an analysis of the selection of arbitrators this paper analyzes alternative mechanisms for the selection of arbitrators the authors review key institutional features of the threemost prevalent mechanisms for selecting arbitrators rank veto alternate strike and rotating panel they present a more formal analysis in which these mechanisms are treated as economic games andanalyze the alternative mechanisms in terms of the incentives they provide for strategic behavior and the efficiency of any equilibrium strategies that exist some implications of varying selected parametersof each mechanism are derived and the general role of arbitrator selection mechanisms in the process of bargaining under the threat ofarbitration are considered copyright 1986 by american economic association

international externalities strategic interaction and domestic politics abstract domestic politics can sometimes play an influential role when externalities have strategic and international implications if voters delegate the choice to policymakers and if individual countries independently determine their environmental policy using a consumption tax on the emissions generating good the result could be an outcome that is inferior to the one preferred by the median voter in the absence of delegation on the other hand if the international externality is unilateral in nature rather than reciprocal we find that delegation is largely irrelevant since voters choice of policymaker is no longer strategic in character similarly if voters anticipate policymakers successfully coordinating their policies at a later stage there also will be no difference between the policymakers and the median voters aggregate weighting of environmental emissions

comparative productivity the ussr eastern europe and the west this paper compiles comparative measures of output per worker in 1975 in four socialist and seven western market economy wme countries and explores sources of observed differences between the two groups of countries in that regard such differences seem explicable only partially by reference to differences in per worker capital stock and farm land a residual disparity of 25 to 34 percent in favor of wme countries appears to testify to superior efficiency in the latter copyright 1987 by american economic association

strategic delegation in bargaining abstract principals have the opportunity to delegate to an agent in the context of the nash bargaining model this paper resolves a shortcoming in the related bargaining literature in equilibrium a symmetric outcome typically will not result and multiple equilibria exist

delegation and threat in bargaining abstract two principals nations appoint one agent each to bargain over the provision of a public good two institutional set ups are studied each with a different level of authority given to the agents here authority means the right to decide the own side s provision if negotiations break down in equilibrium the principals choose agents with preferences differing from their own the low authority equilibrium pareto dominates with regard to the principals the case of the principals deciding on the provisions simultaneously autarchy the high authority equilibrium is pareto dominated by the low authority equilibrium and it may even be dominated by autarchy journal of economic literatureclassification numbers c71 and c72

new insights into smile mispricing and value at risk the hyperbolic model the authors investigate a new basic model for asset pricing the hyperbolic model which allows an almost perfect statistical fit of stock return data after a detailed introduction into the theory they use secondary market data to compare the hyperbolic model to the classical black scholes model the authors study implicit volatilities the smile effect and pricing performance exploiting the full power of the hyperbolic model they construct an option value process from a statistical point of view by estimating the implicit risk neutral density function from option data finally the authors present some new value at risk calculations leading to new perspectives to cope with model risk copyright 1998 by university of chicago press

how do the stock prices of new energy and fossil fuel companies correlate evidence from china abstract this study documents the return and volatility spillover effect between the stock prices of chinese new energy and fossil fuel companies using the asymmetric bekk model based on daily samples taken from august 30 2006 to september 11 2012 the dynamics of new energy fossil fuel stock spillover are found to be significant and asymmetric compared with positive news negative news about new energy and fossil fuel stock returns leads to larger return changes in their counter assets news about both new energy and fossil fuel stock returns spills over into variances of their counter assets and the volatility spillovers depend complexly on the respective signs of the return shocks of each asset the empirical results demonstrate that new energy and fossil fuel stocks are generally viewed as competing assets that positive news about new energy stocks could affect the attractiveness of fossil fuel stocks and that new energy stock investment is more speculative and riskier than fossil fuel stock investment these results have potential implications for asset allocation financial risk management and energy policymaking

negotiating environmental agreements regional or federal authority abstract this paper examines the possible strategic advantage enjoyed by a country when its regional governments negotiate international environmental agreements rather than the federal government a model in which two countries negotiate an international agreement on the abatement of a shared pollutant is developed each country s exogenous constitution determines whether the federal or regional government negotiates and enforces international agreements we show that a region s relative aversion to abatement can provide the country with a strategic advantage when the region holds the regulatory powers if the domestic region is sufficiently large and the foreign country s regulatory powers lie with either the federal government or a larger region the country is better off relative to federal jurisdiction this strategic advantage is analogous to that enjoyed by a federal government that can delegate negotiation power therefore domestic political institutions can create the same advantages as the ability to delegate

valuing the futures market clearinghouse s default exposure during the 1987 crash futures market clearinghouses are intermediaries that make large volume trading between anonymous parties feasible during the market crash in october 1987 rumors spread that a clearinghouse might fail this paper presents estimates of three measures of the default exposure the authors estimate the traditional summary statistic for risk exposure the tail probabilities they also estimate two economic measures the expected value of the payoffs in the tails and expected value of the payoffs in the tails conditional on landing in the tail the authors estimates indicate the market thought another crash was unlikely but that if one occurred it would be large

do green investments react to oil price shocks implications for sustainable development abstract this study investigates whether green investments are connected to oil price shocks while earlier papers mainly investigate the linkage between clean energy stock and crude oil prices we consider recently introduced environmental indexes consisting of companies that use eco friendly production processes and develop green infrastructures using the markov regime switching regression approach we observe that the effect of crude oil prices on environmental investments appears to be statistically insignificant albeit positive in most of the cases one possible reason behind such a finding is that the oil dependence is limited to the case of eco friendly firms the results further indicate switching between low and high volatility regimes implying that there exist high and low volatility states for green assets given that growing concerns about climate change and energy security would inspire market participants shift towards ethical investments our results could be of interest to investors aiming at decarbonizing their portfolios by including more environmental assets one important finding of our empirical analysis is that green assets are found to be more susceptible to oil market volatility rather than to oil price fluctuations this is a novel finding given that prior literature focusing on the association of oil sectors and green assets mainly consider the information on oil prices rather than oil volatility hence our study aims to conceal an important void in the exiting literature

assessment and optimization of clean energy equity risks and commodity price volatility indexes implications for sustainability abstract although clean energy equities have emerged as a new asset class for market participants especially environmentally concerned investors existing and previous studies pay very little attention to how equity investors in clean energy markets can reduce their downside risk the authors of this paper address this void by considering the roles of the commodity market volatility indexes of crude oil gold and silver the results of the dynamic conditional correlation model show that commodity volatilities and clean energy equity prices move in opposite directions based on the hedging effectiveness each of the three volatility indexes acts as an effective tool for reducing the risk of clean energy equity indexes the implied volatility index of crude oil is the most effective tool followed by that of gold and silver further analysis indicates the robustness of the results to the application of an asymmetric conditional correlation model the findings extend the limited understanding of how to hedge the downside risk of clean energy stock indexes and provide useful implications to market participants on the ability of implied volatility indexes of major commodities to hedge that risk

oil shocks and their impact on energy related stocks in china abstract this paper contributes to the current literature by adopting time varying conditional correlation and asset pricing models to discover how the dynamics of international oil prices affect energy related stock returns in china after conditioning for structural instability the results show a much stronger relation following the 2008 financial crisis we argue that this reflects the fact that investors in the chinese stock market especially for energy related stocks are more sensitive to the shocks in international crude oil market

wavelet based test of co movement and causality between oil and renewable energy stock prices abstract we studied co movement and causality between oil and renewable energy stock prices using continuous and discrete wavelets firstly to obtain information on dynamic correlations over time and for different time scales from wavelet coherence and secondly to obtain information on linear and non linear granger causality in the time frequency domain for general and sectoral renewable energy indices for the period 2006 2015 our findings indicate that dependence between oil and renewable energy returns in the short run was weak but gradually strengthened towards the long run mainly for the period 2008 2012 our causality tests provide evidence against linear causality at higher frequencies and in favour of unidirectional and bidirectional linear causality at lower frequencies in contrast we found consistent evidence of non linear causality running from renewable energy indices to oil prices at different time horizons and mixed evidence of causality running from oil to renewable energy prices these results have potential implications for investors in terms of hedging and for policymakers in terms of policy support decisions regarding the development of renewable energy

modeling renewable energy company risk abstract the renewable energy sector is one of the fastest growing components of the energy industry and along with this increased demand for renewable energy there has been an increase in investing and financing activities the tradeoff between risk and return in the renewable energy sector is however precarious renewable energy companies are often among the riskiest types of companies to invest in and for this reason it is necessary to have a good understanding of the risk factors this paper uses a variable beta model to investigate the determinants of renewable energy company risk the empirical results show that company sales growth has a negative impact on company risk while oil price increases have a positive impact on company risk when oil price returns are positive and moderate increases in sales growth can offset the impact of oil price returns and this leads to lower systematic risk

oil price uncertainty and clean energy stock returns new evidence from crude oil volatility index abstract earlier studies evidence that oil price shocks have significant impacts on clean energy stock returns while the previous literature uses traditional oil price series to investigate such effects we aim to assess whether the variance of alternative energy stock returns can be explained using the information content of crude oil volatility index ovx an indicator of oil price uncertainty to serve our purpose we employ several measures to frame the realized volatility rv of alternative energy sector equity returns in particular we use three different range based rv estimators recommended by parkinson 1980 rogers and satchell 1991 and alizadeh et al 2002 respectively our findings reveal that clean energy stock market returns are highly sensitive to ovx shocks thus oil market uncertainty measured by ovx embodies a crucial role in modeling the volatility of renewable energy equity returns in addition we find a strong indication that ovx provides additional information beyond what is contained in the historical volatilities of equity returns we also document that the magnitude of the effect of ovx is much bigger than that of the realized variance of wti oil spot prices finally we find that the information content of crude oil volatility index improves the volatility forecasts for the clean energy equity market

international environmental agreements and strategic voting two anonymous referees have provided very valuable comments and suggestions we have also benefited from discussions at seminars at the universities of bonn dortmund and dresden and at the conferences of euresco the european economic association and the verein fur socialpolitik this paper was partly written while haupt was visiting the economics department at the university of colorado at boulder he is very grateful to the members of the department particularly to eckhard janeba for their hospitality and for stimulating discussions and to the fritz thyssen stiftung for funding his research visit we also thank the deutsche forschungsgemeinschaft dfg for financial support

correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies abstract in this paper multivariate garch models are used to model conditional correlations and to analyze the volatility spillovers between oil prices and the stock prices of clean energy companies and technology companies four different multivariate garch models bekk diagonal constant conditional correlation and dynamic conditional correlation are compared and contrasted the dynamic conditional correlation model is found to fit the data the best and generates results showing that the stock prices of clean energy companies correlate more highly with technology stock prices than with oil prices on average a 1 long position in clean energy companies can be hedged for 20 cents with a short position in the crude oil futures market

hedging emerging market stock prices with oil gold vix and bonds a comparison between dcc adcc and go garch while much research uses multivariate garch to model volatility dynamics and risk measures one particular type of multivariate garch model go garch has been underutilized this paper uses dcc adcc and go garch to model volatilities and conditional correlations between emerging market stock prices oil prices vix gold prices and bond prices a rolling window analysis is used to construct out of sample one step ahead forecasts of dynamic conditional correlations and optimal hedge ratios in most of the situations we study oil is the best asset to hedge emerging market stock prices hedge ratios from the adcc model are preferred most effective for hedging emerging market stock prices with oil vix or bonds hedge ratios estimated from the go garch are most effective for hedging emerging market stock prices with gold in some instances these results are reasonably robust to choice of model refits forecast length and distributional assumptions

the leverage effect puzzle disentangling sources of bias at high frequency the leverage effect refers to the generally negative correlation between an asset return and its changes of volatility a natural estimate consists in using the empirical correlation between the daily returns and the changes of daily volatility estimated from high frequency data the puzzle lies in the fact that such an intuitively natural estimate yields nearly zero correlation for most assets tested despite the many economic reasons for expecting the estimated correlation to be negative to better understand the sources of the puzzle we analyze the different asymptotic biases that are involved in high frequency estimation of the leverage effect including biases due to discretization errors to smoothing errors in estimating spot volatilities to estimation error and to market microstructure noise this decomposition enables us to propose novel bias correction methods for estimating the leverage effect

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

risk spillover between energy and agricultural commodity markets a dependence switching covar copula model abstract unlike previous studies we employ a relatively newer modelling technique a time varying copula with a switching dependence to characterise the conditional dependence between energy and agricultural commodity markets in a more realistic way because the dependence may switch between positive and negative correlation regimes over time a dependence switching copula more appropriately and realistically captures a dependence structure than a single copula regime our findings indicate that the lower tail dependence is much stronger in a bearish regime than in a bullish regime highlighting the importance of systematic risk spillovers during extreme downward movements furthermore the significant risk spillovers from energy to agricultural commodities are verified by measuring the conditional value at risk covar and delta covar finally some useful implications are summarized for investors portfolios and risk avoidance

stock prices of clean energy firms oil and carbon markets a vector autoregressive analysis recent discussions of energy security and climate change have attracted significant attention to clean energy we hypothesize that rising prices of conventional energy and or placement of a price on carbon emissions would encourage investments in clean energy firms the data from three clean energy indices show that oil prices and technology stock prices separately affect the stock prices of clean energy firms however the data fail to demonstrate a significant relationship between carbon prices and the stock prices of the firms

impact of silver price uncertainty on solar energy firms abstract to the best of our knowledge we are the first to investigate if silver market uncertainty impacts the stock price performance of solar energy firms such investigation could be of vital importance to investors and policymakers given that silver is heavily utilized in photovoltaic pv process for producing solar energy methodologically we apply the garch jump process to estimate the effect of silver market uncertainty proxied by silver volatility index vxslv on the global solar energy stock indexes using a recent data set we document the following key findings first there exists a negative effect of vxslv on the equity indexes under study this result suggests that an upsurge in silver market volatility would create a chaos in the solar energy business second the impact of silver volatility index on renewable energy firms holds even when we control for the impact of oil price volatility ovx albeit ovx when compared to vxslv transmits higher risk to alternative energy stocks as evidenced by the magnitudes of the estimated parameters third the impact of silver market uncertainty appears to be symmetric implying that increases and decreases in vxslv would have a homogeneous impact on the solar energy stock returns we finally show that equity prices of solar energy firms are characterized by time varying jumps the implications of the results are discussed as well

invisible parameters in option prices this paper characterizes contingent claim formulas that are independent of parameters governing the probability distribution of asset returns while these parameters may affect stock bond and option values they are invisible because they do not appear in the optiqn formulas for example the black scholes 1973 formula is independent of the mean of the stock return this paper presents a new formula based on the log negative binomial distribution in analogy with cox ross and rubinstein s 1979 log binomial formula the log negative binomial option price does not depend on the jump probability this paper also presents a new formula based on the log gamma distribution in this formula the option price does not depend on the scale of the stock return but does depend on the mean of the stock return this paper extends the log gamma formula to continuous time by defining a gamma process the gamma process is a jump process with independent increments that generalizes the wiener process unlike the poisson process the gamma process can instantaneously jump to a continuum of values hence it is fundamentally unhedgeable if the gamma process jumps upward then stock returns are positively skewed and if the gamma process jumps downward then stock returns are negatively skewed the gamma process has one more parameter than a wiener process this parameter controls the jump intensity and skewness of the process the skewness of the log gamma process generates strike biases in options in contrast to the results of diffusion models these biases increase for short maturity options thus the log gamma model produces a parsimonious option pricing formula that is consistent with empirical biases in the black scholes formula

price limits and capital requirements of futures clearinghouses abstract futures clearinghouses need capital to provide liquidity in case of default by clearing members price limits truncate observed futures prices and prevent observation of clearinghouses true default risk exposure we show how to estimate the true default risk exposure from observed futures prices and model capital requirements using an option pricing model which accounts for non normality of and truncation in observed futures returns we apply the model to the clearinghouse associated with the winnipeg commodity exchange compare required capital levels with actual capital levels and show that ignoring non normality of futures returns causes overall capital requirements to be significantly underestimated

bargaining with noisy delegation principals delegate to an agent in the context of the nash bargaining model but communicate instructions to their agents imperfectly numerical methods are used to find a unique equilibrium in the principals strategies agents fail to agree with a positive probability invoking a secondary mechanism for the resolution of disputes such as arbitration comparative statics are informative the risk sensitivity of the nash bargaining solution is mitigated but not eliminated as uncertainty goes to zero a stable unique limiting equilibrium is identified from the set of multiple equilibria identified in a model in which principals delegate without trembles

general equilibrium pricing of options on the market portfolio with discontinuous returns when the price process for a long lived asset is of a mixed jump diffusion type pricing of options on that asset by arbitrage is not possible if trading is allowed only in the underlaying asset and a risk less bond using a general equilibrium framework we derive and analyze option prices when the underlying asset is the market portfolio with discontinuous returns the premium for the risk of jumps and the diffusion risks forms a significant part of the prices of the options in this economy an attempted replication of call and put options by the black scholes type of trading strategies may require substantial infusion of funds when jumps occur we study the cost and risk implications of such dynamic hedging plans article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

margins and the safety of clearing houses abstract the major distinguishing feature of a futures market is the system of margining in providing a guarantee the clearing house bears the risk that price changes will exceed the initial margin a market risk and that members will be unable to pay a credit risk by bad judgement or management it is possible for clearing houses to fail as happened in hong kong in 1987 this paper examines the capital required by clearing houses using the international commodities clearing house in london as an example given the level of margining in 1987 it is found that exposure might exceed 40 million about once per year and 200 million once per thirty years icch needs credit lines to cover these levels of exposure plus enough capital to cover the proportion of these that are defaulted these capital requirements are much smaller than they would be if only one market were being margined there is a large diversification gain from clearing many futures markets how the capital should be obtained through shareholders equity by forming a mutual association or by purchasing insurance is discussed

is there dependence and systemic risk between oil and renewable energy stock prices abstract we study systemic risk and dependence between oil and renewable energy markets using copulas to characterize the dependence structure and to compute the conditional value at risk as a measure of systemic risk we found significant time varying average and symmetric tail dependence between oil returns and several global and sectoral renewable energy indices our evidence on systemic risk indicates that oil price dynamics significantly contributes around 30 to downside and upside risk of renewable energy companies these results have important implications for risk management and renewable energy policies

a theory of price limits in futures markets abstract the existence of price limits in certain futures markets is explained by demonstrating that price limits may act as a partial substitute for margin requirements in ensuring contract performance their effectiveness is a decreasing function of the amount of information available to traders about the equilibrium futures price which is unobservable in the event of a limit move and the theory predicts that no limits will exist in the markets for financial futures actual limits are broadly consistent with the theory his interpretation plausible as it was was totally misleading with the dangerous verisimilitude of a theory which will fit all or nearly all the facts and yet more entirely miss the truth by a mere accident then would a frank perplexity heritage v sackville west