the cost of market versus regulatory discipline in banking1 abstract we present evidence that insured deposit financing shields banks from the full costs of market discipline moody s downgrades indicators of increasing risk are associated with negative abnormal equity returns that are increasing in the bank s reliance on insured deposits moreover banks raise their use of insured deposits following increases in risk these findings cast doubt on the ability of capital market participants to effectively discipline bank behavior within the current regulatory environment more generally our findings highlight the potential for regulation to undermine market discipline in regulated industries

market price accounting and depositor discipline the case of japanese regional banks abstract we examine the determinants of japanese regional bank pricing to market decisions and their impact on the intensity of depositor discipline in the form of the sensitivity of deposit growth to bank financial conditions to obtain consistent estimates we first model and estimate the bank pricing to market decision and then estimate the intensity of depositor discipline after conditioning for that decision we find that banks were less likely to adopt market price accounting the larger were their unrealized securities losses we also find statistically significant evidence of depositor discipline among banks that elected to price to market our results indicate that depositor discipline was more intense for the subset of banks that adopted market price accounting

periodic review and continuous ordering abstract many inventory control studies consider either continuous review and continuous ordering or periodic review and periodic ordering mixtures of the two are hardly ever studied however the model with periodic review and continuous ordering is highly relevant in practice as information on the actual inventory level is not always up to date while making ordering decisions this paper will therefore treat this model assuming zero fixed ordering costs and allowing for a non negative lead time and a general demand process we first consider a one period decision problem without salvage cost for inventory remaining at the end of the period in this setting we derive a base line optimal order path described by a simple newsvendor solution with safety stocks increasing towards the end of a review period we then show that for the general multi period problem the optimal policy in a period is to first arrive at this path by not ordering until the excess buffer stock from the previous review period is depleted then follow the path by continuous ordering and stop ordering towards the end to limit excess stocks for the next review period an important managerial insight is that typically no order should be placed at a review moment although this may seem intuitive and is also the standard assumption in periodic review models we illustrate that adhering to the optimal ordering path instead can lead to cost reductions of 30 60 percent compared to pure periodic ordering

can fat tail create the momentum and reversal we suggest that fat tail variations can cause both short term momentum and long term reversal simultaneously in both the time series and cross sectional returns of securities the fat tail of the

a dynamic inventory model with periodic auditing consider a single item periodic review stationary inventory model with stochastic demands proportional ordering costs and convex holding and shortage costs where shortages are backordered and veinott s well known terminal condition holds orders can be scheduled for any period but the actual inventory level is determined every t periods through an audit this leads to a dynamic programming model where stage n contains periods n 1t 1 through nt for both discounted and averaging criteria a simple rule optimally describes the orders for the t periods of a stage as a function of the state beginning inventory level and the cumulative t period order the latter is optimally determined by a base stock policy with two base stock levels one for the final stage another for the rest the horizon may be finite or infinite methods are presented for computing optimal policies together with bounds on the costs of suboptimal myopic policies models with proportional costs and continuous demands are studied in detail computational experiments indicate that myopic policies perform quite well for such models the selection of a best review period t is covered briefly applications of our model include just in time settings where audit decisions play a negligible role

designing supply contracts contract type and information asymmetry this paper studies the value to a supplier of obtaining better information about a buyer s cost structure and of being able to offer more general contracts we use the bilateral monopoly setting to analyze six scenarios three increasingly general contracts wholesale pricing schemes two part linear schemes and twopart nonlinear schemes each under full and incomplete information about the buyer s cost structure we allow both sides to refuse to trade by explicitly including reservation profit levels for both for the supplier this is implemented through a cutoff policy we derive the supplier s optimal contracts and profits for all six scenarios and examine the value of information and of more general contracts our key findings are as follows first the value of information is higher under two part contracts second the value of offering two part contracts is higher under full information and third the proportion of buyers the supplier will choose to exclude can be substantial

misintermediation and macroeconomic fluctuations abstract individuals plan consumption and production for different point in the future using interest rates of various maturities as a guide however the financial intermediaries individuals work through traditionally do not match the maturity structure of their assets and liabilities as a result aggregate production plans and aggregate consumption plans for each period in the future need not coincide the resulting discrepancy will eventually appear as a recession or boom involving an unanticipated change in interest rates and production inside the original intertemporal production possibilities frontier maturity transformation is therefore not an essential function of financial intermediation but rather a mis function one which we call misintermediation

the federal funds market under bank deregulation the introduction of competitive interest rates on deposits is shown to effect the optimal decisions of banks by altering their optimal forecast of the federal funds rate the movement toward co mpetitive deposit rates increases the size of the monetary base neces sary for the fed to maintain its deposit targets when deposits and the monetary base are substitutes in addition there is less uncertainty in the federal funds market under competitive deposit rates when deposits and the monetary base are substitutes and the source of uncertainty is not from the supply of deposits copyright 1987 by ohio state university press

the optimal frozen period in a dynamic production model abstract we consider a periodic auditing model for manufacturers in a supply chain who observe stochastic demand proportional holding expedited ordering costs and setup cost customer demand for a component can arrive in any period but the procurement quantities are determined every t periods which is defined as a frozen period the demand forecasts are updated every period as more information becomes available from the marketplace this paper studies a forecast order policy and compares it with the optimal order policy our objective is to determine the optimal length of a frozen period and the safety stock in a frozen period such that the expected total cost per unit of time is minimized

an inventory model embedded in designing a supply contract to reduce lead time and its variability modern supply and transportation contracts often specify the frequency of and volume available for future deliveries in advance even when final demand is somewhat uncertain yano and gerchak yano c a y gerchak 1989 transportation contracts and safety stocks for just in time deliveries manufacturing and oper management 2 314 330 we explore the joint optimization of contract parameters and inventory control policy in such environments we first model and derive the optimal periodic review inventory policy corresponding to a given supply contract which generates piecewise linear convex ordering costs the optimal policy has two critical levels and there is a range of stock levels for which the quantity ordered equals the contract volume to numerically compute the critical levels we model consecutive inventory levels as a markov chain whose steady state distribution is used to compute the holding shortage and transportation costs we then use the

modelling imperfect advance demand information and analysis of optimal inventory policies we consider an inventory control problem where it is possible to collect some imperfect information on future demand we refer to such information as imperfect advance demand information adi which may occur in different forms of applications a simple example is a company that uses sales representatives to market its products in which case the collection of sales representatives information as to the number of customers interested in a product can generate an indication about the future sales of that product hence it constitutes imperfect adi other applications include internet retailing vendor managed inventory vmi applications and collaborative planning forecasting and replenishment cpfr environments we develop a model that incorporates imperfect adi with ordering decisions under our system settings we show that the optimal policy is of order up to type where the order level is a function of imperfect adi we also provide some characterizations of the optimal solution we develop an expression for the expected cost benefits of imperfect adi for the myopic problem our analytical and empirical findings reveal the conditions under which imperfect adi is more valuable

inventory control under temporal demand heteroscedasticity abstract this paper studies an inventory control problem when the variance of demand is time varying and exhibits temporal heteroscedasticity we use a first order autoregressive process to characterize the dynamic changes in the level of demand over time and a garch 1 1 structure to describe the changes in the variance of demand under these demand settings we quantify the effect of a temporal heterogeneous variance on inventory performance for a system controlled via an order up to level policy we show that the effect of temporal heteroscedasticity on the forecasting accuracy can be additively decomposed from the total forecasting error variance the decomposition is used to derive the absolute and relative cost deviations when the temporal heteroscedasticity is ignored the relationship of these cost deviations to demand autocorrelation and replenishment leadtime is investigated computational results show that ignoring temporal heteroscedasticity can increase firm s inventory costs by as much as 30 when demand autocorrelation is highly positive

exchange rate volatility and u s monetary policy an arch application this paper examines the effect of shifts in u s monetary policy regimes on the stochastic process that generates foreign exchange rates to account for the observed behavior of the data record the author models nominal dollar exchange rates as univariate autoregressive conditional heteroskedastic processes he then tests the stability of this process across u s monetary policy regimes for four of the currencies in the sample accounting for regime shifts improves the fit of the model regime shifts also appear to diminish the degree of persistence of variance making it less likely that exchange rates are integrated in variance copyright 1989 by ohio state university press

impact of transportation contract on inventory systems with demand cancellation abstract supply contracts often specify the quantity of inventory for shipments where retailers are liable to pay for ordering costs if order quantity exceeds the contracted size we analyze a periodic review system where the firm manages its demand that are reserved with a one period leadtime together with a multi tier supply contract we show that the optimal inventory policy has the primary structure of finite generalized base stock policy whose critical numbers depend on reservation parameters the single multiple periods and the infinite horizon models are studied the presence of ordering costs needs a different approach from that in yuan and cheung 2003 to analyze the infinite horizon model

comparison of two periodic review models for stochastic and price sensitive demand environment abstract in this paper we study two periodic review inventory models which primarily differ in terms of how backordering cost is charged time independent backordering tib model where the backordering cost is charged per unit backordered and is independent of the length of time for which backorders persist and the time dependent backordering tdb model where the backordering cost is charged based on the number of backorders as well as the length of time for which they are on the books i e it is charged per unit per unit time our objective is to investigate the impact of these two different backordering cost structures on the optimal decisions of a firm in a stochastic and price sensitive demand environment in order to do so we first develop a general framework where both such costs exist in a profit maximizing context subsequently we analyze two special cases of this general framework with either one of the costs that is tib and tdb models and derive some analytical results regarding the values and behavior of the optimal decisions for both of them we then concentrate on comparing the two models through extensive numerical experiments our investigation demonstrates that the tib model generally results in longer review periods and lower retail prices as far as the base stock level is concerned we show that it can be higher in either setting however the safety stock is considerably lower for the tib model lastly indeed if a firm s backordering cost is indeed time dependent then use of the tib model for making decisions results in significant profit penalty under most market operating conditions specifically for innovative products except when demand uncertainty and or the backordering cost are quite low i e for mature commodity products

analysis of supply contracts with quantity flexibility this paper explores a class of supply contracts under which a buyer receives discounts for committing to purchases in advance the further in advance the commitment is made the larger the discount as time rolls forward the buyer can increase the order quantities for future periods of the rolling horizon based on updated demand forecast information and inventory status however the buyer pays a higher per unit cost for the incremental units such contracts are used by automobile and contract manufacturers and are quite common in fuel oil and natural gas delivery markets we develop a finite horizon dynamic programming model to characterize the structure of the optimal replenishment strategy for the buyer we present heuristic approaches to calculate the order volume in each period of the rolling horizon finally we numerically evaluate the heuristic approaches and draw some managerial insights based on the findings

symmetric pass through of tariffs and exchange rates under imperfect competition an empirical test abstract this paper examines the effect of tariffs and exchange rates on u s prices of japanese cars trucks and motorcycles in particular we test whether the long run pass through of tariffs and exchange rates are identical the symmetry hypothesis we find that this hypothesis is easily accepted in our sample we also find that the pass through relation varies across products ranging from about 0 6 for trucks to unity for motorcycles these coefficients have very different implications for trade policy we explain the results based on demand cost and institutional conditions in each industry

appearance and reality in deposit insurance the case for reform abstract this paper argues that the staffs and explicit insurance reserves of u s deposit insurers have been overwhelmed by de facto financial disaster the full costs of financing federal deposit insurance have become enormous and increasingly inequitable in distribution to reduce voluntary risk taking authorities must reprice and redesign the system of de facto deposit insurance coverage six complementary reforms are discussed 1 accounting for institutional assets liabilities and net worth at market value 2 enhancing opportunities for deposit insurers to manage their risk exposure 3 recalibrating insurance coverages 4 imposing risk rated premiums 5 mixed private and governmental competition in deposit insurance and 6 constraining insurance agency and federal reserve authority to bail out insolvent institutions

a unified theory of the dynamics of closed loop supply chains we investigate the dynamics of a closed loop supply chain with first order auto regressive ar 1 demand and return processes we assume these two processes are cross correlated the remanufacturing process is subject to a random triage yield remanufactured products are considered as goodas new and used to partially satisfy market demand newly manufactured products make up the remainder we derive the optimal linear policy in our closed loop supply chain setting to minimise the manufacturer s inventory costs we show that the lead time paradox can emerge in many cases in particular the auto and cross correlation parameters and variances of the error terms in the demand and the returns as well as the remanufacturing lead time all influence the existence of the lead time paradox finally we propose managerial recommendations for manufacturers

the effects of foreign exchange movements on u s domestic prices this paper draws on the fields of international economics and industrial organization to model and empirically examine the relationship between currency value fluctuations and domestic producer prices the major focus is the issue of whether and why domestic industries differ systematically in their response to exchange rate changes the major findings are that changes in the external value of the u s dollar between 1974 and 1987 passed most fully into domestic prices of industries heavily reliant on imported inports and producing goods highly substitutable for imports highly capital intensive and concentrated industries and those protected by extensive barriers to entry both from domestic and foreign sources have exhibited less domestic price change from the exchange rate movements copyright 1989 by mit press

market evidence on the effective maturity of bank assets and liabilities the recent years increase in interest rate volatility has intensified concern over the exposure of commercial banks to interest rate or funding risk since the effect of interest rate changes on the equity value of a bank depends on the maturity or duration of the bank s assets and liabilities assessing an individual bank s interest rate risk exposure requires information about the maturity composition of its portfolio it is difficult however to assess a bank s risk exposure from balance sheet data because several important asset and liability items have theoretically ambiguous effective maturities in a frictionless market a security s effective maturity will equal its stated maturity or time to repricing with market imperfections e g depositors transaction or information costs however the equilibrium cost of some deposit items may respond sluggishly or incompletely to market rate changes see hester and pierce 1975 or flannery 1982 such liabilities market values discounted at market rates would therefore fluctuate with the level of interest rates these liabilities are sometimes called core deposits which manifest sticky responses to market rate changes we define an asset or liability s effective maturity as the maturity of a fixed rate perfectly elastically supplied security with the same market value elasticity as the bank balance sheet item under consideration naturally a balance sheet item s effective maturity is the relevant determinant of its contribution to the bank s overall interest rate risk sensitivity

capital standard forbearance and deposit insurance pricing under garch abstract we propose a multiperiod deposit insurance pricing model that simultaneously incorporates the capital standard and the possibility of forbearance the model employs the recently developed garch option pricing technique in determining the deposit insurance value our model offers two distinctive advantages first it explicitly considers the implications of the strict enforcement on capital standard as stipulated in fdic improvement act of 1991 second the use of the garch model allows us to capture many robust features exhibited by financial asset returns by the garch option pricing theory the value of a contingent claim is a function of the asset risk premium this unique feature is found to be prominent in determining the bank s deposit insurance value we also examine the effects of capital forbearance and moral hazard behavior in this multiperiod deposit insurance setting

ordering policy and coordination of a supply chain with two period demand uncertainty abstract we develop a two period game model of a one manufacturer and one retailer supply chain to investigate the optimal decisions of the players where stock out and holding costs are incorporated into the model the demand at each period is stochastic and price sharply drops in mid life we assume the retailer has a single order opportunity and decides how much inventory to keep in the middle of selling season we show that both the price protection mid life and end of life returns pme scheme and the only mid life and end of life returns me scheme may achieve channel coordination and access a win win situation under some conditions the larger the lowest expected profit of the retailer the lower the possibility of win win situation will be combined with the analysis of feasible regions for coordination policies we find that pme scheme is not always better than me scheme from the perspective of implementable mechanism finally we find that adopting the dispose down to ddt policy can bring a larger improvement of the expected channel profit in the centralized setting and it is interesting that by using ddt policy double marginalization occurs only at period 1 and however does not plague the retailer in period 2

hedging against interest rate risk reconsidering volatility adjusted immunization abstract it is well known that long term interest rates display a lower volatility than short term interest rates the imperfect correlation between changes in long term and short term interest rates is also well documented simple immunization techniques based on duration and convexity do not take such factors into account this paper suggests an approach which considers unequal volatility and imperfect correlation when building immunizing portfolios our results suggest that this approach may lead to significant improvements over both duration based and convexity based immunization strategies volatility adjusted and correlation adjusted immunization also outperform strategies based on factor analysis of interest rates changes

discipline and liquidity in the interbank market using 20 years of panel data i demonstrate that high risk banks have consistently paid more than safe banks for interbank loans and have been less likely to use these loans as a source of liquidity the economic importance of this effect was relatively small until the mid 1990s when regulatory and institutional changes began to impose more of the costs of bank failure on uninsured creditors subsequently interbank market price discipline roughly doubled and risk based rationing effects increased by a factor of six in imposing this discipline lenders seem to care most about credit risk at borrowing institutions

some insights regarding the optimal reorder period in periodic review inventory systems abstract the periodic review inventory system is not only pervasive but also has an extensive literature dealing with various aspects from its theoretical underpinnings through to its performance however the selection of the best review period and its behaviour with respect to basic inventory parameters such as demand and supply variability appears to be poorly understood in this paper we treat the normal and gamma distributions which are probably the two most commonly used distributions of demand over the key protection time interval in a periodic review system we show that the total cost function is not necessarily well behaved as a function of the review period in particular it can be non convex which complicates the determination of the best value of the review interval also we demonstrate and explain how the best review period changes as the values of various parameters are modified some of these changes are initially counterintuitive in nature managerially oriented interpretations should also be helpful to organisations seeking improvement in inventory system performance

joint pricing and inventory replenishment decisions with returns and expediting abstract we study a single item periodic review model for the joint pricing and inventory replenishment problem with returns and expediting demand in consecutive periods are independent random variables and their distributions are price sensitive at the end of each period after the demand is realized a buyer can return excess stocks to a supplier or if there are stockouts the buyer can place an expediting order at the supplier to reduce the amount of shortage unfilled demands are fully backlogged we characterize the optimal dynamic policy that determines the pricing inventory replenishment and adjustment decisions in each period so that the total expected discounted profit is maximized for a very general stochastic demand function we can show that the optimal replenishment policy is a modified base stock policy the optimal pricing policy is a modified base stock list price policy and the optimal policy for inventory adjustment follows a dual threshold policy we further study the operational effect of returns and expediting analytical and numerical results demonstrate that returns and expediting lead to a significant profit increase in a number of situations including limited supply capacity sufficient flexibility of the expediting order high demand uncertainty and a price sensitive market

evidence of bank market discipline in subordinated debenture yields 1983 1991 we examine debenture yields over the period 1983 1991 to evaluate the market s sensitivity to bank specific risks and conclude that investors have rationally reflected changes in the government s policy toward absorbing private losses in the event of a bank failure although this evidence does not establish that market discipline can effectively control banking firms it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major u s banking firms an increasingly important issue in the regulation of financial institutions concerns the extent to which market investors can will recognize and control the risks of banking firms although the banking act of 1933 replaced some private risk bearing with federal deposit insurance legislators were reluctant to displace market discipline very extensively flood 1992 by the early 1980s however u s regulators had come to protect virtually all bank liability holders from credit losses most visibly at large banks which were deemed too big to fail sprague 1986 o hara and shaw 1990 this extension of the government safety net largely reflects a skepticism on the part of regulators that normal market forces could adequately identify and control bank risks while u s regulators have recently shown an increased willingness to let some bank investors bear default losses an official suspicion of the efficacy of market discipline remains widespread by contrast some prominent academic economists argue that market investors in bank debentures could provide timely and effective control over banking firms risk exposures and that the social cost of supervising banks would be lower if regulators ceded greater

the optimal review period in a dynamic inventory model consider a single item periodic review infinite horizon undiscounted inventory model with stochastic demands proportional holding and shortage costs and full backlogging orders can arrive in every period and the cost of receiving them is negligible as in a jit setting every t periods one observes the current stock level and orders deliveries for the next t periods thus incurring a fixed setup cost the goal is to find a review period t and an ordering policy that minimize the long run expected average cost per period flynn and garstka flynn j s garstka 1990 a dynamic inventory model with periodic auditing opns res 38 1089 1103 characterize an optimal ordering policy when t is fixed and study a myopic policy whose cost is often close to the optimal cost this paper covers the problem of selecting t we prove an optimal review period t exists characterize its properties and present methods for its computation we also study an approximation to t based on the myopic policy of ou

an effective heuristic for the review period in an inventory model with staggered deliveries and normal demands abstract consider a single item periodic review infinite horizon undiscounted inventory model with stochastic demands proportional holding and shortage costs and full backlogging orders can arrive in every period and the cost of receiving them is negligible as in jit every t periods one audits the stocks and chooses a delivery schedule for each of the next t periods thus incurring a fixed audit cost and when one schedules actual deliveries a fixed order cost the problem is to find a review period t and an ordering policy minimizing the average cost an earlier article developed an algorithm for computing an optimal t and undertook a numerical study to evaluate various approximations assuming normal demands we characterize the asymptotic behavior for large of the optimal t and establish the asymptotic optimality of a heuristic calculable on a spreadsheet a numerical study indicates that patterns established here for large hold for above 2

a model of exchange rate pass through abstract exchange rate pass through is the phenomenon whereby changes in the value of foreign exchange are reflected in changes in import prices this paper presents a partial equilibrium model in which firms are price setters who anticipate exchange rate changes in equilibrium firms strategies incorporate expectations about the exchange rate consistently and are best responses to the strategies of all others in the world market it is shown that exchange rate changes give rise to import price changes but the degree of exchange rate pass through depends upon domestic and foreign market structures and the exchange rate regime in general exchange rate pass through is higher if the home market is monopolistic or if the foreign market is competitive

a semi parametric approach for estimating critical fractiles under autocorrelated demand abstract forecasting critical fractiles of the lead time demand distribution is an important problem for operations managers making newsvendor type inventory decisions in this paper we propose a semi parametric approach to forecasting the critical fractile when demand is serially correlated starting from a user defined but potentially misspecified forecasting model we use historical demand data to generate empirical forecast errors of this model these errors are then used to 1 parametrically correct for any bias in the point forecast conditional on the recent demand history and 2 non parametrically estimate the critical fractile of the demand distribution without imposing distributional assumptions we present conditions under which this semi parametric approach provides a consistent estimate of the critical fractile and evaluate its finite sample properties using simulation and real data for retail inventory planning

on the tradeoff between optimal order base stock levels and demand lead times abstract we investigate the tradeoff between finished goods inventory and advance demand information for a model of a single stage make to stock supplier who uses an order base stock replenishment policy to meet customer orders that arrive a fixed demand lead time in advance of their due dates we show that if the replenishment orders arrive in the order that they are placed then the tradeoff between the optimal order base stock level and the demand lead time is exhaustive in the sense that the optimal order base stock level drops all the way to zero if the demand lead time is sufficiently long we then provide a sufficient condition under which this tradeoff is linear we verify that this condition is satisfied for the case where the supply process is modeled as an m m 1 queue we also show that the tradeoff between the optimal order base stock level and the demand lead time is linear for the case where the supply process is modeled as an m d 1 queue more specifically for this case we show that the optimal order base stock level decreases by one unit if the demand lead time increases by an amount equal to the supplier s constant processing time finally we show that the tradeoff between the optimal order base stock level and the demand lead time is exhaustive but not linear in the case where the supply process is modeled as an m d queue we illustrate these results with a numerical example

a pricing to market model with unobserved variables explaining new zealand s import prices a model of pricing to market ptm behaviour in import prices is developed for a small open economy to allow for two measurement problems i that neither the marginal production cost of imported goods nor their corresponding foreign currency export price are observable by the econometrician ii that ptm behaviour if it exists alters the relationship between foreign countries export price indices for total exports and the true unobservable price index the analysis shows that variations in the measured markup on import prices depends on the degree to which domestic demand is synchronized with world demand whether bilateral exchange rate movements are due to domestic or foreign factors and on the degree to which ptm behaviour differs from such behaviour in other countries equations estimated for the price of new zealand nz imports from the us strongly supports the model and finds that the degree of ptm by us exporters in response to price and exchange rate movements is substantially greate

on a multi period supply chain system with supplementary order opportunity abstract this paper considers a supplementary supply order system in a multi period situation in each period the buyer first places an initial order based on the demand prediction he has the opportunity to place a supplementary order with the supplier after the demand of that period is realized the supplier maintains an inventory and decides the quantity to be produced and the quantity to be provided for the supplementary order in each time period we formulate the problem as a multi period inventory game and derive the optimal production and order policies for the supplier and buyer respectively the existence and uniqueness of nash equilibrium is proved in the generalized multi period setting and the closed form nash equilibrium solution is obtained when the parameters are stationary numerical study is performed to reveal more managerial insights we find that the supplementary supply order mechanism if designed properly can effectively improve the multi period supply chain performance

debt priority structure market discipline and bank conduct we examine how debt priority structure affects bank funding costs and soundness leveraging an unexplored natural experiment that changes the priority of claims on banks assets we document asymmetric effects that are consistent with changes in monitoring intensity by various creditors depending on whether creditors move up or down the priority ladder the enactment of depositor preference laws which confer priority on depositors reduces deposit rates but increases non deposit rates importantly subordinating non depositor claims reduces bank risk taking consistent with market discipline this insight highlights a role for debt priority structure in the regulatory framework

managing an available to promise assembly system with dynamic short term pseudo order forecast we study an order promising problem in a multiclass available to promise atp assembly system in the presence of pseudo orders a pseudo order refers to a tentative customer order whose attributes such as the likelihood of an actual order order quantity and confirmation timing can change dynamically over time a unit demand from any class is assembled from one manufactured unit and one inventory unit where the manufactured unit takes one unit of capacity and needs a single period to produce an accepted order must be filled before a positive delivery lead time the underlying order acceptance decisions involve trade offs between committing resources production capacity and component inventory to low reward firm orders and reserving resources for high reward orders we develop a markov chain model that captures the key characteristics of pseudo orders including demand lumpiness nonstationarity and volatility we then formulate a stochastic dynamic program for the atp assembly system that embeds the markov chain model as a short term forecast for pseudo orders we show that the optimal order acceptance policy is characterized by class prioritization resource imbalance based rationing and capacity inventory demand matching in particular the rationing level for each class is determined by a critical value that depends on the resource imbalance level defined as the net difference between the production capacity and component inventory levels extensive numerical tests underscore the importance of the key properties of the optimal policy and provide operational and managerial insights on the value of the short term demand forecast and the robustness of the optimal policy this paper was accepted by martin lariviere operations management

a periodic review replenishment model with a refined delivery scenario abstract this paper considers a single item replenishment problem where every n periods the buyer plans for the quantity delivered for each upcoming period assuming that demand not filled immediately is backlogged we suggest that the quantity delivered in the immediately upcoming period be of any size and the quantity delivered in each of the subsequent n 1 periods be equal to or smaller than a fixed quantity q we derive the average cost per n periods and compute the optimal order up to level for the proposed replenishment policy next assuming a fixed cost for reviewing inventory and planning deliveries we obtain the optimal n by minimizing the expected cost per period finally the optimal q can also be determined the proposed periodic review policy is easy to implement

mean variance analysis of supply chains under wholesale pricing and profit sharing schemes in this paper we explore the use of a wholesale pricing and profit sharing scheme wpps for coordinating supply chains under the mean variance mv decision framework we first analytically establish the necessary and sufficient conditions for coordinating the centralized supply chain by wpss we then show that there exists a unique equilibrium of the stackelberg game with wpps in the decentralized case after that we discuss the information asymmetric case in which the retailer can be benefited by pretending to be more risk averse finally we propose a new measure for the manufacturer to prevent this cheating from happening insights are generated

the valuation of fdic deposit insurance using option pricing estimates when congress set the premium rate for fdic deposit insurance in the banking act of 1935 which authorized a permanent federal insurance system neither experience nor theory could offer much guidance regarding an appropriate fee structure although rates have since been periodically revised the fdic has yet to attempt to set the insurance rate at a ifair level that is a level equal to administrative costs plus the ex ante value of the insurance such a premium is the rate that would be charged by competitive private insurers however7 the garn st germain act of 1982 directed the fdic to consider the feasibility of a risk based premium structure in response the fdic has suggested a trial system in which each insured bank will be placed in one of three risk classes based on credit and interest rate risk relative to capital and a premium rate will be assigned to each group those rates will be determined in part by the loss experience of the entire banking system fdic 1983 another approach to the determination of the appropriate insurance premium has been offered by merton 1977 who suggested using the analogous relationship between deposit guarantees and put options to value fdic insurance in this paper we follow merton s suggestion and calculate bank specific estimates of the proper premium for deposit insurance for the banks in our sample we find that fdic rates greatly exceed estimates of the fair value of the insurance derived from the blackscholes 1972 option pricing model

purchasing demand information in a stochastic demand inventory system this paper studies a periodic review stochastic demand inventory system in which the manager has the opportunity each period to purchase information about demand in the upcoming period before deciding how much product to order we analyze the information purchase and product replenishment decisions for both perfect and imperfect demand information under perfect information we provide a characterization of the optimal policy for both finite and infinite horizon problems and also establish useful managerial insights into the behavior of the system we show that future demand information becomes less valuable at higher inventory levels and more valuable when longer horizons remain when the initial inventory is zero solving the perfect information problem reduces to computing a single quantity for which we provide a closed form expression as a result this problem is shown to be equivalent to one in which the manager purchases perfect information over the entire horizon with a single lump sum payment at the beginning of the horizon our analytical and numerical results demonstrate that most of the insights from the perfect information scenario carry over to the imperfect information case

fill rate in a periodic review order up to policy under auto correlated normally distributed possibly negative demand we investigate the inventory service metric known as the fill rate the proportion of demand that is immediately fulfilled from inventory the task of finding analytical solutions for general cases is complicated by a range of factors including correlation in demand double counting of backlogs and proper treatment of negative demand in the literature two approximate approaches are often proposed our contribution is to present a new fill rate measure for normally distributed auto correlated and possibly negative demand we treat negative demand as returns our approach also accounts for accumulated backlogs the problem reduces to identifying the minimum of correlated normally distributed bivariate random variables there exists an exact solution but it has no closed form however the solution is amenable to numerical techniques and we present a custom microsoft excel function for practical use numerical investigations reveal that the new fill rate is more robust than previous measures existing fill rate measures are likely to cause excessive inventory investment especially when fill rate targets are modest a strongly positive or negative autocorrelation in demand is present or negative demands exist our fill rate calculation ensures that the target fill rate is achieved without excessive inventory investments

operations research in inventory management a review and critique the objectives of inventory management including the relevant related costs are examined in this paper a brief review of standard problems that have been effectively solved is presented however we point out that a serious gap exists between theory and practice in many organizations suggestions are made for bridging this gap finally a list is provided of a number of research problems whose implementable solution would have a major beneficial impact on the practice of inventory management

financial structure and aggregate economic activity an overview this paper surveys literature that explores the possible links between the financial system and aggregate economic behavior the survey is in two parts the first reviews the traditional work and the second discusses new research copyright 1988 by ohio state university press

impact of market demand mis specification on a two level supply chain this paper investigates the impact of mis specifying the market demand process on a serially linked two level supply chain box jenkins models are used to represent both the true and a mis specified market demand processes it is shown that the impact of mis specification on cost is minor if the supply chain tries to minimise the market demand forecast errors furthermore our analysis suggests that mis specification does not always result in additional costs a managerial insight is revealed poor forecast accuracy is not always bad for the total supply chain costs in other words employing more accurate forecasting methods may actually result in higher total supply chain costs

waste paper procurement optimization an agent based simulation approach abstract this paper proposes an agent based simulation model to study and analyse the performance of various procurement and production policies in the recycled paper industry the proposed model includes the recycled pulp production process as well as the waste paper inventory and procurement processes a detailed simulation model developed in partnership with a large recycled pulp producer in north america was developed in order to emulate the procurement manager s behaviour therefore based on the observed behaviour of the procurement manager a procurement behaviour model which takes both market price and inventory requirement into account is introduced this paper also introduces a waste paper market model that simulates a market price and enables the control of price forecast accuracy two series of experiments were carried out in order to study the performance of procurement and production policies in several productions contexts results show that production volume flexibility has a negative impact on costs inventory and quality however it is possible to partially reduce these issues with the introduction of contracts with volume flexibility although only a limited effect has been observed in our experiments a more significant strategy to improve costs consists in reducing production rate to the minimum level required to meet demand

market discipline and bank subordinated debt note a lengthy literature in banking has addressed the question of whether the market prices of liabilities respond to individual bank risk taking activity that is whether any market disciplines exists however despite the obvious importance of this question the current record has led to no consensus on the issue results have been contradictory in this journal alone hannan and hanweck 1988 conclude that the market does extract at least some price for risk taking while avery belton and goldberg 1988 find no such evidence in this study we argue that this line of inquiry has a serious f law in that it fails to use theoretical models of bank instrument valuation to determine the appropriate testing of market discipline therefore the empirical models have lacked the necessary exactness to isolate the appropriate null hypotheses to redress this shortcoming and advance the methodology of this area of the literature we use a pricing model which comes to the banking area from the options pricing literature to look at the yield spread on bank liabilities using this model it is clear that the value of large uninsured bank liabilities cannot be described as a linear monotonic function of risk moreover current bank regulation affects the assumed role risk measures play in the pricing of such debt instruments both of these complications mean that simple regressions are not likely to adequately address the relationship between the value of debt and underlying risk in the final section we empirically investigate the presence of market discipline using contingent claims pricing we find that accounting measures of bank risk still have little predictive value in explaining yield spreads and therefore offer little evidence of meaningful market discipline

is fairly priced deposit insurance possible we analyze risk sensitive incentive compatible deposit insurance in the presence of private information and moral hazard without deposit linked subsidies it is impossible to implement risk sensitive incentive compatible deposit insurance pricing in a competitive deregulated environment except when the deposit insurer is the least risk averse agent in the economy we establish this formally in the context of an insurance scheme in which privately informed depository institutions are offered deposit insurance premia contingent on reported capital the result holds for alternative sorting instruments as well this suggests a contradiction between deregulation and fairly priced risk sensitive deposit insurance this paper exposes a conflict between a deregulated competitive financial services industry on the one hand and fairly priced risk sensitive deposit insurance on the other we show that if depository institutions dis are perfectly competitive i e each makes zero profits on average then it is impossible to implement incentive compatible risk sensitive deposit insurance pricing recent distress among dis has fueled debate about reform of the existing deposit insurance system many believe that the prevailing risk insensitive premium structure encourages dis to choose excessively risky assets and that it should be replaced by deposit insurance premia linked to the dis choices of risk 2 risk sensitive deposit insurance pricing however imposes greater informational demands on the deposit insurer and runs afoul of both

exchange rate shocks and the speed of trade price adjustment 1 introduction theoretical and empirical work in the international trade literature dealing with the relationship between exchange rate and trade prices has been dominated and guided by the static pass through and profit markup model see e g feinberg 1986 mann 1986 fisher 1989 hooper and mann 1989 knetter 1989 gagnon and knetter 1995 feenstra gagnon and knetter 1996 and lee 1997 the shortcoming of such models is well captured by william branson 1989 p 333 difference in adjustment response signals to me the need for a reconsideration of the theoretical framework for the analysis of the pass through question by now we should be thinking about optimizing price policy for investors and exporters who know that they face an exchange rate that follows some sort of stochastic process over time these differences call for a revision of pass through theory along the lines of time series analysis our explicit incorporation of profit maximizing firms facing adjustment costs develops the model introduced by krugman 1987 it transforms the traditional markup and pass through model to explain from first principles a dynamic markup and a price adjustment speed both depending on fundamental characteristics of the firms involved krugman 1989 concludes his paper on pricing to market by calling for further research on the adjustment cost model regarding the adjustment cost approach he states krugman 1989 p 44 it is still a speculative idea not grounded in solid empirical tests but it is a good story and if it is correct it has extremely important implications for economic policy the present paper provides the quantity adjustment cost approach that krugman calls for as such it complements the work of gagnon 1989 and kasa 1992 while gagnon and kasa employ quantity adjustment cost models with many of the same features as the model developed here they provide only approximate solutions and focus on a quite different set of issues gagnon examines the effect of exchange rate variability on trade volume kasa investigates the importance of mean reversion in exchange rates as an explanation for the pricing to market hypothesis in contrast our focus is on the relation between adjustment speeds and pass through thus our contribution relative to gagnon 1989 and kasa 1992 is that we provide the passthrough issue in a dynamic context with exact analytical solutions that relate the degree of passthrough to adjustment speeds and identify the determinants of commodity specific adjustment speeds in response to exchange rate shocks the remainder of the paper is organized as follows in section 2 we develop a partial equilibrium model taking exchange rates as given of the pricing policies of a profit maximizing firm competing in foreign markets and subject to a convex quantity adjustment cost section 3 develops testable implications directly from the model section 4 discusses the data and empirical methodology for preliminary two stage time series and cross sectional tests section 5 provides the tentative estimation and section 6 concludes 2 a simple partial equilibrium model consider a representative firm producing fox export that maximizes the expected discounted value of infinite horizon real profits the firm generates its revenue abroad in foreign currency it has no influence on the exchange rate may adjust its price at any point in time but is subject to a convex cost of quantity adjustment the firm maximizes where x is the exogenously given real exchange rate at time t we define x as the units of domestic currency per unit of foreign currency multiplied by the export destination country s price index and divided by the home country s price index instantaneous profits are discounted at a rate r which is specific to the firm this rate accounts for a standard risk premium inherent in the riskiness of the firm s activities

market discipline in property casualty insurance evidence from premium growth surrounding changes in financial strength ratings analysis of abnormal premium growth surrounding changes in financial strength ratings for a large panel of property casualty insurers generally indicates significant premium declines in the year of and the year following rating downgrades consistent with greater risk sensitivity of demand premium declines were concentrated among commercial insurance which has narrower guaranty fund protection than personal insurance premium declines were greater for firms with low pre downgrade ratings and especially pronounced for firms falling below an a rating there is no evidence of moral hazard in the form of rapid commercial or personal lines premium growth following downgrades of a or low rated insurers

adjustment costs and pricing to market theory and evidence abstract this paper develops an adjustment cost model of pricing to market the model consists of a monopolist who supplies an identical nondurable good to two foreign markets it is shown that the degree of pricing to market increases with the relative importance of the transitory component in exchange rates customs data from 1978 through 1987 on u s and canadian imports of seven german commodities are used to estimate the model s parameters and test its over identifying restrictions

market discipline by thrift depositors this paper tests for the presence of depositor discipline by examining the effect of depository institutions risk on the pricing and growth of uninsured deposits the study analyzes a large panel of thrifts that includes detailed information on interest rate schedules this information allows the authors to develop a time consistent risk profile for thrifts their empirical findings support the presence of market discipline riskier banks are found to pay higher interest rates but attract smaller amounts of uninsured deposits the authors also find that qualitative results are similar for fully insured deposits although statistical significance is substantially lower

endogenous information acquisition in supply chain management in this paper we analyze an endogenous determination of efforts put into information acquisition and its impact on supply chain management more specifically we consider a supplier who sells a product to a buyer during a single selling season prior to placing an order with the supplier the buyer has an option to acquire additional information about the demand by hiring experts who are capable of providing forecasts because a commission fee must be paid to each hired expert there exists a tradeoff between the cost and the value of the information and the buyer needs to determine how much information to acquire we derive the optimal information acquisition level in an integrated setting and compare it with that determined in a decentralized setting we also analyze several types of supply contracts to examine if they can coordinate the supply chain and allow an arbitrary division of system profit between the supplier and the buyer

bank regulation and deposit insurance the subject of government bank regulation is intimately intertwined with that of government deposit insurance if the government is to insure bank deposits it should also have some say in the risks that insured banks are allowed to take otherwise it would leave itself wide open to unlimited potential losses john h kareken in this issue comes close to arguing that banks without government deposit insurance could provide satisfactorily safe transactions accounts i would go one step further and argue that government deposit insurance is not just unnecessary but actually undesirable banks that offer transaction deposits are supposedly subject to an inherent instability problem that makes them prone to self realizing depositor panics traditionally transaction deposits are denominated as a fixed number of currency units while the assets corresponding to these deposits are mostly finite term securities or commercial loans if depositors all want their money at once the banks simply do not have it to the extent that their assets are marketable the banks can sell them off to meet withdrawals with only minimal losses but if there is a run on the banking system as a whole the banks scramble for funds could conceivably drive interest rates up and asset prices down to the point at which the banks are actually insolvent simply because of depositor fears that they might fail to the extent that bank assets consist of poorly marketable commercial loans they are even more exposed to the risk of runs this inherent instability problem is the most commonly cited argument for government deposit insurance and the careful government regulation it entails or ought to entail however the money market mutual fund mmmf is a recent market innovation that completely solves this inherent instability problem of the payments system as kareken points out in his paper mmmfs like all mutual funds are run proof since their obligations to their investors are simply pro rata shares in the current market value of the

measuring tail thickness to estimate the stable index α a critique a generalized pareto or simple pareto tail index estimate above 2 has frequently been cited as evidence against infinite variance stable distributions it is demonstrated that this inference is invalid tail index estimates greater than 2 are to be expected for stable distributions with as low as 1 65 the nonregular distribution of the likelihood ratio statistic for a null of normality and an alternative of symmetric stability is tabulated by monte carlo methods and appropriately adjusted for sampling error in repeated tests real stock returns yield a stable of 1 845 and reject iid normality at the 996 level

the monotonicity of the term premium abstract fama s evidence that the term premium on treasury securities is not monotonically increasing is found to depend entirely on the behavior of bid asked mean returns on 9 and 10 month bills and only during the subperiod 8 64 12 72 when transactions costs as reflected in the bid asked spread are taken into account there is found to be no way to exploit this non monotonicity the anomalous behavior of the quotations is attributed to the treasury s auctions of 9 month bills during the period 9 66 10 72 the hypothesis that the term premium is a monotonically increasing function of maturity remains unrefuted

optimal centralized ordering policies in multi echelon inventory systems with correlated demands this paper treats a depot warehouse system in which demand occurs at the warehouse or retail level this work differs from a number of other studies in that we allow item demands to be correlated both across warehouses and also correlated in time our motivation for this generalization arises from our experience with an actual system of this type used by a major national producer and distributor of consumer products we observed both high correlations between successive monthly demands around 0 7 and correlations between demands for an item at different locations also about 0 7 in a given time period we derive an explicit expression for the optimal safety stock as a function of the level of correlation through time the analysis requires two assumptions 1 the allocation assumption and 2 the equal coefficient of variation assumption similar assumptions have been used by other researchers finally numerical evaluations are included to illustrate the impact of the various magnitudes of correlation

depositor discipline and changing strategies for regulating thrift institutions abstract this paper examines the role of uninsured deposits as a source of thrift funding from 1984 to 1994 and tests whether uninsured depositors have adjusted their holdings at thrifts in response to market forces such as indications of impending institutional failure it also examines how the reactions have changed over time as new legislation has been implemented the study finds that failed institutions exhibit declining proportions of uninsured deposits to total deposits prior to failure and that failing institutions attract fewer deposits from uninsured depositors prior to failure than do solvent institutions though there are some differences between the periods the empirical results indicate that uninsured deposits will be governed by market discipline and that reducing the insurance limits on deposits will increase market discipline on thrifts

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

international comparisons of pricing to market behavior this paper measures the degree of price discrimination across export destinations that is associated with exchange rate changes using u s u k german and japanese industry level data given the industries sampled more price discrimination across destinations is observed in the u k german and japanese data for industries that match across source countries however behavior is very similar across source countries furthermore destination specific price adjustment on exports to the united states from germany and japan is similar to price adjustment observed on shipments to other destinations most variation in the data appears to be related to industry copyright 1993 by american economic association

sovereign risk and deposit dynamics evidence from europe abstractthe unprecedented expansion of sovereign balance sheets since the beginning of the global crisis has given a new meaning to the term sovereign risk developments in europe since early 2010 revealed new challenges for the functioning of private banks in an environment of heightened sovereign risk and may have contributed to deleveraging the article uses an innovative way of measuring the perception of sovereign risk and its impact using an extension of a common market discipline framework it shows that exposure to sovereign risk may have limited the ability of banks in europe to collect deposits potential identification issues between deposits and bank efficiency are controlled by using data envelopment analysis dea the results are robust to inclusion of conventional measures of bank performance and the sector wide holdings of foreign sovereign debt

estimates of the variance of u s inflation based upon the arch model it is generally agreed that the unpredictability of future inflation is a major component of the welfare loss associated with inflation perfectly predicted inflation might induce some costs through institutional rigidities governmental interference and transaction costs but in the long run these should be rather minimal as these institutions adopt various forms of indexing when inflation is unpredictable risk averse economic agents will incur a loss even if prices and quantities are perfectly flexible in all markets inflation is a measure of the relative price of goods today and goods tomorrow thus uncertainty in tomorrow s price impairs the efficiency of today s allocation decisions friedman in his nobel lecture 8 argues convincingly that higher variability of inflation would lead to decreased output ceteris paribus he then conjectures that higher rates of inflation are generally associated with higher variability of inflation and presumably greater uncertainty about future rates if this is true then higher rates of inflation would also be associated with low levels of output which implies a positively sloped phillips curve this paper uses a new statistical technique arch to estimate the conditional mean and variance of inflation from u s time series data the main finding is that the variance of inflation in the seventies was only slightly greater than in the sixties

inventory performance under staggered deliveries and autocorrelated demand production plans often span a whole week or month even when independent production lots are completed every day and service performance is tallied daily such policies are said to use staggered deliveries meaning that the production rate for multiple days are determined at a single point in time assuming autocorrelated demand and linear inventory holding and backlog costs we identify the optimal replenishment policy for order cycles of length p with the addition of a once per cycle audit cost we optimize the order cycle length p via an inverse function approach in addition we characterize periodic inventory costs availability and fill rate as a consequence of staggering deliveries the inventory level becomes cyclically heteroskedastic this manifests itself as ripples in the expected cost and service levels nevertheless the cost optimal replenishment policy achieves a constant availability by using time varying safety stocks this is not the case with suboptimal constant safety stock policies where the availability fluctuates over the cycle

interest risk sensitive deposit insurance premia stable ach estimates abstract the parameters of interest rate uncertainty are estimated by maximum likelihood for the period 1952 1982 and used to evaluate bank or thrift deposit insurance as a function of duration mismatching capital asset ratio and the recent history of interest rate forecasting errors homoskedasticity is overwhelmingly rejected in favor of adaptive conditional heteroskedasticity ach even after removing this heteroskedasticity normality gives much lower likelihood than paretian stable distributions with characteristic exponent in the range 1 614 to 1 714 the conditional deposit insurance values fluctuate by factors in excess of 300 for some duration gaps over the past three decades

fair insurance guaranty premia in the presence of risk based capital regulations stochastic interest rate and catastrophe risk abstract a multiperiod model is developed to measure the costs posed to the guaranty fund in a setting that incorporates risk based capital regulations interest rate risk and the possibility of catastrophic losses the guaranty contract is modeled as a put option on the asset of the insurance company with a stochastic strike price and an uncertain maturity the impacts of the key factors of this model are examined numerically and shown to make material differences in the costs to the guaranty fund

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

using imperfect advance demand information in ordering and rationing decisions in this paper we consider an inventory problem with two demand classes having different priorities the appropriate policy of rationing the available stock i e reserving some stock for meeting prospective future demand of preferred customers at the expense of deliberately losing some of the currently materialized demand of lower demand class es relies on the estimation of the future demand utilizing current signals on future demand which we refer to as imperfect advance demand information adi decreases uncertainty on future demand and may help to make better decisions on when to start rejecting lower class demand we develop a model that incorporates imperfect adi with inventory ordering replenishment decision and rationing available stock in a two period setting we show some structural properties solve the rationing problem and propose solution methods based on monte carlo simulation for the ordering problem we conduct numerical tests to measure the impact of system parameters on the expected value of imperfect adi and provide useful managerial insights

the pricing of deposit insurance considering bankruptcy costs and closure policies the paper aims to study the pricing issue of deposit insurance with explicit consideration of bankruptcy costs and closure policies full coverage from deposit insurance is imposed by many regulators to stabilize the banking system in the current financial crisis despite of the potential moral hazard problems we argue that bankruptcy cost is an important factor in pricing deposit insurance especially when the insured institution is insolvent applying the isomorphic relationship between deposit insurance and put option we first derive a closed form solution for the pricing model with bankruptcy costs and closure policies then we modify the barrier option approach to price the deposit insurance in which the bankruptcy cost is set as a function of asset return volatility and more realistic closure policies considering possible forbearance can be accounted for the properties of the models are supported by numerical simulations and are consistent with the risk based pricing scheme

coordination of supply chains with a flexible ordering policy under yield and demand uncertainty this paper studies a flexible ordering policy among a manufacturer and a supplier with random yield and demand uncertainty where the order quantity lies between the minimum and the maximum quantity we first determine the optimal flexible ordering policy and the corresponding raw material production quantity that maximize expected profit of the centralized supply chain and find that our flexible ordering policy can significantly enhance the supply chain s expected profit compared to an invariable ordering policy then we analyze the decentralized scenario and propose a revenue sharing policy with an order penalty and rebate opr contract to fully coordinate the supply chain finally numerical examples are given to illustrate the results

exchange rates and prices the adjustment of relative prices to exchange rate movements is explained in an industrial organization approach given labor costs in the respective currencies exchange rate movements change costs for firms selling in the home market and thus disturb the industry equilibrium the extent of absolute and relative price adjustment is shown to depend on market integration product substitutability the relative number of domestic and foreign firms and the market structure the impact of exchange rates on prices is illustrated in a variety of approaches including the cournot a dixit and j stiglitz 1977 and s salop 1979 models some empirical evidence is offered in support of the theory copyright 1987 by american economic association

deposit insurance and depositor discipline direct evidence on bank switching behaviour in japan as japan s financial system becomes more market oriented depositor discipline is playing a larger role in the monitoring of banks matching household survey data with banks financial data we examine households response to bank risk and different deposit insurance schemes we find that bank switching in response to risk increased between 1996 and 2001 and households choice of bank adequately reflects banks financial health we also examine the determinants of households knowledge of the deposit insurance scheme and how this affects switching behaviour the results suggest that depositor discipline works and could play an important supplementary role in bank monitoring