generating conditional expectations from models with selectivity bias abstract this paper discusses how conditional expectations should be generated from models with sample selectivity we argue that the conventional method ignores relevant and available information and produces unreliable results an alternative approach is suggested and the empirical example of black white wage differentials is presented

the early exercise of options on treasury bond futures this paper presents a test of the theory of rational option exercise exercise data from the market for options on treasury bond futures are used to test the model of rational early exercise developed by barone adesi and whaley 1987 baw the results show that the baw model underestimates the futures price that will trigger exercise for calls and overestimates this price for puts the exercise bias is observed to change across option maturities and the direction of the bias is consistent with the direction of the model pricing bias observed by whaley 1986

on valuing american futures options more than 20 different futures option contracts currently trade on u s exchanges these american options are exercisable at any time up to and including the expiration day in pricing them however investment managers have been forced to rely on principles developed for european options which may be exercised only at expiration this practice can be misleading because the early exercise privilege of american futures options has a significant effect on pricing the early exercise premium of american futures options affects two types of pricing relations the first type are those relations developed by assuming the market is free from costless arbitrage opportunities these relations are often termed rational option pricing restrictions and an important relation within this category is the put call parity relation which simultaneously links the prices of the put and the call in the futures option market with the price of the underlying futures contract the second and perhaps most important type of option pricing relations affected by early exercise are valuation equations valuation equations require an additional assumption about the futures price distribution the most commonly used assumption is a lognormal distribution the widest known model for pricing futures option contracts is the black model but it was developed for european futures options and thereby ignores the value of the early exercise feature of the american options an intuitively appealing approximation method based on the american futures option valuation equation is very accurate and computationally inexpensive

male labour force participation following illness or injury this paper develops a model of the disabled individual s labour force participation decision following illness or injury and confronts it with data on the financial consequences of ill health a utility function is specified which allows for the effect of changes in health on work leisure preferences and is evaluated in relation to a household budget constraint estimation is through maximization of the appropriate likelihood function correcting for self selection bias within a switching regression model results are presented showing significant effects of financial variables on participation and these are seen to vary with age disability and income

the american put option valued analytically an analytic solution to the american put problem is derived herein the hedge ratio and other derivatives of the solution are presented the formula derived implies an exact duplicating portfolio for the american put consisting of discount bonds and stock sold short the formula is extended to consider put options on stocks paying cash dividends a polynomial expression is developed for evaluating these formulae values and hedge ratios for puts on both dividend and nondividend paying stocks are calculated tabulated and compared with values derived by numerical integration and binomial approximation as with european options evaluating an analytic formula is more efficient than approximating the stock price process or the partial differential equation by binomial or finite difference methods finally applications of this american put solution are discussed

efficient selection of insured currency positions protective puts vs fiduciary calls we examine the empirical results from implementation of portfolio insurance strategies employing currency spot and futures options hypotheses are generated from ogden and tucker s 1988 generalizations concerning the relative values of american spot currency options and currency futures options we find that protective puts using futures options are generally dominated by both protective puts that use options on spot currencies and by fiduciary calls on futures contracts this suggests that the prices of puts on foreign currency futures contracts are too high relative to foreign currency futures calls and to puts on spot currencies

measuring price risk in rating revenue coverage bs or no bs the black scholes bs option pricing model has been a cornerstone of modern financial theories since its introduction by black and scholes 1973 and its subsequent refinement by merton 1973 the model has realized widespread adoption for a number of purposes inherent in the model are a number of assumptions an important and potentially restrictive assumption is that the underlying asset price is log normally distributed among the many diverse uses of the bs model the model and underlying theory are used to derive measurements of the variance of expected harvest time prices for use in rating revenue coverage in the federal crop insurance program revenue coverage currently accounts for about 80 of the total liability insured in the program this liability frequently exceeds 100 billion and thus the accuracy of revenue premium rates is of vital importance the use of the bs model by the risk management agency rma of the usda has been the focus of recent criticisms of the program critics have argued in favor of retrospective measures of price variability that are based on historical price movements or have recommended other approaches to measuring price risk this article reports on a contracted review of revenue insurance rating methodology commissioned by rma we evaluate a number of alternative approaches to measuring expected price variability including several approaches recommended by critics of the federal program our results suggest that the bs model is preferred to recommended alternatives on the basis of numerous criteria

an empirical investigation of the market for comex gold futures options option pricing models that assume a constant interest rate may misprice futures options if the interest rate fluctuates significantly or if the price of the underlying asset is correlated with the interest rate the futures option pricing model of ramaswamy and sundaresan allows for a stochastic interest rate and correlation of the underlying asset s price with the interest rate using a data set of daily closing prices for comex gold futures options this paper tests the ramaswamy and sundaresan model against a constant interest rate model results indicate that the stochastic interest rate model is a superior predictor of market prices the past several years have witnessed many innovations in contingentclaims markets the introduction of gold futures options by the commodity exchange of new york comex in october 1982 has proven particularly successful volume and open interest have been large and growing the combination of futures and futures options trading makes comex the principal market for gold in north america the existence of gold futures options represents a dual challenge to conventional option pricing models first the variability of interest rates affects futures prices and thus the value of futures options second if the price of gold is correlated with inflation or the real interest rate it will also be correlated with the nominal interest rate option pricing models that assume that the nominal rate is constant will misprice gold futures options if these factors are significant this paper tests whether market prices for gold futures options are best described by an alternative model that allows the price of gold to covary with the rate of interest section i describes comex gold contracts and notes differences between futures option contracts and stock option contracts which have been studied more extensively section ii describes the data set of market prices that has been collected and tests for violations of boundaries by the prices section iii describes and tests the competing option valuation models section iv is a summary and conclusion

risk preferences and pesticide use by cotton farmers in china abstract despite that insect resistant bt cotton has been lauded for its ability to reduce the use of pesticides studies have shown that chinese bt cotton farmers continue to use excessive amounts of pesticides using results from a survey and an artefactual field experiment we find that farmers who are more risk averse use greater quantities of pesticides we also find that farmers who are more loss averse use lesser quantities of pesticides this result is consistent with our conceptual framework and suggestive evidence where farmers behave in a loss averse manner in the health domain and place more weight on the importance of health over money in the loss domain

biotechnology boosts to crop productivity in china trade and welfare implications genetically modified gm cotton is widely adopted and the list of gm technologies in trials is impressive in china at the same time there is an active debate on when china should commercialize its gm food crops this paper provides an economy wide assessment of some of the issues surrounding the adoption and commercialization of biotechnology based on unique data from empirical micro level study and field trials in china and a modified gtap model our results indicate that the development of biotechnology has an important impact on china s production trade and welfare welfare gains far outweigh the public biotechnology research expenditures most gains occur inside china and can be achieved independently from biotech unfriendly polices adopted in some industrialized countries

the analytic valuation of american options no analytic solutions exists for the valuation of american options written on futures contracts and foreign currencies for which early exercise may be optimal this article formulates the american option valuation problem in economically and mathematically meaningful ways this enables us to derive valuation formulas for american options the properties associated with the optimal exercise boundary are examined and a numerical technique to implement the valuation formulas is presented article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

information time option pricing theory and empirical evidence abstract with a stochastic time change from calendar time to information time we derive a parsimonious option pricing formula with stochastic volatility as a risk neutral poisson sum of merton s 1973 prices over the option s information time maturity domain the formula contains two unobservable parameters information arrival intensity and information time asset volatility with stochastic volatility induced by random information arrival when the information arrival rate intensifies the option price increases and vice versa we test the formula in pricing hedging and excess profits capture empirically using currency and the s p 500 futures options transaction data

trader rationality in the exercise of futures options abstract we examine the rationality of investor exercise behavior by analyzing two years tendered exercise notices for treasury bond futures options we conclude that exercise behavior is generally rational but document numerous failures to exercise as well as some exercises that should not have occured both at and prior to expiration the most frequent type of error is failing to exercise suggesting that traders do not monitor their positions with sufficient care finally we show that investors use information arriving after trading closes but before exchange imposed exercise deadlines in forming their exercise decisions

intellectual property rights and the welfare effects of agricultural r d the profound changes that have affected agriculture in modern times are perhaps best illustrated by the evolution of production techniques due to mechanization new chemical inputs such as herbicides pesticides and fertilizers genetic selection of crops and animals new crop varieties and countless other technical and organizational improvements these innovations have allowed a generalized increase in physical output while at the same time agriculture has suffered a massive exodus of labor forces towards the non farm sectors indeed a stylized fact of developed countries post war growth is that productivity in agriculture has grown faster than in other sectors jorgenson and gollop 1992 this remarkable record naturally begs the question of what is at its root and a view that commands considerable consensus is that agricultural productivity growth is due to past investments in scientific research and development r d

pro poor agricultural biotechnology can the international research system deliver the goods abstract while global investment in agricultural research by the private sector is increasing with growth in developing country markets and the emergence of new technologies complementary public sector investment is stagnating or declining in many developing countries this review argues that the changing roles of the public and private sectors in generating new scientific knowledge may adversely affect the diffusion of explicitly pro poor technologies technologies that are simultaneously yield enhancing and poverty reducing comparing historical evidence from the green revolution with recent evidence from the emerging era of agricultural biotechnology this review argues that a more pluralistic international system for agricultural research will be more responsive to poverty only if the strategic leadership role of the public sector is strengthened certain research functions are reallocated to the private sector and new policy and organizational mechanisms are used to stimulate pro poor research in and for developing country agriculture

the impact of domestic and global trade liberalisation on five southern african countries we compare the impact of alternative domestic and global trade liberalisation scenarios on five economies in southern africa the study applies a computable general equilibrium model that employs standardised 12 sector social accounting matrices for malawi mozambique tanzania zambia and zimbabwe the approach incorporates stylised features such as own household consumption and marketing margins that are of particular importance when a majority of agricultural producers are not sufficiently integrated into formal markets and thus rely on own production to meet their daily diets hence improved infrastructure implies lower marketing costs and better market integration which translates to increased production opportunities the comparison of the results across all five countries reveals that common policy measures have different impacts depending on the underlying economic structures

the pricing of stock index options in a general equilibrium model this paper analyzes the pricing of stock index options in a simple general equilibrium model in this model the volatility of the stock index and the spot rate of interest are functions of a stochastic variable the paper investigates the biases that arise when using the black scholes model with the assumed volatility and interest rate dynamics it is shown that the model can in principle explain the biases observed in empirical work on stock index options

genetic engineering and trade panacea or dilemma for developing countries abstract advocates of the use of genetic engineering techniques in agriculture contend that this new biotechnology promises increased productivity better use of natural resources and more nutritious foods opponents are concerned about potentially adverse implications for the environment and food safety in response to consumer reactions against genetically modified gm foods in some countries crop production is being segregated into gm and non gm varieties this analysis finds that world markets for maize and soybeans adjust well to these changes and also that developing countries will divert their trade patterns in response to preference changes in important trading partner countries

the costs and benefits of refuge requirements the case of bt cotton abstract refuge requirements have been the primary regulatory tool to delay pest resistance to bt crops this paper presents a simple method to estimate the annual cost of refuges to producers applying it to bt cotton it also examines broader welfare impacts estimating how bt cotton acreage restrictions affect producer surplus consumer surplus seed supplier profits and commodity program outlays the implications of grower adoption behavior partial adoption aggregate adoption and refuge choice for regulatory costs are examined empirical examples illustrate how providing multiple refuge options significantly reduces regulatory costs

mapping technological trajectories of the green revolution and the gene revolution from modernization to globalization abstract the dynamics of technology development along the technological trajectories of the green revolution and the gene revolution could be explicated by the social morphologies of modernization and globalization the green revolution was shaped by the exigencies of modernization while the gene revolution is being shaped by the imperatives of neo liberal economic globalization innovation development and diffusion of technologies followed different trajectories in these two realms because of being part of different innovation systems considerations of private gain and profit in the form of high returns to shareholders of agro biotech corporations of global reach largely determine the dynamics of technological innovation in the gene revolution technology transfer and local adaptive work in the green revolution was carried out in the international public domain with the objective of developing research capacity in post colonial third world agriculture to increase food production to avert hunger led political insurrection during the cold war differentiating these two trajectories is important not only due to the normative implications inherent in comparing the impacts of these two revolutions but also due to the important lessons we learn about how different contexts of innovation in the same technology cluster could evolve into contrasting research policy regimes

a nonlinear factor analysis of s p 500 index option returns growing evidence suggests that extraordinary average returns may be obtained by trading equity index options and that at least part of this abnormal performance is attributable to volatility and jump risk premia this paper asks whether such priced risk factors are alone sufficient to explain these average returns to provide an answer in as general as possible a setting i estimate a flexible class of nonlinear models using all s p 500 index futures options traded between 1986 and 2000 the results show that priced factors contribute to these expected returns but are insufficient to explain their magnitudes particularly for short term out of the money puts in a recent paper c oval and shumway 2001 examine the returns on deltahedged option positions focusing on the at the money straddle and find average returns close to minus 3 per week since over short time horizons these positions are approximately invariant to movements in the underlying index coval and shumway argue that their capm betas should be near zero and their expected returns close to the risk free rate they conclude that large deviations from the capm are the norm which they suggest is evidence that some other systematic factor such as stochastic volatility might be priced by the market similar conclusions are made by jackwerth 2000 who finds risk adjusted profitability from selling puts and by bakshi and kapadia 2003 who find that the volatility risk premium contributes significantly to higher prices for calls and puts buraschi and jackwerth 2001 concur suggesting that more than one priced risk factor is necessary to explain option prices a less direct set of evidence is the now standard observation that the black scholes implied volatilities of equity index options are upward biased predictors of future realized volatility numerous studies such as fleming ostdiek and whaley 1995 and christensen and prabhala 1998 document that implied volatilities of short term at the money equity index options are on average several percentage points higher than the volatilities realized over the option s

the crash of ʼ87 was it expected the evidence from options markets transactions prices of s p 500 futures options over 1985 1987 are examined for evidence of expectations prior to october 1987 of an impending stock market crash first it is shown that out of the money puts became unusually expensive during the year preceding the crash second a model is derived for pricing american options on jump diffusion processes with systematic jump risk the jump diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during october 1986 to august 1987 both approaches indicate no strong crash fears during the 2 months immediately preceding the crash attempts to explain what caused the stock market crashes around the world in october 1987 have suffered from the paucity of major economic developments occurring around that time that could have triggered the crashes shifting expectations regarding monetary policy foreign investors fears of a dollar decline increasing riskiness of assets none of these appeared major enough if present at all to explain the magnitude of the crashes and although portfolio insurance strategies could conceivably magnify the effects of a jump in fundamentals the initiating jump in fundamentals appears to be lacking

predicting volatility in the foreign exchange market measures of volatility implied in option prices are widely believed to be the best available volatility forecasts in this article we examine the information content and predictive power of implied standard deviations isds derived from chicago mercantile exchange options on foreign currency futures the article finds that statistical time series models even when given the advantage of ex post parameter estimates are outperformed by isds isds however also appear to be biased volatility forecasts using simulations to investigate the robustness of these results the article finds that measurement errors and statistical problems can substantially distort inferences even accounting for these however isds appear to be too variable relative to future volatility it is widely believed that the volatility implied in option prices is the market s best estimate of future volatility after all if it were not one could devise a trading strategy that could generate profits by identifying mispriced options the purpose of this article is to investigate the information content and predictive power of volatility implied in options on foreign currencies the paper focuses on options on currency futures traded on the chicago mercantile exchange cme because of the depth and liquidity of cme futures and options traded side by side in the same market implied standard deviations isds allow for clean tests of the predictive power of implied volatilities early studies of the information content of isds have generally found that these contain substantial information for future volatility latane and rendleman 1976 chiras and manaster 1978 and beckers 1981 for example regress future volatility on the weighted implied volatility across a broad sample of chicago board options exchange cboe stocks and find that options contain volatility forecasts that are more accurate than historical measures 1 these studies performed shortly after the 1973 beginning of the cboe option market could only use a relatively short time span and therefore focused on cross sections rather than time series predictions

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

consumer perceived risk model for the introduction of genetically modified food in spain abstract since the last part of the 20th century the search for new forms of cultivation and food has basically centred on the application of biotechnology giving rise to gm foods consumer acceptance is conditioned by the risk that they perceive from introducing food into their consumption habits processed through technology that they hardly understand besides information is insufficient in the consumer ambit and moreover it is influenced by ideological and ethical determining factors the factors were analysed that influence this consumer perceived risk through a structural equation model this study was conducted in spain concretely in the province of alicante located in the southeast of this country the main conclusion from this research is that the introduction of gm food into agro food markets should be accompanied by adequate policies to guarantee consumer safety these actions would allow a decrease in consumer perceived risk by taking special care of the information provided concretely relating to health for the most influential factor in consumer perceived risk from these foods is concern about health

recovering an asset s implied pdf from option prices an application to crude oil during the gulf crisis we develop a general method for estimating the implied martingale equivalent probability density function pdf for futures prices from american options prices the early exercise feature of american options precludes expressing the price of the option in terms of the pdf there exist tight bounds for the price of american options in terms of the pdf we demonstrate how these bounds together with observed option prices can be used to estimate the parameters of the pdf we estimate the distribution for crude oil during the persian gulf crisis and find the distribution differs significantly from that recovered using standard techniques

roundup ready soybeans in argentina farm level and aggregate welfare effects although adoption rates of genetically modified crops have been staggering in some countries there is still comparatively little evidence about biotechnology impacts under diverse agroecological and institutional conditions these knowledge gaps lead to an overly precautious attitude among policy makers and the public this article analyzes the effects of roundup ready rr soybeans in argentina the country with the second biggest transgenic area worldwide based on recent survey data it is shown that the technology increases total factor productivity by 10 on average with cost savings being somewhat more pronounced for smaller than for larger farms the reduction in use of toxic herbicides and of tillage operations entails positive environmental repercussions aggregate welfare effects are computed over the 1996 2001 period with a three region partial equilibrium model comprising argentina the united states and the rest of the world in 2001 rr soybeans created more than us 1 2 billion of economic surplus at the global level the largest share went to consumers 53 followed by seed and biotechnology firms 34 and agricultural producers 13 due to comparatively weak intellectual property protection and thus only small technology mark ups in seed prices and widespread adoption argentine soybean growers receive 90 of the benefits in that country this demonstrates that farmers in developing countries can gain considerably when they obtain access to suitable foreign innovations through technology spill overs

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

potential impacts of bt eggplant on economic surplus and farmers health in india in this article the potential impacts of bt eggplant technology in indian agriculture are analyzed several proprietary bt hybrids are likely to be commercialized in the near future based on field trial data it is shown that the technology can significantly reduce insecticide applications and increase effective yields comprehensive farm survey data are used to project farm level effects and future adoption rates simulations show that the aggregate economic surplus gains of bt hybrids could be around us 108 million per year consumers will capture a large share of these gains but farmers and the innovating company will benefit too as the company has also shared its technology with the public sector bt open pollinated varieties might become available with a certain time lag this would make the technology more accessible especially for resource poor farmers entailing further improvements in welfare and distribution effects the wider implications of the private public technology transfer are discussed furthermore the potential benefits for farmers health resulting from reduced insecticide applications are examined using an econometric model and a cost of illness approach these benefits are worth an additional 3 4 million per year yet they constitute only a small fraction of the technology s environmental and health externalities more research is needed for comprehensive impact analysis

labour force participation by disabled males in canada the disabled are not necessarily unemployed although about a quarter of them report they are completely prevented from working a disabled person s decision to work or not depends on a variety of psychological social and economic as well as health factors this paper asks if canadian disability related insurance schemes discourage work it models and measures the impact of disability benefits on the work choice of disabled prime age males it finds that they amount to a significant work disincentive but better yet they likely save many disabled persons from unsuitable and or undesirable jobs

village wide effects of agricultural biotechnology the case of bt cotton in india previous studies on impacts of agricultural biotechnology have mostly focused on direct effects we suggest an economy wide framework to analyze income distribution aspects more carefully for a village in india a micro social accounting matrix sam is developed and used to simulate the effects of bt cotton adoption overall the technology is employment generating although family labor in cotton production is saved while substantial benefits are observed for small and large farmers total household income effects are bigger for larger farms this is mostly due to differential opportunity incomes of saved family labor some research and policy implications are discussed

going onto invalidity benefit a study for women 1977 78 1983 84 the main form of state insurance for long term sickness in britain is invalidity benefit there has been a dramatic growth in the stock of claimants on this benefit since its introduction in 1971 a logit model is fitted to explain at the individual level the probability of entering invalidity benefit among over 50 000 women in 1977 8 and over 65 000 in 1983 4 demographic characteristics played a powerful role in this model pay and benefit rates were also significant married women s entry probabilities were highly sensitive to local labour market conditions and much more so than other population groups

impact of bt cotton in china abstract a sample of 283 cotton farmers in northern china was surveyed in december 1999 farmers that used cotton engineered to produce the bacillus thuringiensis bt toxin substantially reduced the use of pesticide without reducing the output ha or quality of cotton this resulted in substantial economic benefits for small farmers consumers did not benefit directly farmers obtained the major share of benefits and because of weak intellectual property rights very little went back to government research institutes or foreign firms that developed these varieties farmers using bt cotton reported fewer pesticide poisonings than those using conventional cotton

stock price volatility mean reverting diffusion and noise abstract using weekly call option prices on twenty five stocks over a ten year period 1975 1985 and calls on the s p 500 stock index futures we find that ex ante market volatility follows a mixed mean reverting diffusion with noise process changes in volatility are correlated across stocks and a marketwide volatility effect is found strong forces pull the volatility back to its long term value the findings suggest the development of new option pricing models

valuation of american options on foreign currency abstract pricing models for american call and put options on foreign currency are derived herein these models are used to investigate the efficiency of the market for foreign currency options the evidence presented here indicates that market prices for these options deviate substantially from their corresponding model prices in addition it is shown that a hedging strategy executed at transaction prices can be used to translate an observed deviation of market from model prices into positive excess profits however these profits are eliminated if the strategy is executed at bid and offer prices

valuation of american call options on dividend paying stocks empirical tests abstract this paper examines the pricing performance of the valuation equation for american call options on stocks with known dividends and compares it with two suggested approximation methods the approximation obtained by substituting the stock price net of the present value of the escrowed dividends into the black scholes model is shown to induce spurious correlation between prediction error and 1 the standard deviation of stock return 2 the degree to which the option is in the money or out of the money 3 the probability of early exercise 4 the time to expiration of the option and 5 the dividend yield of the stock a new method of examining option market efficiency is developed and tested

the economic implications of disability insurance in canada the article empirically estimates the effects of disability pensions provided under the canada quebec pension plans on the labor force participation rates of males aged 45 64 years two data sets are used one consists of pooled cross section annual time series data by province for the years 1975 83 the other consists of observations as of 1985 on 651 males in the specified age group naive estimation results from both sets of data suggest a large negative effect of pension income in the case of the micro data this effect becomes small and statistically nonsignificant when more sophisticated estimation methods are used

bt cotton in india field trial results and economic projections abstract the performance of bt cotton in india is analyzed on the basis of field trial data from 2001 the amounts of pesticides applied during the trials were reduced to one third of what was used in conventional cotton while under severe pest pressure yield gains were 80 productivity effects are modeled econometrically with a damage control specification the first approval for the commercial cultivation of bt hybrids was given in 2002 by 2005 the technology is expected to cover one quarter of total indian cotton area medium term projections show sizeable welfare gains for the overall economy with farmers being the main beneficiaries

production risk pesticide use and gm crop technology in south africa technology involving genetic modification of crops has the potential to make a contribution to rural poverty reduction in many developing countries thus far pesticide producing bacillus thuringensis bt varieties of cotton have been the main gm crops under cultivation in developing nations several studies have evaluated the farm level performance of bt varieties in comparison to conventional ones by estimating production technology and have mostly found bt technology to be very successful in raising output and or reducing pesticide input however the production risk properties of this technology have not been studied although they are likely to be important to risk averse smallholders this study investigates the output risk aspects of bt technology by estimating two flexible risk production function models allowing technology to independently affect the mean and higher moments of output the first is the popular just pope model and the second is a more general damage control flexible risk mode

time to change what to sow risk preferences and technology adoption decisions of cotton farmers in china this paper examines the role of individual risk attitudes in the decision to adopt a new form of agricultural biotechnology in china i conducted a survey and a field experiment to elicit the risk preferences of chinese farmers who faced the decision of whether to adopt genetically modified bt cotton a decade ago in my analysis i expand the measurement of risk preferences beyond expected utility theory to incorporate prospect theory i find that farmers who are more risk averse or more loss averse adopt bt cotton later farmers who overweight small probabilities adopt bt cotton earlier

option values under stochastic volatility theory and empirical estimates abstract this paper numerically solves the call option valuation problem given a fairly general continuous stochastic process for return volatility statistical estimators for volatility process parameters are derived and parameter estimates are calculated for several individual stocks and indices the resulting estimated option values do not differ dramatically from black scholes values in most cases although there is some evidence that for longer maturity index options black scholes overvalues out of the money calls in relation to in the money calls

supplying crop biotechnology to the poor opportunities and constraints abstract unlike the public sector research that launched the green revolution private firms based in industrialised countries have done the majority of agricultural biotechnology research and almost all commercialisation of genetically modified gm crops this paper examines consequences of the emergence of a few large companies as leaders in the commercialisation of biotechnology by addressing issues of access to technology costs of conducting research and distribution of economic benefits to provide context we first review the status of crop biotechnology research globally who is benefiting from the technology we then analyse the role of intellectual property rights market access and industry concentration public sector research and gm crop biosafety regulations in determining observed r d by firms the paper recommends policy measures that allow transfer of current technology to the poor and generate more biotechnology research focused on problems of the poor

can biotechnology reach the poor the adequacy of information and seed delivery abstract the paper examines the expectation that biotechnology can provide significant benefits for smallholder farmers it uses evidence from current seed systems and variety choice in developing countries in particular it examines the adequacy of information flow and the performance of seed markets many of the biotechnology innovations proposed for use by smallholders feature qualities that may not be immediately obvious to farmers implications are drawn for the potential demand for these transgenic varieties the adequacy of seed systems is also examined including the characteristics of local seed diffusion and the experience of commercial seed enterprises the paper concludes that investments in public biotechnology must be accompanied by policies that encourage commercial seed system development and that empower farmers to be able to take full advantage of new technology

the relative valuation of american currency spot and futures options theory and empirical tests this study empirically tests contingent claims pricing models for american currency spot and futures options numerical analysis indicates that the difference in the model prices of spot and futures put call options with the same exercise price and maturity is for a premium discount currency positive and an increasing function of a the absolute dif ference in the prices of the underlying spot and futures contracts and b the maturity of the options tests on british pound deutsche mark and swiss franc options indicate many violations ofthe ordinal pricing relationships noted above additional tests indicate that option prices are inconsistent with functional relationship b above most of the ob served violations are sufficiently large to provide arbitrage profits net of transaction costs assuming interest rates are constant and the interest rate parity theorem holds continu ously alternatively both the violations and the inconsistent functional relationship may be due to violation of the assumption of constant interest rates

valuing financial health and environmental benefits of bt cotton in pakistan data from a farm survey and choice experiment are used to value the benefits of bt cotton in pakistan unlike previous research on the economic impacts of bt which mostly concentrated on financial benefits in terms of gross margins we also quantify and monetize positive externalities associated with technology adoption due to lower chemical pesticide use on bt cotton plots there are significant health advantages in terms of reduced incidence of acute pesticide poisoning and environmental advantages in terms of higher biodiversity and lower soil and groundwater contamination these positive externalities are valued at us 79 per acre of which half is attributable to health and the other half to environmental improvements adding average gross margin gains of us 204 results in an aggregate benefit of us 283 per acre of bt or us 1 7 billion for the total bt cotton area in pakistan

channels and policy debate in the globalization inequality poverty nexus the process of globalization has led to a much greater integration of the world economy the flows of trade capital labour technology and information across national borders have accelerated since the 1980s and created an environment conducive to faster economic growth and transmission of knowledge it is evident that the forces of globalization provide a strong potential for a major reduction in poverty in the developing world however for a number of reasons brought out in this chapter the positive impact of globalization on poverty alleviation worldwide has not been as substantial as one might have expected in this chapter we explore structural factors and policies within the world economy and national economies that impede the full transmission of the benefits of the various channels of globalization to poverty reduction

on the asynchronous approvals of gm crops potential market impacts of a trade disruption of eu soy imports due to their high protein content soybeans are important feedstuffs in the european union eu however the cultivation of soybeans using genetically modified gm varieties in non eu countries is increasing and the eu authorization of gm products takes longer than in other countries leading to an asynchronous approval between the eu and non eu countries that might induce soybean trade disruptions this paper uses an integrated modelling system to simulate argentina brazil and the united states ending soybean exports to the eu the impact on world trade and on the eu import prices of soy products is analysed with a computable general equilibrium model eu soy imports are shown to decline and the import price of soybeans in the eu increases the effects on eu agricultural markets are analysed based on a partial equilibrium model feed costs in the eu are found to increase with poultry and pork the most affected production and exports decline and imports increase however the effects of a trade ban are found to be less profound than in many other studies due to compensating substitution effects at various market levels increasing imports from third countries increasing domestic oilseed production and the use of other protein feeds

using implied volatility on options to measure the relation between asset returns and variability abstract prior research has documented that volatility in financial asset markets is most directly related to trading rather than calendar days and that there is an inverse asymmetric relation between volatility and returns in both stocks and long term bonds we examine these relations in 37 futures options markets representing a wide variety of asset types using futures prices and implied volatilities from this extensive array of markets we confirm that in all of them save one market volatility is more directly related to trading days however the nature of the association between implied volatility and underlying asset returns varies greatly across asset categories and across exchanges thus we show that findings from equity markets apparently are not generalizable to other asset classes

options on stock indices and options on futures abstract this paper analyzes and compares the valuation of stock index options and stock index futures options the early exercise privilege plays a central role in explaining the differences between the values of the two options it is shown that the difference in value depends on the differences between the dividend yield and interest rates using numerical procedures we compute the options values and find that the difference in values is larger for longer maturities and in the money options

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

the stochastic behaviour of market variance implied in the prices of index options the purpose of this paper is to examine the time series properties of volatilities and to consider various financial and real variables that may be correlated with innovations in expected volatility the measure used in this study is the black scholes volatility implied in weekly call option prices written on the spot price of the ftse index a u k market equity index first the authors determine if capital structure can explain the relation between changes in the volatility of equity and structure can explain the relation between changes in the volatility of equity and changes in the level of the index second they analyze whether innovations in the volatilities of prices of real variables could also explain changes in equity volatility including the volume of transactions in equities oil prices exchange rates nominal and real interest rates and inflation copyright 1991 by royal economic society

valuation of american futures options theory and empirical tests this paper reviews the theory of futures option pricing and tests the valuation principles on transaction prices from the s p 500 equity futures option market the american futures option valuation equations are shown to generate mispricing errors which are systematically related to the degree the option is in the money and to the option s time to expiration the models are also shown to generate abnormal risk adjusted rates of return after transaction costs the joint hypothesis that the american futures option pricing models are correctly specified and that the s p 500 futures option market is efficient is refuted at least for the sample period january 28 1983 through december 30 1983 futures option contracts now trade on every major futures exchange and on a wide variety of underlying futures contracts the chicago mercantile exchange the chicago board of trade the new york futures exchange and the commodity exchange now collectively have more than twenty options written on futures contracts where the underlying spot commodities are financial assets such as stock portfolios bonds notes and eurodollars foreign currencies such as west german marks swiss francs and british pounds precious metals such as gold and silver livestock commodities such as cattle and hogs and agricultural commodities such as corn and soybeans moreover new contract applications are before the commodity futures trading commission and should be actively trading in the near future with the markets for these new contingent claims becoming increasingly active it is appropriate that the fundamentals of futures option valuation be reviewed and tested black 5 provides a framework for the analysis of commodity futures options although his work is explicitly directed at pricing european options on forward contracts it applies to european futures contracts as well if the riskless rate of interest is constant during the futures option life 1 the options currently

imperfect tagging in social insurance programs abstract this paper derives the optimal benefit structure of an earnings insurance program when a characteristic or tag imperfectly identifies those unable to work with a two sided classification error the optimal program is a dual work incentive system with a work non work consumption differential maintained for the tagged and untagged just sufficient to induce the able in each group to work and with more generous payments to tagged than to untagged individuals of the same work status it includes premiums to program eligible individuals who work a price missing in the u s social security disability system and in earlier attempts to characterize the optimal disability program

changing locus of agricultural research will the poor benefit from biotechnology and privatization trends over the past decade the locus of agricultural research and development has shifted dramatically from the public to the private multinational sector three interrelated forces are transforming the system for supplying improved agricultural technologies to the world s farmers the first is the strengthened and evolving environment for protecting intellectual property in plant innovations the second is the rapid pace of discovery and growth in importance of molecular biology and genetic engineering finally agricultural input and output trade is becoming more open in nearly all countries these developments have created a powerful new set of incentives for private research investment altering the structure of the public private agricultural research endeavor particularly with respect to crop improvement

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

is gm soybean cultivation in argentina sustainable this paper explores the long term sustainability of argentina s specialization in genetically modified soybean cultivation it is conceived as an evidence based assessment of the most relevant economic social and environmental implications of the soybeanization of argentinian agriculture we combine 2 sources of primary and secondary quantitative data the national agricultural census and farm level data from a field survey carried out in 2 provinces of the argentinian pampas our results suggest a major conflict between the success of the soybeanization of argentinian agriculture measured in terms of production and profit records and the social economic and environmental sustainability of this new model of production gm soybean package adoption has increased farm productivity and has reduced the costs per unit produced the resulting dramatic increase in profits constituted a strong incentive to extend the scale of production the development of companies comprising actors from both agricultural and non agricultural sectors constituted a good way to extend the scale of production but this technological innovation in agriculture has been the source of numerous criticisms it is widely held among argentinian researchers in particular that soybean expansion has increased land inequality and displaced labor however overall we find a mixed empirical picture of changing land distribution patterns and labor displacement resulting from the soybean expansion the environmental implications of agricultural biotechnology are alarming and the long term sustainability of gm crops can seriously be questioned in a context where gm soybean production has become one of the strategic components of argentina s economy as well as in the country s international positioning our results suggest that it is highly unlikely that the government will implement policies against this precious crop and its by products however promoting sustainable agricultural growth has become not only desirable but necessary

estimating the impact of transgenic bt cotton on west and central africa a general equilibrium approach summary west and central africa wca s cotton sector is experiencing rising production costs and lower yields reversing decades of growth declining input use soil fertility and inefficient chemical pest controls are contributing factors we evaluate the potential impact of bt cotton on wca using a multiregion general equilibrium model and multicountry estimates of bt induced productivity we find that bt cotton raises growers returns land value and welfare released labor from cotton is shifted to food crops hence reducing labor shortage constraints overall results indicate that potential gross benefits from bt cotton are substantial for wca cotton sector and that the economic costs of nonadoption are equally significant published by elsevier ltd

the valuation of options on futures contracts rational restrictions are derived for the values of american options on futures contracts for these options the optimal policy in general involves premature exercise a model is developed for valuing options on futures contracts in a constant interest rate setting despite the fact that premature exercise may be optimal the value of this american feature appears to be small and a european formula due to black serves as a useful approximation finally a model is developed to value these options in a world with stochastic interest rates it is shown that the pricing errors caused by ignoring the location of the interest rate relative to its long run mean range from 5 to 7 when the current rate is 200 basis points from its long run value the role of interest rate expectations is therefore crucial to the valuation optimal exercise policies are found from numerical methods for both models in recent years there has been a steady growth in the number of financial assets which one might properly call derivative assets that are available for trading on the organized exchanges among these the most recent and notable are options contracts written on available futures contracts options are now traded on the futures contracts on stock market indexes on the futures contracts on treasury instruments on the futures contracts on foreign exchange rates and on the futures contracts on some metals in design these options contracts do not differ substantially from the well known options contracts on common stock except that the underlying asset is a futures contract the received theory of the valuation of these options suggests that such contracts provide a direct vehicle for investors to alter the terminal payoffs on their portfolios to a desired distribution in the absence of these contracts investors would be forced to pursue a dynamic portfolio policy at the expense of considerable transactions in order to achieve a similar distribution indeed the availability of put options on the futures contracts on stock market indexes now enables well diversified investors to purchase portfolio insurance in his seminal work black 1 provided a complete description of forward and futures contracts as well as the description and valuation of european options on forward contracts and on spot commodities breeden 3 has examined the use of commodity options in a theoretical framework and courtadon 6 has studied the valuation of options on treasury bond futures french 13 cox