by market activity consequently starting with a general multidimensional stochastic process s defined on a probability space f f t p and representing the prices of primitive securities the no arbitrage assumption allows for any chosen numeraire to obtain a martingale representation for s under a probability measure qs equivalent to p this route will be particularly beneficiary for the pricing of complex contingent claims alternatively changing the clock i e changing the filtration f t we can recover the brownian motion and normality of returns in all cases martingales appear as the central representation of asset prices either through a measure change or through a time change

mission improbable does petroleum related aid address the resource curse petroleum related aid programmes and projects are a key part of donor activities in oil rich developing countries this paper critically assesses petroleum related aid activities using the norwegian oil for development programme as a main case recent research suggests that institutions or governance are essential in averting a resource curse while governance issues are beginning to receive more attention in these types of programmes they still form a minor part of programme activities the narrow sector focus that characterizes petroleum related aid makes it unlikely that it will produce the higher order institutional changes needed to lift the resource curse petroleum related aid activities address the issue of corruption only to a limited extent given the commercial and political interests of donor countries questions about the integrity and credibility of these types of programmes can be raised

modeling and measuring intraday overreaction of stock prices abstract we introduce a model for stock prices consisting of a fundamental price process and a news impact curve which allows for either overreaction underreaction or correct response to changes of the fundamental value we further develop statistics based on ohlc data which separately measure upside and downside overreaction the distribution of these statistics under the hypothesis of correct response and fundamental prices following brownian motions is used to derive tests for upside and downside overreaction we show that more realistic and frequently used fundamental price processes with correct response leave the distribution of the test statistics widely unaffected or lead to conservative tests empirical application to different stock markets provides strong evidence for intraday overreaction particularly to bad news the economic significance of the discrimination induced by the proposed statistics is further illustrated by analyzing the performance of a simple buy on bad news strategy

resource intensity institutions and development summary we examine the relationship between resource abundance and several indicators of human welfare consistent with the existing literature on the relationship between resource abundance and economic growth we find that given an initial income level resource intensive countries tend to suffer lower levels of human development while we find only weak support for a direct link between resources and welfare there is an indirect link that operates through institutional quality there are also significant differences in the effects that resources have on different measures of institutional quality these results imply that the resource curse is a more encompassing phenomenon than previously considered and that key differences exist between the effects of different resource types on various aspects of governance and human welfare 2005 elsevier ltd all rights reserved

the dutch disease a disease after all many third world oil producers are encountering serious problems in building up a diversified export base while west european oil and gas producers netherlands united kingdom are suffering a decline in their traded goods manufacturing sector induced by real wage pressures it is becoming increasingly clear that high but temporary oil revenues may be somewhat ora mixed blessing the quip of the economist notwithstanding the mechanism behind this unbalance is clear enough part of the oil revenues is spent on non traded goods which leads to a real appreciation i e a rise in the relative price of non traded goods in terms of traded goods this in turn draws resources out of the non oil traded sector into the non traded goods producing sector corden and neary 1982 van wijnbergen 1980 one may say that this is an efficient response to the increase in income from oil production the united kingdom mexico egypt simply should move into oil derived industries and non traded goods and forget about their manufacturing sector until oil reserves are exhausted however many developing countries are hesitant to take this advice after all the post world war ii success stories in economic development involve without exception countries that promoted their traded goods sector aggressively moreover it is a well established stylised fact that technological progress is faster in the traded non sheltered sectors of an economy than in the non traded sector balassa 1964 is an early reference considering the hypothesis that technological progress rather than taking place exogenously with the passage of time is a function of accumulated experience the concern of countries like egypt mexico or indonesia is much easier to understand since solow 1957 and denison 1962 it is known that capital accumulation explain only a small part of economic growth if most of economic growth is caused by learning by doing induced technologica

time changed levy processes and option pricing abstract the classic black scholes option pricing model assumes that returns follow brownian motion but return processes differ from this benchmark in at least three important ways first asset prices jump leading to non normal return innovations second return volatilities vary stochastically over time third returns and their volatilities are correlated often negatively for equities time changed levy processes can simultaneously address these three issues we show that our framework encompasses almost all of the models proposed in the option pricing literature and it is straightforward to select and test a particular option pricing model through the use of characteristic function technology

macroeconomic news announcements and stock market jump intensity dynamics abstract this paper examines the effect of macroeconomic releases on stock market volatility through a poisson gaussian garch process with time varying jump intensity which is allowed to respond to such information the day of the announcement per se is found to have little impact on jump intensities employment releases are an exception however when macroeconomic surprises are considered inflation shocks show persistent effects while monetary policy and employment shocks reveal only short lived effects also the jump intensity responds asymmetrically to macroeconomic shocks evidence on macroeconomic variables relevance in explaining jump dynamics and improving volatility forecasts on event days is provided

corruption and competition in procurement auctions we investigate the effect of corruption on competition in procurement our assumption is that the bureaucrat i e the agent that administers the market if corrupt may provide an opportunity for bid readjusments in exchange for a bribe as firms expect to be paying a bribe a mechanical effect of corruption is to increase the contract price by an amount corresponding to the anticipated bribe we show however that a key effect of corruption is to facilitate collusion in price between firms and thereby to generate a price increase that goes far beyond the bribe received by the bureaucrat we discuss the effect of other forms of bureaucratic discretion in the procurement process and analyze conditions under which unilateral anticorruption controls restore price competition

continuous time models realized volatilities and testable distributional implications for daily stock returns we provide an empirical framework for assessing the distributional properties of daily speculative returns within the context of the continuous time jump diffusion models traditionally used in asset pricing finance our approach builds directly on recently developed realized variation measures and non parametric jump detection statistics constructed from high frequency intra day data a sequence of simple to implement moment based tests involving various transformations of the daily returns speak directly to the importance of different distributional features and may serve as useful diagnostic tools in the specification of empirically more realistic continuous time asset pricing models on applying the tests to the 30 individual stocks in the dow jones industrial average index we find that it is important to allow for both time varying diffusive volatility jumps and leverage effects to satisfactorily describe the daily stock price dynamics copyright 2009 john wiley sons ltd

stock prices and volume the authors undertake a comprehensive investigation of price and volume co movement using daily new york stock exchange data from 1928 to 1987 they adjust the data to take into account well known calendar effects and long run trends to describe the process they use a seminonparametric estimate of the joint density of current price change and volume conditional on past price changes and volume four empirical regularities are found 1 positive correlation between conditional volatility and volume 2 large price movements are followed by high volume 3 conditioning on lagged volume substantially attenuates the leverage effect and 4 after conditioning on lagged volume there is a positive risk return relation article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

testing the continuous semimartingale hypothesis for the s p 500 large amounts of intraday data of the s p 500 stock index futures are used to test the hypothesis that the log return process corrected for drift is a continuous martingale we use the time change for martingales theorem to rephrase the hypothesis and test whether the return process corrected for drift is a time changed brownian motion this hypothesis cannot be rejected

economic development legality and the transplant effect abstract we analyze the determinants of effective legal institutions legality using data from 49 countries we show that the way the law was initially transplanted and received is a more important determinant than the supply of law from a particular legal family countries that have developed legal orders internally adapted the transplanted law and or had a population that was already familiar with basic principles of the transplanted law have more effective legality than countries that received foreign law without any similar predispositions the transplanting process has a strong indirect effect on economic development via its impact on legality while the impact of particular legal families is weaker and not robust to alternative legality measures

welfare consequences of asymmetric growth abstract standard models in macroeconomics and development economics imply that growth in the aggregate enhances welfare for everyone in the economy i show that instead if economic growth is biased toward the consumption bundle of the rich the welfare of the poor may fall i document the relevance of this mechanism during the latter part of the twentieth century by showing that new information technology disproportionately benefited sectors consumed by the rich

the narrow moving band the dutch disease and the competitive consequences of mrs thatcher notes on trade in the presence of dynamic scale economies abstract this paper presents a model of trade in which comparative advantage instead of being determined by underlying attributes of countries evolves over time through learning by doing in this model arbitrary patterns of specialization once established tend to become entrenched over time the model sheds light on three widely held views that do not make sense in more conventional models first is the view that temporary protection of selected sectors can permanently alter the pattern of comparative advantage in the protecting country s favor second is the view that seemingly favorable developments such as the discovery of exportable natural resources may lead to a permanent loss of other sectors and reduce welfare in the long run third is the possibility that a temporary overvaluation of a currency due to tight money can lead to a permanent loss of competitiveness in some sectors

transactions volume and volatility we show that the positive volatility volume relation documented by numerous researchers actually reflects the positive relation between volatility and the number of transactions thus it is the occurrence of transactions per se and not their size that generates volatility trade size has no information beyond that contained in the frequency of transactions our results suggest that theoretical research needs to entertain scenarios in which 1 both the frequency and size of trades are endogenously determined yet 2 the size of trades has no information content beyond that contained in the number of transactions article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

institutions and the resource curse countries rich in natural resources constitute both growth losers and growth winners we claim that the main reason for these diverging experiences is differences in the quality of institutions more natural resources push aggregate income down when institutions are grabber friendly while more resources raise income when institutions are producer friendly we test this theory building on sachs and warner s influential works on the resource curse our main hypothesis that institutions are decisive for the resource curse is confirmed our results contrast the claims of sachs and warner that institutions do not play a role

booming sector and de industrialisation in a small open economy this paper presents a theoretical analysis of the dutch disease the phenomenon whereby a boom in one traded goods sector squeezes porfitability in other traded goods sectors both by directly bi

corruption and reduced oil production an additional resource curse factor prominent contributions to the resource curse literature suggest weak governance and corruption are important factors behind the wide welfare variations observed among oil producing countries how weak governance and corruption influence revenue management and expenditure decisions as well as the possible welfare benefits derived from oil are broadly discussed how they impact upon volumes of oil produced has however attracted little attention this paper combines a review of the resource curse and oil production literatures with findings from qualitative interviews with oil sector experts to appreciate the feasibility of connections between corruption and oil production below its potential we make particular reference to environments where regulatory institutions or political accountability are weak and focus primarily on producer government and oil firm relations drawing on insights from geology political science and economics we suggest suboptimal production solutions can impact volumes of oil actually produced and create constraints on long term revenues for oil producing countries we argue greater disclosure of information on oil production efficiency on a field by field and country by country basis will assist further investigation of the relationships between corruption and volumes of oil produced

deducing the implications of jump models for the structure of stock market crashes rallies jump arrival rates and extremes this article studies the structure of stock market crashes rallies their jump arrival rates and extremes large market moves are characterized in a pure jump modeling framework based on both raw and devolatized returns it is shown empirically that crashes are more severe in intensity than rallies and have higher arrival rates at the same time both left tail and right tail extreme events conform with frechet limit laws pure jump models which describe well the tail properties of market returns are identified via their levy measures the distribution of extreme events implied by our model s levy measure is closer to the actual realization of extremes than those of competing models finally there is information content in the levy measure of pure jump models for forward arrival rate of jumps

corruption and competition in procurement abstract we consider a procurement problem in which the procurement agent is supposed to allocate the realization of a project according to a competitive mechanism that values bids in terms of the proposed price and quality potential bidders have private information about their production costs since the procurement agent is also in charge of verifying delivered quality in exchange for a bribe he can allow an arbitrary firm to be awarded the realization of the project and to produce a quality level lower than that announced we compute equilibrium corruption and we study the impact on corruption of the competitiveness of the environment and in particular of i an increase in the number of potential suppliers of the good or service to be procured and ii an increase of competition in the market for procurement agents we identify the effects that influence equilibrium corruption and show that contrary to conventional wisdom corruption may well be increasing in competition

the relation between price changes and trading volume a survey this paper reviews previous and current research on the relation between price changes and trading volume in financial markets and makes four contributions first two empiri cal relations are established volume is positively related to the magnitude of the price change and in equity markets to the price change per se second previous theoretical research on the price volume relation is summarized and critiqued and major insights are emphasized third a simple model ofthe price volume relation is proposed that is consis tent with several seemingly unrelated or contradictory observations and fourth several directions for future research are identified

petroleum taxes and optimal resource recovery abstract the objective of this paper is to quantify the incentive effects of petroleum taxes this enables us to estimate individual petroleum reservoirs supply functions before and after tax of central importance are the marginal reserves within the petroleum reservoir itself the recovery factor of oil and gas reservoirs is influenced by economic considerations both the rate of return requirement and petroleum taxes play crucial roles the conclusion is that the distorting effects observed in many petroleum taxation systems have serious resource recovery consequences and reduce the recovery factor for individual oil and gas reservoirs

pricing catastrophe options with stochastic claim arrival intensity in claim time abstract we model claim arrival and loss uncertainties jointly in a doubly binomial framework to price an asian style catastrophe cat option with a non traded underlying loss index using the no arbitrage martingale pricing methodology we span these uncertainties by benchmarking to the shadow price of a one claim bond and the premium of a reinsurance contract we implement a stochastic time change from calendar time to claim time to more efficiently price the cat option as a random sum a binomial sum of claim time binomial asian option prices this choice of the operational time dimension allows us to incorporate different patterns of catastrophe arrivals by adjusting the claim arrival probability we demonstrate this versatility by incorporating a mean reverting ornstein uhlenbeck intensity arrival process simulation results verify our model predictions and demonstrate how the claim arrival probability varies with the expected claim arrival intensity

the role of prices in measuring the poor s living standards in this paper we revisit two pieces of conventional wisdom in the current debate about poverty paying close attention to the price data underlying these findings that the poor pay more than households of higher income for the goods and services they purchase and that poverty rates at least as measured by the u s census have remained essentially flat since the late 1960s raising questions about the success of the policies implemented to reduce poverty by examining scanner data on thousands of household purchases we find that the poor pay less not more for the goods they purchase and by extending the advances on price measurement in the recent decade back to the 1970s we find that current poverty rates are less than half of the official numbers

political foundations of the resource curse in this paper we argue that the political incentives that resource endowments generate are the key to understanding whether or not they are a curse we show 1 politicians tend to over extract natural resources relative to the efficient extraction path because they discount the future too much and 2 resource booms improve the efficiency of the extraction path however 3 resource booms by raising the value of being in power and by providing politicians with more resources which they can use to influence the outcome of elections increase resource misallocation in the rest of the economy 4 the overall impact of resource booms on the economy depends critically on institutions since these determine the extent to which political incentives map into policy outcomes countries with institutions that promote accountability and state competence will tend to benefit from resource booms since these institutions ameliorate the perverse political incentives that such booms create countries without such institutions however may suffer from a resource curse

a fully integrated liquidity and market risk model going beyond the simple bid ask spread overlay for a particular value at risk the author introduces an innovative framework that integrates liquidity risk funding risk and market risk he overlaid a whole distribution of liquidity uncertainty on future market risk scenarios and allowed the liquidity uncertainty to vary from one scenario to another depending on the liquidation or funding policy implemented the result is one easy to interpret easy to implement formula for the total liquidity plus market risk profit and loss distribution

pure jump levy processes for asset price modelling abstract the goal of the paper is to show that some types of levy processes such as the hyperbolic motion and the cgmy are particularly suitable for asset price modelling and option pricing we wish to review some fundamental mathematic properties of levy distributions such as the one of infinite divisibility and how they translate observed features of asset price returns we explain how these processes are related to brownian motion the central process in finance through stochastic time changes which can in turn be interpreted as a measure of the economic activity lastly we focus on two particular classes of pure jump levy processes the generalized hyperbolic model and the cgmy models and report on the goodness of fit obtained both on stock prices and option prices

transitions career and family life cycles of the educational elite among life s most vital transitions are those concerning family and career we decide when and whom to marry how many children to have whether to further our education and which occupations and jobs to pursue fundamental aspects of these transitions began to change around the early 1970s for the college educated generally and for women in particular the median age at first marriage among college graduate women which had been stable at about 22 5 years old from the 1950s to the early 1970s for birth cohorts from the 1930s to about 1950 increased by 2 5 years between 1972 and 1979 for birth cohorts from about 1950 to 1955 the fraction of women not having a first birth by around 40 years old increased from 20 percent for those graduating in the early 1960s to 28 percent for those graduating in the 1970s college graduate women greatly increased their education in professional schools the fraction female among first year law and medical school students for example was 10 percent in 1970 but rose to 40 percent by 1990

intraday price change and trading volume relations in the stock and stock option markets this study investigates intraday relations between price changes and trading volume of options and stocks for a sample of firms whose options traded on the cboe during the first quarter of 1986 after purging the price change series of the effects of bid ask spreads multivariate time series analysis is used to estimate the lead lag relation between the price changes in the option and stock markets the results indicate that price changes in the stock market lead the option market by as much as fifteen minutes the analysis of trading volume indicates that the stock market lead may be even longer the intense trading activity in and in fact the very existence of organized stock option markets attest to the economic benefits that these financial contracts provide reduced transaction costs and increased financial leverage are two reasons why trading in the stock option market may be more attractive than trading in the market for the underlying stock in addition these cheaper and more flexible trading opportunities attract new and differently informed investors to the marketplace the resulting increase in trading activity together with the inextricable arbitrage linkage between stock and option prices imply an increase in market efficiency this study investigates empirically the intraday price change and trading volume relations between stocks and options for a sample of firms whose options were actively traded on the chicago board options exchange during the first quarter of 1986 in particular intraday call option price changes are translated into implied stock price changes using the american call option pricing model these intraday implied stock price changes are then compared with the actual stock price changes to identify which if either market leads the other in perfectly functioning capital markets there should be complete simultaneity between the series that is new information disseminating into the marketplace should be reflected in the prices and the trading activity of both securities simultaneously institutional factors however may make the stock option market more attractive to information traders this may cause price changes and trading activity due to new information to be observed in the option market first followed by price

bridging the gap between the distribution of realized ecu volatility and arch modelling of the euro the garch nig model summary this paper bridges the gap between traditional arch modelling and recent advances on realized volatilities based on a ten year sample of five minute returns for the ecu basket currencies versus the us dollar we find that the realized volatilities constructed from the summation of the high frequency intraday squared returns conditional on the lagged squared daily returns are approximately inverse gaussian ig distributed while the distribution of the daily returns standardized by their realized volatilities is approximately normal moreover the implied daily garch model with normal inverse gaussian nig errors estimated for the ecu returns results in very accurate out of sample predictions for the three years of actual daily euro us dollar exchange rates copyright 2002 john wiley sons ltd