family earnings and wage inequality early in the life cycle a bstract this article proposes an explanation for the fact that while wages of married women contribute to equalizing the distnrbution of family wages the equalizing effect declines during the early stages of the married life cycle the explanation is based on the interaction between on the job accumulation of human capital and labor supply behavior empirical results from the nls panel data suggest that the explanation is plausible and also show that in contrast to the results of previous cross section studies there is no decline over time in the equalizing effect of wives earnings on the distribution of family earnings

model complexity and out of sample performance evidence from s p 500 index returns abstract we apply a range of out of sample specification tests to more than forty competing stochastic volatility models to address how model complexity affects out of sample performance using daily s p 500 index returns model confidence set estimations provide strong evidence that the most important model feature is the non affinity of the variance process despite testing alternative specifications during the turbulent market regime of the global financial crisis of 2008 we find no evidence that either finite or infinite activity jump models or other previously proposed model extensions improve the out of sample performance further applications to value at risk demonstrate the economic significance of our results furthermore the out of sample results suggest that standard jump diffusion models are misspecified

risk neutral parameter shifts and derivatives pricing in discrete time we obtain a large class of discrete time risk neutral valuation relationships or preference free derivatives pricing models by imposing a simple restriction on the state price density process the risk neutral stock return and forward rate dynamics are obtained by changing only a location parameter which can be determined independent of the preference and true location parameters the gaussian models of rubinstein 1976 brennan 1979 and c mera 2003 and the gamma model of heston 1993 are all special cases the model provides simple relationships between expected returns and state price density parameters analogous to the diffusion case

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

the multinomial option pricing model and its brownian and poisson limits the cox ross and rubinstein binomial model is generalized to the multinomial case limits are investigated and shown to yield the blacks scholes formula in the case of continuous sample paths for formula in the case of complete market structures in the discontinuous case a merton type formula is shown to result provided jump probabilities are replaced by their corresponding arrow debreu prices article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

leverage effect volatility feedback and self exciting market disruptions equity index volatility variation and its interaction with the index return can come from three distinct channels first index volatility increases with the market s aggregate financial leverage second positive shocks to systematic risk increase the cost of capital and reduce the valuation of future cash flows generating a negative correlation between the index return and its volatility regardless of financial leverage finally large negative market disruptions show self exciting behaviors this article proposes a model that incorporates all three channels and examines their relative contribution to index option pricing and stock option pricing for different types of companies

factors affecting levels and growth rates in the wage rates of women evidence from nursing using data from two surveys of nurses 1981 and 1989 the study examines the factors affecting the levels and growth rates in the wage rates paid to women especially married women who were licensed as registered nurses our results indicate that the influence of such household characteristics as marital status age and number of children and spouse s characteristic tended to diminish over the 1980s the evidence further suggests that the penalties for frequent switches in employment state were larger at the end of the decade than at the beginning further wages paid to nurses with baccalaureates were statistically the same as those paid to nurses with lesser formal education the return to the baccalaureate appears to be in the form of the higher wages and salaries earned by those who obtain post baccalaureate degrees

a life cycle analysis of family income distribution the question of whether working wives widen or narrow the income gap between rich and poor families is examined using a life cycle analysis data are from the 1973 u s national survey of family growth and concern 5901 currently married women under 45 years of age the results suggest that the employment of wives tends to reduce inequality particularly among white families but to a different degree at different stages of the family life cycle annotation

the determinants of the voting premium in italy the evidence from 1974 to 2003 abstract we examine the voting premium in italy in the period 1974 to 2003 when it ranged from 1 to 100 at firm level the measure of the price differential between voting and non voting stocks cannot be fully explained without taking into account the effect of the largest shareholder s identity family controlled firms have higher voting premiums especially when the family owns a large stake in the company s voting equity and the founder is the firm s ceo and or chairman we explain this result by showing that families attach greater importance to control and are more prone than other types of controlling shareholders to expropriate the non voting class of shareholders

research on equity adjustment agency costs and commercial bank performance experimental evidence from china this article studies the impact of options to adjust the performance of commercial banks from agency costs in the shareholding structure of the adjustment process considering changes in agency costs only in agency costs no more than the commercial banks when new results the company will have to adjust agent the cost of power stealth measure more just by reflecting the size of the incremental results in addition equity restructuring costs are the basis of agency governance and ownership structure has an important impact on agency costs through a few selected china 14 listed commercial banks 2007 2012 data we show that the impact of performance of commercial banks on the proportion of the company s largest shareholders is generally more significant however the impact of equity restriction on commercial banks was not as significant as seen from the application of balanced panel data model analysis and the test results however the agency costs of commercial bank performance were signific

state dependence serial correlation and heterogeneity in intertemporal labor force participation of married women a dynamic search framework is developed to analyze the intertemporal labor force participation behavior of married women using longitudinal data to allow for a rich dynamic structure the sensitivity to alternative distributional assumptions is evaluated using linear probability and probit models the dynamic probit models are estimated using maximum simulated likelihood msl estimation to overcome the computational difficulties inherent in maximum likelihood estimation of models with nontrivial error structures the results find that participation decisions are characterized by significant state dependence unobserved heterogeneity and negative serial correlation in the error component the hypothesis that fertility decisions are exogenous to women s participation decisions is rejected when dynamics are ignored however there is no evidence against this hypothesis in dynamic model specifications women s participation response is stronger to permanent than current nonlabor income reflecting unobserved taste factors

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

commodity currencies and commodity prices modelling static and time varying dependence abstractthis article employs the copula approach to study the relationship between exchange rates and commodity prices for large commodity exporters using data for the nominal exchange rates of four commodity currencies australian canadian and new zealand dollars and norwegian krone against the us dollar and the relevant country specific commodity price indices constructed on a daily basis we find 1 a positive dependence between the values of commodity currencies and commodity indices i e a commodity index increases when a respective currency appreciates and provides several explanations for this finding 2 no major asymmetries in the tail dependence for most pairs of exchange rates and commodity indices and 3 a pronounced increase in the time varying tail dependence following the global financial crisis

u s stock market crash risk 1926 2010 abstract this paper examines how well alternate time changed levy processes capture stochastic volatility and the substantial outliers observed in u s stock market returns over the past 85 years the autocorrelation of daily stock market returns varies substantially over time necessitating an additional state variable when analyzing historical data i estimate various one and two factor stochastic volatility levy models with time varying autocorrelation via extensions of the bates 2006 methodology that provide filtered daily estimates of volatility and autocorrelation the paper explores option pricing implications including for the volatility index vix during the recent financial crisis

implied migration rates from credit barrier models abstract the risk neutral credit migration process captures quantitative information which is relevant to the pricing theory and risk management of credit derivatives in this article we derive implied migration rates by means of a recently introduced credit barrier model which is calibrated on the basis of aggregate information such as credit migration rates and credit spread curves the model is characterized by an underlying stochastic process that represents credit quality and default events are associated to barrier crossings the stochastic process has state dependent volatility and jumps which are estimated by using empirical migration and default rates a risk neutralizing drift and forward liquidity spreads are estimated to consistently match the average spread curves corresponding to all the various ratings the implied migration rates obtained with our credit barrier model are then compared with those obtained via the kijima komoribayashi model

the efficiency of investment in the presence of aggregate demand spillovers in the presence of aggregate demand spillovers an imperfectly competitive form s profit is positively related to aggregate income which in turn rises with profits of all firms in the economy this pecuniary externality makes a dollar of a firm s profit raise aggregate income by more than a dollar since other firms profits also rise and in this way gives rise to a multiplier since such multipliers are ignored by firms making investment decisions privately optimal investment decisions under uncertainty will not in general be socially optimal under reasonable conditions investment is too low

the life cycle labor supply of married women and its implications for household income inequality i introduction there has been an abundance of papers on female labor supply over the years but most do not rigorously test the life cycle model of labor supply and none focus on the potentially important role of nonlabor income in shaping labor supply 1 their primary focus is on the wage elasticity and most recently on the intertemporal wage elasticity the intertemporal wage elasticity or the change in labor supply as wages change over the woman s life cycle is economically cleaner to interpret because it contains only a substitution effect the income effect is constant over the life cycle but this advantage comes at a cost we learn nothing about why labor supply varies across women such variability is extremely important for policy purposes because for example it has implications for income inequality the popular press often creates the impression that income inequality is worsening as upper income men marry upper income women the implication is that the rising labor force participation rate of women is increasing family income inequality on the other hand it is possible that the income of wealthy husbands exerts a negative income effect on their wives labor supply so income inequality is little changed or declines as participation rates of wives rise the objectives of this paper are twofold to estimate a life cycle labor supply model with panel data that emphasizes the husband s income effect on the wife s hours of work and to draw implications for family income inequality i provide new estimates of the income elasticity that nest the life cycle hypothesis of labor supply with the current income hypothesis the life cycle model suggests that it is the permanent income of the husband that matters not his current income yet nearly all models of female labor supply include only current income the exception is jakubson 1988 i include both and add a varying parameters specification for changes in tastes the implications for income inequality arise as an application of the life cycle labor supply model a summary of the empirical results is contained in the conclusion this paper is unusual in that it covers two relatively disparate topics though their linkage is important and demands their integration in one paper ii specification of the labor supply model following the standard life cycle labor supply model assume that an individual maximizes lifetime utility v where utility is separable over time and separable between consumption and leisure 2 mathematical expression omitted where c and l are consumption and hours of leisure for individual i rho is the rate of time preference gamma sub it reflects consumers tastes for home production leisure etc and omega is less than 1 is fixed across individuals the lifetime budget constraint is mathematical expression omitted for interest rate r wage rate w sub it hours of work h sub it and the present value of nonlabor income a sub i for an interior solution the leisure equation is 2 ln l sub it 1 omega 1 ln lambda sub i ln gamma sub it ln omega ln 1 r sup t 1 rho sup t ln w sub it where lambda sub i is the marginal utility of lifetime wealth the marginal utility of wealth lambda sub i is a fixed effect that captures all the permanent income effects that influence labor supply including expected lifetime potential wages and lifetime nonlabor income for the labor supply of a married woman the largest wealth effect is likely to be her husband s income as it enters through lambda an increase in the husband s lifetime earnings will decrease the marginal utility of lifetime wealth and decrease the wife s labor supply 3 incorporating this relationship in the parameterization of lambda mathematical expression omitted where mathematical expression omitted is the husband s lifetime income education e

the sensitivity of an empirical model of married women s hours of work to economic and statistical assumptions this study undertakes a systematic analysis of several theoretic and statistical assumption s used in many empirical models of female labor supply using a singl e data set psid 1975 labor supply data the author is able to replic ate most of the range of estimated income and substitution effects fo und in previous studies in this field he undertakes extensive specif ication tests and finds that most of this range should be rejected du e to statistical and model misspecifications the two most important assumptions appear to be the tobit assumption used to control for sel f selection into the labor force and exogeneity assumptions on the wi fe s wage rate and her labor market experience copyright 1987 by the econometric society

numerical approximations of optimal portfolios in mispriced asymmetric levy markets abstract we present numerical approximations of optimal portfolios in mispriced levy markets under asymmetric information for informed and uninformed investors having logarithmic preference we apply our numerical scheme to kou 2002 jump diffusion markets by deriving analytic formulas for the first two derivatives of the underlying portfolio objective function which depend only on the levy measure of the jump generating process optimal portfolios are then simulated using the box muller algorithm newton s method and incomplete beta functions convergence dynamics and trajectories of sample paths of optimal portfolios for both investors are presented at different levels of information asymmetry mispricing horizon asymmetry in the kou density jump intensity volatility mean reversion speed and sharpe ratios we also apply the proposed newton s algorithm to compute optimal portfolios for investors in variance gamma markets via instantaneous centralized moments of returns

a jump diffusion model for option pricing brownian motion and normal distribution have been widely used in the black scholes option pricing framework to model the return of assets however two puzzles emerge from many empirical investigations the leptokurtic feature that the return distribution of assets may have a higher peak and two asymmetric heavier tails than those of the normal distribution and an empirical phenomenon called volatility smile in option markets to incorporate both of them and to strike a balance between reality and tractability this paper proposes for the purpose of option pricing a double exponential jump diffusion model in particular the model is simple enough to produce analytical solutions for a variety of option pricing problems including call and put options interest rate derivatives and path dependent options equilibrium analysis and a psychological interpretation of the model are also presented

estimating quadratic variation using realized variance this paper looks at some recent work on estimating quadratic variation using realised variance rv that is sums of m squared returns this econometrics has been motivated by the advent of the common availability of high frequency financial return data when the underlying process is a semimartingale we recall the fundamental result that rv is a consistent as m estimator of quadratic variation qv we express concern that without additional assumptions it seems difficult to give any measure of uncertainty of the rv in this context the position dramatically changes when we work with a rather general sv model which is a special case of the semimartingale model then qv is integrated variance and we can derive the asymptotic distribution of the rv and its rate of convergence these results do not require us to specify a model for either the drift or volatility functions although we have to impose some weak regularity assumptions we illustrate the use of the limit theory on some exchange rate data and some stock data we show that even with large values of m the rv is sometimes a quite noisy estimator of integrated variance

firm growth and laplace distribution the importance of large jumps abstract recent empirical studies have shown that firm growth rate distribution is not gaussian but closely follows a laplace distribution this robust feature of the growth rate distribution challenges existing models based on gibrat s model because it predicts a gaussian distribution first we analyze more than 100 000 japanese firms and empirically show that the laplace shape can be observed for the japanese firms then by using the theory of stochastic processes we theoretically show that the absence of jumps causes the discrepancy between gibrat s model and the laplace shape in particular based on the laplace shape and the law of proportionate effect we show that the firm growth process is a jump process in other words firm growth cannot be explained by the consequence of many small shocks but is determined by a few large jumps the widely observed laplace distribution reflects this jump property of firm growth dynamics

dampened power law reconciling the tail behavior of financial security returns this article proposes a stylized model that reconciles several seemingly conflicting findings on financial security returns and option prices the model is based on a pure jump levy process wherein the jump arrival rate obeys a power law dampened by an exponential function the model allows for different degrees of dampening for positive and negative jumps and also for different pricing for upside and downside market risks calibration of the model to the s p 500 index shows that the market charges only a moderate premium on upward index movements but the maximally allowable premium on downward index movements

the sensitivity of labor supply parameter estimates to unobserved individual effects fixed and random effects estimates in a nonlinear model using panel data life cycle models of labor supply predict the presence of an unobserved individual effect in the labor supply equation that is correlated with observed explanatory variables leading to an omitted variables bias in the cross section i examine the sensitivity of parameter estimates to the presence of these effects using fixed and random effect tobit models the estimated effects of children are too large in the cross section the estimated intertemporal substitution elasticity ranges from 1 1 to 1 7 the results are similar for fixed and random effects models and for models using different specifications of the dependent variable

an fft network for levy option pricing abstract this paper develops a simple network approach to american exotic option valuation under levy processes using the fast fourier transform fft the forward shooting grid fsg technique of the lattice approach is then generalized to expand the fft network to accommodate path dependent variables this network pricing approach is applicable to all levy processes for which the characteristic function is readily available in other words the log value of the underlying asset can follow finite activity or infinite activity levy processes with the powerful computation of fft the proposed network has a negligible additional computational burden compared to the binomial tree approach the early exercise policy and option values in the continuation region are determined in a way very similar to that of the lattice approach numerical examples using american style barrier lookback and asian options demonstrate that the fft network is accurate and efficient

the impact of pension benefits on the distribution of earned income using standard measures of income inequality and detailed pension benefit information on participants in the 1983 survey of consumer finances scf the authors investigate how pension benefits affected the distribution of earned income the results suggest that private pensions increased annual income inequality relative to inequality observed in the distribution of wage income by only about 2 among all employed individuals but by 21 among unionized workers further analysis indicates that private pensions raised annual income inequality primarily by increasing the rate of return to tenure possibly through pension backloading setting accruals to grow when earnings rise near retirement and the increasing incidence of pensions with age private pensions had little effect on estimates of the distribution of expected lifetime income but the addition to the analysis of social security benefits public pensions strongly reduced inequality in that distribution a renewed interest in the distribution of income has developed recently as new evidence suggests that income inequality has worsened over the past twenty years researchers suggest several reasons for rising inequality including an increase in the incomes of well educated men relative to other groups for example juhn murphy and pierce 1993 demographic changes resulting from the entrance of the baby boom generation into the work force lawrence 1982 and a sectoral shift away from manufacturing and toward the ser

a general distribution for describing security price returns this paper introduces a generalized distribution called the gb2 distribution for describing security returns the distribution is extremely flexible containing a large number of well known distributions such as the lognormal log t and log cauchy distribu tions as special or limiting cases and allowing large even infinite higher moments this flexibility allows a direct representation of different degrees of fat tails in the distribution the properties of the gb2 make it useful in empirical estimation of security returns and in facilitating the development of option pricing models and other models that depend on the specification and mathematical manipulation of distributions copyright 1987 by the university of chicago

pricing an option on revenue from an innovation an application to movie box office revenue we develop a model for valuing revenue streams from innovations the stochastic properties of revenue from innovations create a more difficult environment in which to value options than when the underlying is a security there is no initial revenue and cumulative revenue cannot decrease revenues from innovations are characterized by different lives and different rates of the resolution of uncertainty a common deterministic model for predicting revenue from an innovation is known as the bass model we embed the bass model in a gamma process resulting in a stochastic process with moments proportional to the mean of the bass model to illustrate this model we choose the valuation of options on movie box office revenue these options enable film distributors to manage the risk of a movie and they offer diversification opportunities for investors we develop the econometric methodology for ex ante parameter estimation and a bayesian updating scheme using markov chain monte carlo simulation as data after release become available call prices obtained using the maximum likelihood ml parameter estimates from the full data set closely approximate the average discounted value of ex post call payouts that would have occurred at option maturity

an empirical examination of the variance gamma model for foreign currency options we apply the variance gamma vg option pricing model to currency options the model is a pure infinite activity jump model we examine whether and to what extent this new model can improve the pricing quality for currency options over the existing modified black scholes model and the merton jump diffusion jd model we find that the vg model yields better out of sample pricing performance than the modified black scholes model or the jd model in addition a cross entropy analysis shows that the vg model is more consistent with the general criterion of utility maximization and optimal portfolio selection

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

a jump model for fads in asset prices under asymmetric information abstract this paper addresses how asymmetric information fads and levy jumps in the price of an asset affect the optimal portfolio strategies and maximum expected utilities of two distinct classes of rational investors in a financial market we obtain the investors optimal portfolios and maximum expected logarithmic utilities and show that the optimal portfolio of each investor is more or less than its merton optimal our approximation results suggest that jumps reduce the excess asymptotic utility of the informed investor relative to that of uninformed investor and hence jump risk could be helpful for market efficiency as an indirect reducer of information asymmetry our study also suggests that investors should pay more attention to the overall variance of the asset pricing process when jumps exist in fads models moreover if there are very little or too much fads then the informed investor has no utility advantage in the long run

performance standards and optimal incentives abstract this paper analyzes incentive design when agents effort influences an uncertain output governed by a random process with semi heavy tails we find that the second best incentive contract pays an output increasing but bounded fee with a shape resembling performance standard contracts that pay a fixed salary plus a capped bonus in this contract the pay performance sensitivity around the standard increases decreases with the frequency with which performance is measured and with the kurtosis volatility parameter of the performance probability distribution we also find that the optimal maximum bonus increases with volatility but decreases with the kurtosis parameter of the performance distribution