option bounds with finite revision opportunities this article generalizes the single period linear programming bounds on option prices by allowing for a finite number of revision opportunities it is shown that in an incomplete market the bounds on option prices can be derived using a modified binomial option pricing model tighter bounds are developed under more restrictive assumptions on probabilities and risk aversion for this case the upper bounds are shown to coincide with the upper bounds derived by perrakis while the lower bounds are shown to be tighter in 1984 perrakis and ryan 6 derived upper and lower bounds on european option prices in discrete time and under modest assumptions on preferences and

valuing catastrophe derivatives under limited diversification a stochastic dominance approach abstract we present a new approach to the pricing of catastrophe event cat derivatives that does not assume a fully diversifiable event risk instead we assume that the event occurrence and intensity affect the return of the market portfolio of an agent that trades in the event derivatives based on this approach we derive values for a cat option and a reinsurance contract on an insurer s assets using recent results from the option pricing literature we show that the assumption of unsystematic event risk seriously underprices the cat option last we present numerical results for our derivatives using real data from hurricane landings in florida

analytical upper bounds for american option prices american options require numerical methods namely lattice models to provide accurate price estimates the computations can become expensive when more than one state variable is involved analytical upper bounds can therefore provide a useful guideline for how high american values can reach in this paper we derive analytical closed form upper bounds for american option prices under stochastic interest rates stochastic volatility and jumps where american option prices are difficult to compute with accuracy in a stochastic volatility model heston 1993 and scott 1997 that has two random factors we demonstrate that the upper bound only takes a very small fraction of the time that the american option needs to compute

upper and lower bounds of put and call option value stochastic dominance approach applying stochastic dominance rules with borrowing and lending at the risk free interest rate we derive upper and lower values for an option price for all unconstrained utility functions and alternatively for concave utility functions the derivation of these bounds is quite general and fits any kind of stock price distribution as long as it is characterized by a nonnegative beta transaction costs and taxes can be easily incorporated in the model presented here since investors are not required to revise their portfolios continuously the price that is paid for this generalization is that a range of values rather than a unique value is obtained in the last decade there has been an increasing interest in the options market by both academicians and practitioners the most well known valuation models are the black scholes 4 model the jump stochastic process model see cox and ross 6 the binomial model see cox ross and rubinstein 7 rendleman and bartler 19 and sharpe 22 and rubinstein s discrete model 21 recently perrakis and ryan 18 using rubinstein s approach have derived upper and lower bounds for option prices the relative pricing theory of contingent claims differs in the continuous time and discrete time models in a continuous time framework the instantaneous expected rate of return of the option and that of the underlying stock must follow a certain market equilibrium condition in this case the equilibrium condition is easily determined by a continuous hedging strategy in the discrete time case there is no hedging strategy to provide a simple relationship between the option and the stock price however for a given value distribution of the stock the value distribution of the option is uniquely determined by the option exercise price and this suggests some possible relationships between the stock and option values

quote inefficiency in options markets in an arbitrage free economy with non zero bid ask spreads the existence of payoffs whose price is lower than the price of a dominated payoff cannot be discarded in general however when the former price corresponds to trivial portfolios which involve buying or selling one unit of the basis assets its presence although not an arbitrage is a severe market anomaly which we refer to as an inefficient quote in an empirical study we report evidence that indicates that in options markets both the frequency and the magnitude of these anomalies are substantial and we document puzzling patterns in their behavior

on option pricing bounds the purpose of this article is to compare the perrakis and ryan bounds of option prices in a single period model with option bounds derived using linear programming it is shown that the upper bounds are identical but that the lower bounds are different a comparison of these bounds together with merton s bounds and the black scholes prices in a lognormal securities market is presented the black scholes 1 option pricing model is preference free its simplicity derives from the continuous trading assumption which enables a portfolio of stock and bonds to be constructed so as to replicate the payouts of the option in an incomplete market with only finite opportunities to revise portfolios no preference free option price can be constructed 3 6 for this case preferencedependent prices can be established rather than place restrictive assumptions on preferences perrakis and ryan pr 5 have recently derived upper and lower bounds for a single and multiple period call option price the development of these bounds is based on the single price law and arbitrage arguments and requires modest assumptions on preferences the bounds exist as equilibrium values given a consensus on stock price distributions in this article we shall develop bounds for option prices based on primitive prices in incomplete markets and compare these bounds to the single period bounds derived by perrakis and ryan towards this goal we first review the pricing approach for primitive securities and proceed to re express the pr bounds as derived from their arbitrage portfolios then using linear programming bounds on option prices are derived linear programming approaches for obtaining relationships among option prices have been investigated garman 2 for example established an algebra for evaluating hedge portfolios using this algebra a one period linear program can be established that provides a way to search for arbitrage opportunities over an infinite number of portfolio strategies one of the features of the algebra is that only one linear program need be solved to determine if riskless arbitrage strategies can be established by investigating the dual of the linear program garman obtained necessary and sufficient conditions for rational option pricing in a one period setting these bounds were shown to be consistent with the bounds determined by merton 4 unlike garman s approach the linear programming approach presented here places constraints on time preferences risk aversion and state probabilities under specific sets of assumptions linear programs are formulated where the objective function to be optimized is the call price minimization and maximi

decreasing absolute risk aversion and option pricing bounds in this paper efficient bounds for the price of a call option are obtained using the decreasing absolute risk aversion dara dominance rule such lower and upper bounds are obtained minimizing and maximizing respectively the objective function of a nonlinear optimization problem an explicit formula related to an exponential utility function is given for the special case of three states of nature a large number of experiments have been carried out and the numerical results support the conjecture that the same formula holds for problems with a number of states n 3 moreover dara bounds are more efficient than the bounds obtained using different criteria

bounds on contingent claims based on several assets abstract in 1987 lo derived an upper bound on the price of a european call option on a single asset lo s bound depends only on the mean and variance of the terminal asset price and is termed a semi parametric bound this paper derives similar semi parametric bounds on a european call on the maximum of any number of assets a distribution free bound for the price of this option is obtained the bound depends only on the means and covariance matrix of the returns on n underlying assets the bound is obtained by optimizing over the entries of a positive definite matrix a this can be accomplished by a technique known as semidefinite programming we demonstrate the methodology using two specific applications the first concerns the valuation of a european call option on the maximum of several assets this is known as an outperformance option and is of some practical interest the second application concerns the valuation of a discretely adjusted lookback option these lookback options are of interest in connection with certain equity annuity insurance products

determinants of the structure of u s foreign trade 1958 1976 abstract the heckscher ohlin model with three direct factor inputs is borne out for u s net exports of manufactures in annual cross section regressions for 1958 1976 the coefficient on unskilled labor became significantly more negative over the period and there is evidence that the negative sign on physical capital may reflect the inclusion of natural resource industries further analysis based upon 1960 and 1970 census years suggests the importance as well of skill and technological variables calculations of the total factor requirements of u s trade uphold the leontief paradox for 1958 but not for 1972

income inequality size of government and tax progressivity a positive theory abstract i investigate the relationship between income inequality and the composition of public spending in redistributive policies i extend the meltzer richard model of voting over redistribution allowing voters to choose not only the amount of a uniform lump sum transfer but also the level of provision of a public good the governmental budget is balanced thus these two choices determine the tax rate on labor income the multidimensionality of the policy space implies that there is no condorcet winner i adopt a citizen candidate model of electoral competition to tackle this problem i show that the progressivity of the tax system is increasing in the mean to median income ratio while the size of the government need not be this means that higher income inequality implies a more progressive tax system but in contrast with the traditional analysis it may also result in a smaller size of government such results are consistent with the most recent findings in the empirical literature

the leontief paradox continued or resolved cited in giancarlo gandolfo s textbook international economics i the pure theory of international trade springer verlag 1995 abstract currently unavailable this abstract was borrowed from another version of this item

inequality redistribution and growth a challenge to the conventional political economy approach abstract this paper reconsiders the conventional political economy view that 1 1 more unequal societies tend to make more redistribution and 2 2 more redistribution is harmful to growth we present a number of theoretical arguments suggesting that the two previous implications are not necessarily true and that the empirically observed negative correlation between inequality and growth might just come from the fact that more unequal societies tend to redistribute less which in turn is actually detrimental to growth

on the mean variance tradeoff in option replication with transactions costs this paper analyzes the tradeoff between cost and risk of discretely rebalanced option hedges in the presence of transactions costs i present closed form solutions for expected hedging error transactions costs and variance of the cash flow from a time based hedging strategy similar to that analyzed by leland 1985 furthermore i characterize the cost and risk of a move based hedging strategy without resorting to monte carlo simulations all results are sufficiently general to accommodate the use of a transactions costs adjusted hedging volatility and an asset rate of return that differs from the risk free rate of return

option replication in discrete time with transaction costs option replication is discussed in a discrete time framework with transaction costs the model represents an extension of the cox ross rubinstein binomial option pricing model to cover the case of proportional transaction costs the method proceeds by constructing the appropriate replicating portfolio at each trading interval numerical values of these prices are presented for a range of parameter values the paper derives a simple black scholes type approximation for the option prices with transaction costs and demonstrates numerically that it is quite accurate for plausible parameter values

third order extensions of lo s semiparametric bound for european call options computing semiparametric bounds for option prices is a widely studied pricing technique in contrast to parametric pricing techniques such as monte carlo simulations semiparametric pricing techniques do not require strong assumptions about the underlying asset price distribution we extend classical results in this area specifically we derive closed form semiparametric bounds for the payoff of a european call option given up to third order moment i e mean variance and skewness information on the underlying asset price we analyze how these bounds tighten the corresponding bounds when only second order moment i e mean and variance information is provided we describe applications of these results in the context of option pricing as well as in other areas such as inventory management and actuarial science

leverage constraints and the optimal hedging of stock and bond options this paper considers the problem of a financial institution that needs to hedge a stream of state contingent cash flows while facing borrowing and short sales restrictions the study determines analytically the strategy that minimizes the initial cost of hedging the desired cash flow which is also the upper bound on its market price and shows that the impact of leverage constraints on the cost of hedging call and put options is significant and therefore the biases detected by tests of option pricing models may not represent arbitrage opportunities the paper also shows that with credit limits it is optimal to reduce the rate of trading thus these constraints need to be recognized when estimating the trading volume generated in replicating contingent payoffs such as portfolio insurance

a biological theory of social discounting we consider a growth model in which intergenerational transfers are made via stocks of private and public capital private capital is the outcome of individuals private savings while decisions regarding public capital are made collectively we hypothesize that private saving choices evolve through individual selection while public saving decisions are the result of group selection the main result of the paper is that the equilibrium rate of return to private capital is at least 2 3 percent more than the rate of return to public capital in other words social choices involving intertemporal trade offs exhibit much more patience than individual choices do jel d11 d71 d91 h43 policy issues often involve intergenerational trade offs one highly publicized and polarizing example concerns the appropriate response to global warming while nordhaus 1994 concluded that there was no need to enact draconian policies to reduce co 2 emissions immediately stern 2006 insisted that the situation was in fact dire the difference in position can be attributed almost exclusively to the rates of time preference assumed by these two authors nordhaus used a few percent based on estimates deriving from private economic behavior while stern essentially set it equal to zero on the basis of a philosophical stance it then becomes clear that co 2 emissions should be taken seriously if for some reason private rates of time preference are too high when applied to public decisions since such decisions should then be made on the basis of a lower rate 1

option bounds in discrete time extensions and the pricing of the american put in a recent paper perrakis and ryan 1984 upper and lower bounds on european option prices were derived in discrete time these bounds were based on an extension of the discrete time derivation of black scholes pricing first presented in the work of black and scholes 1973 the bounds are functions of the stock and exercise prices the riskless rate of interest the time to maturity and the entire distribution of stock returns in other words they need more information than black scholes for their computation and the derived results are weaker on the other hand they are significantly more general in their assumptions insofar as they do not rely on the continuous time riskless hedge of the original black scholes derivations or on the assumption of a binomial distribution of stock returns used in cox ross and rubinstein 1979 and rendleman and bartter 1979 for this reason they are likely to be particularly useful in valuing options on assets for which the black scholes methodology is clearly this paper generalizes and tightens the discrete time bounds for european options and develops similar bounds for american puts the stock return has a distribution with a finite range and is subject to the restriction that the stock be nonnegative beta the bounds are derived from arbitrage portfolios using the stock the option and the riskless asset they converge to the previous ones when the range coincides with the nonnegative real line and they both become equal to the binomial option model under a two state stock return upper and lower bounds for the american put are derived recursively by the same method with arbitrage portfolios involving the stock the riskless asset and american and european puts an example is provided with a trinomial return distribution part of this research was done while i was a visiting professor 1983 84 ecole superieure de commerce et d administration des entreprises reims france i wish to thank peter ryan albert madansky and a referee of this journal for helpful advice and comment while retaining all responsibility for any remaining errors or omissions 1 note however that this is also true of other blackscholes generalizations such as merton 1976

models of political economy of growth a short survey abstract this paper surveys recent work on the political economy of growth after presenting the general structure of a model of politics and growth with heterogenous agents we discuss the role of dynamic strategic political behavior the existence of multiple equilibria and how endogenous political participation interacts with the dynamics of wealth distribution and economic development

the leontief paradox continued according to leamer 1980 the leontief paradox is based on a simple conceptual misunderstanding in a multifactor version of the heckscher ohlin model he argues that a capital abundant country need not have its exports more capital intensive than its importsprovided that the country s commodity trade embodies a net export of both labor and capital services as was the case for the united states in leontief s 1954 data for such a country however the model does imply that capital per worker be greater in net exports than in consumption leamer finds that this implication is indeed consistent with leontief s data this note shows however that there is another feature of the trade data which is not so easily explained the fact that the united states exported labor services is in itself paradoxical as discussed below sec ii the model which leamer uses to explain the paradox implies that a country is a net exporter of labor services if and only if its aggregate expenditure per worker is less than that in the rest of the world this implication is clearly inconsistent with the evidence reviewed below in sec iii which shows that expenditure per worker was substantially greater in the united states than the rest of the world and yet the united states exported labor services therefore a modified version of the leontief paradox continues to stand

semi parametric upper bounds for option prices and expected payoffs abstract upper bounds on the expected payoff of call and put options are derived these bounds depend only on the mean and variance of the terminal stock price and not on its entire distribution so they are termed semi parametric a corollary of this result is a set of upper bounds for option prices obtained by the risk neutral valuation approach of cox and ross as an example these bounds are shown to obtain across both lognormal diffusions and mixed diffusion jump processes for any given data set we present an illustrative example that suggests these bounds may be of considerable practical value

through time changes in family income inequality the effect of non synchronous regional growth factors affecting the dynamics of income inequality in the us during the 1948 92 period are examined specifically it extends the work of maxwell who found that through time changes in family income inequality are related to demographic and industry factors and draws upon the insights of other researchers who have recognized that the us national economy is actually a composite of semi autonomous regional economies the results provide strong evidence that family income inequality is related to the pattern of regional economic growth and the relative proportion of unmarried families

option pricing bounds with standard risk aversion preferences abstract for a theoretical valuation of a financial option various models have been proposed that require specific hypotheses regarding both the stochastic process driving the price behaviour of the underlying security and market efficiency when some of these assumptions are removed we obtain an uncertainty interval for the option price up to now the most restrictive intervals for option prices have been obtained using the decreasing absolute risk aversion dara rule in a state preference approach precautionary saving entails the concept of prudence in particular decreasing absolute prudence is a necessary and sufficient condition that guarantees that the saving of wealthier people is less sensitive to the risk associated to future incomes if this condition is coupled with the dara assumption we obtain standard risk aversion sra which guarantees on the one hand that introducing a zero mean background risk to wealth makes people less willing to accept another independent risk and on the other hand that an increase in the risk of the returns distribution of an asset reduces the demand for this asset the main idea of this contribution is to apply decreasing absolute prudence and sra rules in a state preference context in order to obtain efficient bounds for the value of european style options portfolio strategies lower and upper bounds for the options portfolio value are obtained by solving non linear optimization problems the numerical experiments carried out show the efficiency of the technique proposed

option pricing bounds in discrete time upper and lower bounds are derived for call options traded at discrete intervals these bounds are independent of assumptions on the stock price distribution other than a restriction satisfied by the stock being non negative beta the development of the bounds relies on the single price law and arbitrage arguments both single period and multiperiod results are produced and put option bounds follow by extension the bounds exist as equilibrium values given a consensus on stock price distribution they are also valid for empirical studies being adjustable for dividends and commissions following the impetus of the black scholes pricing model the majority of option analyses have been in continuous time such approaches have relied on the formation of perfect riskless hedges involving the option its underlying security and a riskless asset since the hedge must be continuously revised and maintained while actual trading opportunities are discrete this crucial assumption limits the accuracy and applicability of the black scholes and related formulae in fact the black scholes formula can only be considered as a valid approximation to the discrete time solution merton 8 p 663 while the closeness of that approximation has not been ascertained in general 1 earlier discrete models such as boness 3 and samuelson 12 have been succeeded by those of brennan 5 cox et al 6 and rubinstein 11 in which distributional restrictions are imposed on share returns usually the discrete formula converges to the black scholes expression under appropriate limit conditions using the rubinstein 11 approach we derive upper and lower bounds for option prices with both a general price distribution and discrete trading opportunities the bounds are functions of the share and exercise prices the riskless rate of interest the distribution of the share price change per period and the number of periods of expiration of the option the lower bound is tighter than that of merton 7 derived from more general arbitrage considerations while being less exact than the results already mentioned for restricted distributions

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

tight bounds on american option prices in contrast to the constant exercise boundary assumed by broadie and detemple 1996 broadie m detemple j 1996 american option valuation new bounds approximations and comparison of existing methods review of financial studies 9 1211 1250 we use an exponential function to approximate the early exercise boundary then we obtain lower bounds for american option prices and the optimal exercise boundary which improve the bounds of broadie and detemple 1996 with the tight lower bound for the optimal exercise boundary we further derive a tight upper bound for the american option price using the early exercise premium integral of kim 1990 kim i j 1990 the analytic valuation of american options review of financial studies 3 547 572 the numerical results show that our lower and upper bounds are very tight and can improve the pricing errors of the lower bound and upper bound of broadie and detemple 1996 by 83 0 and 87 5 respectively the tightness of our upper bounds is comparable to some best accurate efficient methods in the literature for pricing american options moreover the results also indicate that the hedge ratios deltas and gammas of our bounds are close to the accurate values of american options

bounds and prices of currency cross rate options abstract this paper derives the pricing bounds of a currency cross rate option using the option prices of two related dollar rates via a copula theory and presents the analytical properties of the bounds under the gaussian framework our option pricing bounds are useful because 1 they are general in the sense that they do not rely on the distribution assumptions of the state variables or on the selection of the copula function 2 they are portfolios of the dollar rate options and hence are potential hedging instruments for cross rate options and 3 they can be applied to generate bounds on deltas the empirical tests suggest that there are persistent and stable relationships between the market prices and the estimated bounds of the cross rate options and that our option pricing bounds obtained from the market prices of options on two dollar rates and the historical correlation of two dollar rates are highly informative for explaining the prices of the cross rate options moreover the empirical results are consistent with the predictions of the analytical properties under the gaussian framework and are robust in various aspects

examining the leontief paradox in u s agricultural trade abstract factor intensity of united states agricultural trade is examined in the context of leontief s classic paradox using leontief s method as well as methods developed recently by leamer and others findings indicate that factor endowments are important determinants of u s agriculture s comparative advantage in trade as suggested by the heckscher ohlin theory

testing two trade models in latin american agriculture abstract the heckscher ohlin and markusen models state that countries export the goods intensive in the use of their relatively abundant factor latin american agricultural trade is consistent with both models the paper then shows that latin american agricultural trade is primarily explained by country differences in relative factor abundance between countries rather than differences in technology this findings does not reject the heckscher ohlin model but rejects one of markusen s models

on stochastic dominance and decreasing absolute risk averse option pricing bounds merton perrakis and ryan levy and ritchken have established option pricing bounds under first and second stochastic dominance preferences these bounds are particularly important for valuing contingent claims when continuous trading in the claim and or underlying security does not exist this article provides option bounds under higher orders of dominance specifically option bounds are obtained by solving mathematical programs where preference structures on prices are represented by constraints for first second third and higher orders of stochastic dominance preferences the special linear structure of the mathematical programs allow analytical solutions to be obtained for the bounds for dara preferences third order stochastic dominance while being necessary is not sufficient and additional constraints must be imposed unfortunately these additional constraints are nonlinear while in this case closed form analytical solutions for the option bounds are not obtained numerical examples are presented to illustrate their strength

the political economy of growth a critical survey of the recent literature this article reviews the recent literature on the political economy of growth focusing on the research that has developed at the intersection of the endogenous growth literature and the new political economy it explores the relationship among four key variables economic growth and capital accumulation political instability political freedom and democratic institutions and income inequality

science and technology in united states foreign trade economists generally believe that modern science technology such as the presence of scientists and engineers or research and development is a central factor in the comparative advantage of advanced industrial nations however most discussion of this topic rests on cross industry regressions which leamer and bowen i981 do not provide a valid indication of factor abundance so the overall role of science still remains to be established in addition much remains to be known about the role of different facets of science and innovation in the process of generating comparative advantage there are two fundamentally different ways of understanding technological differences between countries one point of view adopted in the standard neoclassical theory of international trade assumes all countries are on the same production function under these circumstances relative factor abundance determines the factor services which a country exports or imports within this perspective one can make progress towards an understanding of the role of science and technology in international trade by dividing science into many highly specific narrowly defined input factors calculations can then determine the relative abundance of those inputs associated with science technology versus other input factors in a given country or the relative abundance of different elements within the broad area of overall science technology quite another procedure assumes there are substantial differences in the production possibilities faced by different countries for example krugman i979 recently argued that advantages in innovation and lags in the diffusion of knowledge are the basic influences which permit incomes to be higher in the industrialised world than in developing nations this view illustrates the potential economic significance of innovation in advanced countries since the generation of new technologies in industrialised countries and their diffusion to the rest of the world then essentially determines world income distribution and world economic development however empirical implementation of the diffusion viewpoint requires data for many countries which greatly limits the number of facets of technology which can be considered since the present paper is centrally concerned with the effect which a wide variety of technological elements has on international trade we choose to select a framework within which the ample data available on different aspects of technology in the united states can be utilised the first view of technological

on the determination of the us aggregate health care expenditure per capita real health care expenditure is examined against three major groups of explanatory variables economic demographic and health stock and it is found that the three groups of variables have an impact on real health care spending other subcategories such as real private and government health care pharmaceutical dental home nursing ambulatory personal medical consumption and in patient expenditures have also been examined and have been found to be affected by the explanatory variables for several subcomponents there is evidence of supplier inducement of the demographic group of variables the ageing population had an impact only on the per capita real overall and private health care outlay and pharmaceutical spending also cointegrating relationships were found and consistent estimators of the elasticities found

equilibrium pricing in incomplete markets given the exogenous price process of some assets we constrain the price process of other assets that are characterized by their final payoffs we deal with an incomplete market framework in a discrete time model and assume the existence of the equilibrium in this setup we derive restrictions on the state price deflators these restrictions do not depend on a particular choice of utility function we investigate numerically a stochastic volatility model as an example our approach leads to an interval of admissible prices that is more robust than the arbitrage pricing interval

option pricing and replication with transactions costs transactions costs invalidate the black scholes arbitrage argument for option pricing since continuous revision implies infinite trading discrete revision using black scholes deltas generates errors which are correlated with the market and do not approach zero with more frequent revision when transactions costs are included this paper develops a modified option replicating strategy which depends on the size of transactions costs and the frequency of revision hedging errors are uncorrelated with the market and approach zero with more frequent revision the technique permits calculation of the transactions costs of option replication and provides bounds on option prices

optimal replication of options with transactions costs and trading restrictions this paper analyzes the strategy that minimizes the initial cost of replicating a contingent claim in a market with transactions costs and trading constraints the linear programming and two stage backward recursive models developed are applicable to the replication of convex as well as nonconvex payoffs and to a portfolio of options with different maturities the paper s formulation conveniently accounts for fixed and variable transactions costs lot size constraints and position limits on trading the article shows that in the presence of trading frictions it is no longer optimal to revise one s portfolio in each period at the optimum cash flows in excess of the desired ones may be generated the optimal policy trades off the curvature of the payoff that is generated against the terminal slack

stochastic dominance bounds on derivatives prices in a multiperiod economy with proportional transaction costs by applying stochastic dominance arguments upper bounds on the reservation write price of european calls and puts and lower bounds on the reservation purchase price of these derivatives are derived in the presence of proportional transaction costs incurred in trading the underlying security the primary contribution is the derivation of bounds when intermediate trading in the underlying security is allowed over the life of the option a tight upper bound is derived on the reservation write price of a call and a tight lower bound is derived on the reservation purchase price of a put these results jointly impose tight upper and lower bounds on the implied volatility

the global food crisis disaster opportunity or non event household level evidence from cote d ivoire summary using 2008 lsms data for cote d ivoire we study the welfare implications of the price increase of key imported staple food rice and consider the consumption smoothing effect of locally produced food and cash crop varieties while middle income urban households are adversely affected by rising rice prices relatively poor rural households benefit availability of local staple alternatives leads to further income redistribution from net consumers toward net producers of staples by contrast the ability to generate income from tropical cash crops not only improves the welfare of rural households but helps smooth the consumption of urban households

factor shares and savings in endogenous growth in models of steady investment driven growth an individual s propensity to save depends on how much of his income is drawn from accumulated factors of production capital rather than from nonaccumulated factors when agents are heterogeneous in this respect growth oriented policies have distributional consequences and in the absence of lump sum redistribution their implementation faces political constraints if the median voter is capital poor relative to the economy s representative agent political interactions tend to slow down growth when policy acts on capital s income share and tend to accelerate it when investment subsidies are the policy instrument of choice copyright 1993 by american economic association

distributive politics and economic growth a crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it in this paper we analyze the relationship between the two we focus on how an economy s initial configuration of resources shapes the political struggle for income and wealth distribution and how that in turn affects long run growth our main conclusion is that inequality is conducive to the adoption of growth retarding policies we derive this result from a simple political economy model of growth and present cross country evidence consistent with it the key feature of our model is that individuals differ in their relative factor endowments we distinguish between two types of factors an accumulated factor called capital and a nonaccumulated factor called labor growth is driven by the expansion of the capital stock which is in turn determined by individual saving decisions long run growth is endogenous as the aggregate production function is taken to be linearly homogeneous in capital and productive government services taken together the provision of government services is financed by a tax on capital because government services are productive a small tax on

on endogenizing long run growth this assessment of recent theoretical work on endogenous growth identifies three different engines of long run growth i the asymptotic average product of capital is positive ii labor productivity increases as an external effect of capital accumulation iii there are feedback effects on the cost of accumulating knowledge or innovating a general model encompassing all three is considered and then used to review different proposed determinants of long run growth rates the contribution of endogenous growth theory has been to create a framework in which to explain why economic institutions and policies can have long run effects on growth rates

stochastic dominance and expected utility while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics

distribution and growth cross country evidence an endogenous growth model is presented to examine the determinants of economic growth and income distribution and their relationship three major findings from a cross country analysis of 45 countries are 1 a higher level of educational attainment of the labour force has an equalizing effect on income distribution while the larger the dispersion of schooling among the labour force the greater the income inequality 2 human capital investment as well as physical capital investment are significant factors contributing to economic growth and 3 income inequality has a negative effect on economic growth supporting the existence of a complementary relationship between equity and growth

distributional effects of growth and public expenditures in africa estimates for tanzania and rwanda summary in this paper we explore the effects of fiscal policies and growth on measures of household welfare across the distribution of expenditures for two african countries rwanda and tanzania we explore the effect of government expenditures on expenditure growth in each quintile of the expenditure distribution and the effect of growth for each group we find that the benefits of growth are concentrated among the better off sectors of the population in these two countries perhaps to the detriment of the poorer sectors by looking at the effects within a country and across different groups of households and administrative entities we exploit variation in expenditures and growth across and within regions of each country to estimate the elasticities of expenditure with respect to fiscal expenditure and mean expenditure growth at different points of the expenditure distribution using household survey data and government expenditure data at the district level we find that overall mean expenditure growth benefits the top expenditure groups the welfare spillovers are mostly present for top 20 of the expenditure distribution with the middle of the distribution in tanzania responding slightly to these spillovers public social expenditures do not appear to affect inequality considerably but do tend to work toward decreasing inequality however mean expenditure growth is related to increases in inequality in the sense that the richest sectors of the population benefit the most from growth we find that the growth elasticity of expenditure is only above one for the top quintile in both countries in tanzania a 1 increase in average household expenditure is related to a 1 96 expenditure growth in the top quintile and 0 43 in the third quintile in rwanda a 1 increase in average household expenditure is related to a 1 93 increase in household expenditure in the top 20 of the distribution

generalized analytical upper bounds for american option prices this paper generalizes and tightens chen and yeh s 2002 analytical upper bounds for american options under stochastic interest rates stochastic volatility and jumps where american option prices are difficult to compute with accuracy we first generalize theorem 1 of chen and yeh 2002 and apply it to derive a tighter upper bound for american calls when the interest rate is greater than the dividend yield our upper bounds are not only tight but also converge to accurate american call option prices when the dividend yield or strike price is small or when volatility is large we then propose a general theorem that can be applied to derive upper bounds for american options whose payoffs depend on several risky assets as a demonstration we utilize our general theorem to derive upper bounds for american exchange options and american maximum options on two risky assets

on the equality of two lower bounds on the call price a note this note shows that appearances to the contrary the lower bounds on the price of a call option obtained by levy and by ritchken are identical and that this common bound is never inferior to the lower bound obtained by perrakis and ryan

risk bearing and the theory of income distribution this paper develops the stochastic theory of distribution with a dynamic model which focuses on the role of incomplete insurance in generating inequality unlike previous work our approach takes explicit account of the reason for market incompleteness in modeling agents behaviour in particular the amount of risk borne is endogenous using a model of growth with altruism in which agents are risk averse and there is moral hazard we show that lineage wealth follows a markov process which converges globally to an ergodic distribution this also represents the long run population distribution of wealth we discuss the role of particular assumptions such as availability of production loans and unboundedness of utility in yielding the qualitative properties of the distribution of wealth the choice of occupation and the prevention of poverty traps