performance evaluation of optimized portfolio insurance strategies abstract we use s p 500 index return data for the time period 1985 2013 to evaluate the performance of portfolio insurance strategies we shed light on the question if the performance of a constant proportion portfolio insurance cppi strategy can be improved by means of a time varying multiplier which depends on the estimated future volatility neglecting any inter temporal hedging demand the theoretical foundation of the strategies is given by maximizing the expected utility of a hara investor in a diffusion model setup if the risk premium is assumed to be proportional to the variance the optimal strategy is a cppi strategy otherwise the multiple is time varying ppi it turns out that even time varying multiple strategies based on a rolling window of historical volatility estimates give a significant improvement of cppi strategies the out performance is robust w r t alternative performance measures and is also true for proportional transaction costs and adequate trigger trading

omega performance measure and portfolio insurance abstract we analyze the performance of the two main portfolio insurance methods the obpi and cppi strategies using downside risk measures for this purpose we introduce kappa performance measures and especially the omega measure these measures take account of the entire return distribution we show that the cppi method performs better than the obpi as a by product we determine the set of threshold values for these risk reward performance measures

dynamic asset allocation with event risk major events often trigger abrupt changes in stock prices and volatility we study the implications of jumps in prices and volatility on investment strategies using the event risk framework of duffie pan and singleton 2000 we provide analytical solutions to the optimal portfolio problem event risk dramatically affects the optimal strategy an investor facing event risk is less willing to take leveraged or short positions the investor acts as if some portion of his wealth may become illiquid and the optimal strategy blends both dynamic and buy and hold strategies jumps in prices and volatility both have important effects

decriminalization and marijuana smoking prevalence evidence from australia this article uses the 2001 national drug strategy household survey to assess the impact of marijuana decriminalization policy on marijuana smoking prevalence in australia both parametric and nonparametric methods are used the parametric approach includes endogenous probit switching two part sample selection and standard dummy variable models while the nonparametric approach uses propensity score stratification matching specification analyses are also conducted a nonparametric kernel based test is constructed to select between parametric and nonparametric models and the likelihood ratio test is used to choose among parametric models our analyses favor the endogenous switching model where decriminalization increases the probability of smoking by 16 2

portfolio insurance in complete markets a note this note presents an elementary derivation of the optimal investment strategy of an investor who wants to assure that his investment in risky assets does not lead his wealth to fall below a predetermined floor copyright 1989 by the university of chicago

benchmarking portfolio insurance and technical analysis a monte carlo comparison of dynamic strategies of asset allocation abstract this paper makes an extensive simulation comparison of popular dynamic strategies of asset allocation for each strategy alternative measures have been calculated for risk return and risk adjusted performance sharpe ratio sortino ratio return at risk moreover the strategies are compared in different market situations bull bear no trend markets and with different market volatility taking into account transaction costs and discrete rebalancing of portfolios the simulations show a dominant role of constant proportion strategies in bear and no trend markets and a preference for benchmarking strategies in bull markets these results are independent of the volatility level and the risk adjusted measure adopted

pollution private investment in healthcare and environmental policy in this paper we demonstrate that in a two period overlapping generations model the relationship between environmental taxation and economic activity output level and growth has an inverted u shape when we take into account the detrimental impact of pollution on health and the individual decision of each working age agent to improve her health we also demonstrate that the link between environmental tax and lifetime welfare also has an inverted u shape and that a tighter environmental policy might enhance economic activity while reducing steady state lifetime welfare finally we investigate the social optimum and the determinants of the optimal environmental tax

chronic diseases and labour force participation in australia we examine the impact of several chronic diseases on the probability of labour force participation using data from the australian national health surveys an endogenous multivariate probit model is used to account for the potential endogeneity of the incidence of chronic conditions such as diabetes cardiovascular diseases and mental illnesses the cross equation correlations are significant rejecting the exogeneity of the chronic illnesses marginal effects of exogenous socio demographic and lifestyle variables are estimated through their direct effects on labour market participation and indirect effects via the chronic diseases the treatment effects of chronic diseases on labour force participation are estimated via conditional probabilities using five dimensional normal distributions the estimated effects differ by gender and age groups although computationally more demanding these treatment effects are compared with results from a univariate model treating the chronic conditions exogenous and the structural effects from the multivariate probit model both significantly overestimate the effects

inequality and violent crime abstract we investigate the robustness and causality of the link between income inequality and violent crime across countries first we study the correlation between the gini index and homicide and robbery rates within and between countries second we examine the partial correlation by considering other crime determinants third we control for the endogeneity of inequality by isolating its exogenous impact on these crime rates fourth we control for measurement error in crime rates by modeling it as both unobserved country effects and random noise finally we examine the robustness of this partial correlation to alternative measures of inequality the panel data consist of nonoverlapping 5 year averages for 39 countries during 1965 95 for homicides and 37 countries during 1970 94 for robberies crime rates and inequality are positively correlated within countries and particularly between countries and this correlation reflects causation from inequality to crime rates even after controlling for ot

regime switching in the relationship between equity returns and short term interest rates in the uk abstract this paper examines the relationship between uk equity returns and short term interest rates using a two regime markov switching egarch model the results suggest one high return low variance regime within which the conditional variance of equity returns responds persistently but symmetrically to equity return innovations in the other low mean high variance regime equity volatility responds asymmetrically and without persistence to shocks to equity returns there is evidence of a regime dependent relationship between shorter maturity interest rate differentials and equity return volatility furthermore there is evidence that events in the money markets influence the probability of transition across regimes

socio economic status health and lifestyle abstract the role of lifestyle in mediating the relationship between socio economic characteristics and health has been discussed extensively in the epidemiological and economic literatures previous analyses have not considered a formal framework incorporating unobservable heterogeneity in this paper we develop a simple economic model in which health is determined partially by lifestyle which depends on preferences budget and time constraints and unobservable characteristics we estimate a recursive empirical specification consisting of a health production function and reduced forms for the lifestyle equations using maximum simulated likelihood msl for a multivariate probit mvp model with discrete indicators of lifestyle choices and self assessed health sah on british panel data from the 1984 and 1991 health and lifestyle survey hals we find that sleeping well exercising and not smoking in 1984 have dramatic positive effects on the probability of reporting excellent or good sah in 1991 and that these effects are much larger having accounted for endogeneity the failure of epidemiological analyses to account for unobserved heterogeneity can explain their low estimates of the relevance of lifestyle in the socio economic status health relationship indicators for prudent alcohol consumption and eating breakfast in 1984 are not found to be statistically significant determinants of sah in 1991

inequality and crime this paper considers the relationship between inequality and crime using data from urban counties the behavior of property and violent crime are quite different inequality has no effect on property crime but a strong and robust impact on violent crime with an elasticity above 0 5 by contrast poverty and police activity have significant effects on property crime but little on violent crime property crime is well explained by the economic theory of crime while violent crime is better explained by strain and social disorganization theories

investment horizon and the attractiveness of investment strategies a behavioral approach we analyze the attractiveness of investment strategies over a variety of investment horizons from the viewpoint of an investor with preferences described by cumulative prospect theory cpt currently the most prominent descriptive theory for decision making under uncertainty a bootstrap technique is applied using historical return data of 1926 2008 to allow for variety in investors preferences we conduct several sensitivity analyses and further provide robustness checks for the results in addition we analyze the attractiveness of the investment strategies based on a set of experimentally elicited preference parameters our study reveals that strategy attractiveness substantially depends on the investment horizon while for almost every preference parameter combination a bond strategy is preferred for the short run stocks show an outperformance for longer horizons portfolio insurance turns out to be attractive for almost every investment horizon interestingly we find probability weighting to be a driving factor for insurance strategies attractiveness

crime and growth convergence evidence from mexico scholars have often argued that crime deters growth but the empirical literature assessing such effect is scarce by exploiting cross municipality income and crime data for mexico a country that experienced a high increase in crime rates over the past decade this study circumvents two of the most common problems faced by researchers in this area these are i the lack of a homogenous consistently comparable measure of crime and ii the small sample problem in the estimation combining income data from poverty maps administrative records on crime and violence and public expenditures data at the municipal level for mexico 2005 2010 the analysis finds evidence indicating that drug related crimes indeed deter growth it also finds no evidence of a negative effect on growth from crimes unrelated to drug trafficking

income inequality and violent crime evidence from mexico s drug war the relationship between income inequality and crime has attracted the interest of many researchers but little convincing evidence exists on the causal effect of inequality on crime in developing countries this paper estimates this effect in a unique context mexico s drug war the analysis takes advantage of a unique data set containing inequality and crime statistics for more than 2 000 mexican municipalities covering a period of 20 years using an instrumental variable for inequality that tackles problems of reverse causality and omitted variable bias this paper finds that an increment of one point in the gini coefficient translates into an increase of more than 10 drug related homicides per 100 000 inhabitants between 2006 and 2010 there are no significant effects before 2005 the fact that the effect was found during mexico s drug war and not before is likely because the cost of crime decreased with the proliferation of gangs facilitating access to knowledge and logistics lowering the marginal cost of criminal behavior which combined with rising inequality increased the expected net benefit from criminal acts after 2005

on the political economy of income redistribution and crime this article analyzes a general equilibrium model in which agents choose to specialize in either legitimate or criminal activities expenditures on police to apprehend criminals as well as income redistribution are determined endogenously through majority voting we investigate how crime redistribution and police expenditures depend on characteristics of the underlying distribution of income earning abilities and on the apprehension technology our model accounts for the positive correlation between inequality and crime the positive correlation between expenditures on police and redistribution and the lack of correlation between crime and redistribution observed in u s data

effectiveness of cppi strategies under discrete time trading abstract the paper analyzes the effectiveness of the constant proportion portfolio insurance cppi method under trading restrictions if the cppi method is applied in continuous time the cppi strategies provide a value above a floor level unless the price dynamics of the risky asset permit jumps the risk of violating the floor protection is called gap risk in practice it is caused by liquidity constraints and price jumps both can be modelled in a setup where the price dynamics of the risky asset are described by a continuous time stochastic process but trading is restricted to discrete time we propose a discrete time version of the continuous time cppi strategies which satisfies three conditions the resulting strategies are self financing the asset exposure is non negative and the value process converges we determine risk measures such as the shortfall probability and the expected shortfall and discuss criteria which ensure that the gap risk does not increase to a level which contradicts the original intention of portfolio insurance in addition we introduce proportional transaction costs and analyze their effects on the risk profile

the retirement health nexus a new measure of an old puzzle traditional empirical models of retirement which use a self assessed health measure have often found that the wage rate has a surprisingly small effect on retirement using both a self reported health measure and one not based on self report subsequent mortality experience in a more general reduced form joint demand framework we test the importance of the interaction effects of health and retirement our findings are consistent with a joint determination of health and retirement the wage elasticity using either health measure is about equal to that found in a single equation model when a mortality measure is used but all three elasticities are five times greater than one found using self reported health in a traditional single equation model

measuring the effect of disability on labor force participation this paper estimates the effect of disability on labor force participation by using symptoms or diseases as instruments in a simultaneous equations model of endogenous reported disability and labor force participation the results show that each measure of disability explains a significant amount of variation in labor force participation though the two are not perfect substitutes there is only weak evidence of endogeneity of the disability variables for cases where there is evidence of endogeneity the bias it causes has the opposite effect of that hypothesized in the literatute i e stress causes health to deteriorate with labor force participation furthermore it has only insignificant effects on the coefficients for other variables

health and labor market performance the case of diabetes technological innovation has reduced the effect of diabetes diabetic behavioral modification in the face and expectation of medical improvement should lead to improved labor market outcomes this article uses three cross sectional data sets from 1976 1989 and 1992 to document improvements in diabetic labor market performance women diabetics have significantly increased their labor force participation while male diabetics have slightly reduced their participation relative to nondiabetics

a comparative study of portfolio insurance abstract this paper undertakes a comparative study of portfolio insurance under a variety of modeling strategies specifically we focus on portfolio insurers who derive utility from horizon wealth with marginal utility tending smoothly to infinity at some pre specified floor we solve for the optimal consumption portfolio wealth of these portfolio insurers and compare with constrained portfolio insurers and normal agents general equilibrium conditions are contrasted under pure exchange and production type models while the market price level is unambiguously increased under pure exchange under production the effect on market level is state dependent in both models the market volatility and risk premium are decreased by portfolio insurance the paper also investigates the possible relationship between portfolio insurance type trading strategies and market volatility

the distribution of public services an exploration of local governmental preferences a local governmental welfare function is specified to explore two of its central characteristics the equity productivity trade off and differential weights across neighborhoods the constrained maximization model is estimated using service outcomes safety in the welfare function as opposed to publicly provided inputs police over neighborhoods the equity productivity trade off is found to be considerable and not all neighborhoods are weighted equally the results show that inequality aversion and unequal concern by local government over service outcomes must be addressed explicitly to understand the observed distribution of publicly provided inputs with important implications for standard analysis of local governmental behavior copyright 1987 by american economic association

robustness of stable volatility strategies abstract the paper analyzes the robustness of stable volatility strategies i e strategies in which the portfolio weight of the stock is inversely proportional to its local volatility these strategies are optimal for a crra investor if the stock follows a diffusion process the expected excess return is proportional to its volatility and the hedging demand is zero we assess the performance of stable volatility strategies when these restrictive assumptions do not hold in particular when the risk premium is not proportional to volatility and when the stock price is subject to jumps we find that stable volatility strategies are indeed robust or close to robust under a maxmin decision rule in addition to our theoretical results we perform a simulation analysis to evaluate strategies that scale the portfolio weight by the volatility variance or a constant portfolio weight and also analyze the strategies using empirical excess returns both analyses confirm the robustness of stable volatility strategies

what causes violent crime this study uses panel data of intentional homicide and robbery rates for a sample of developed and developing countries for the period 1970 1994 based on information from the united nations world crime surveys to analyze the determinants of national crime rates both across countries and over time a simple model of the incentives to commit crimes is proposed which explicitly considers possible causes of the persistence of crime over time criminal inertia a panel data based gmm methodology is used to estimate a dynamic model of national crime rates this estimator controls for unobserved country speci ce ects the joint endogeneity of some of the explanatory variables and the existence of some types of measurement errors a icting the crime data the results showthat increases in income inequality raise crime rates crime tends to be countercyclical and criminal inertia is signi cant 2002 elsevier science b v all rights reserved

the importance of the measure of health in empirical estimates of the labor supply of older men abstract when a more objective measure of health is used economic variables previously masked by self reported health measures are found to significantly affect work effort of older men this may explain differences in results of previous studies even when the same empirical specifications are used

theory of constant proportion portfolio insurance abstract we study constant proportion portfolio insurance cppi a dynamic strategy that maintains the portfolio s risk exposure a constant multiple of the excess of wealth over a floor up to a borrowing limit we use this simple rule to investigate how transaction costs and borrowing constraints affect portfolio insurance type strategies absent transaction costs cppi is equivalent to investing in perpetual american call options and is optimal for a piecewise hara utility function with a minimum consumption constraint as the multiple increases the payoffs under cppi approach those of a stop loss strategy the expected holding period return is not monotonic in the multiple and a higher expected return can be obtained under cppi than with a stop loss strategy

ill health and retirement in britain a panel data based analysis we examine the effect of ill health on retirement decisions in britain using the british household panel survey 1991 1998 as self reported health status is likely to be endogenous to the retirement decision we instrument self reported health by a constructed health stock measure using a set of health indicator variables and personal characteristics as suggested by bound et al bound j schoenbaum m stinebrickner t m waidmann m 1999 the dynamic effects of health on the labor force transitions of older workers labour economics 6 179 202 using a range of econometric techniques we show that adverse shocks to individual health stocks predict individual retirement behaviour among workers aged from 50 until state pension age we compare responses of economic activity to constructed health measures with that arising using direct indicators of functional limitations and specific health problems we also examine the dynamics of health shocks and whether adverse and positive health shocks have symmetric effects on transitions in and out of economic activity

portfolio insurance and prospect theory investors popularity and optimal design of capital protected financial products abstract portfolio insurance strategies are used on both the institutional and the retail side of the asset management industry while standard utility theory struggles to provide an explanation this study justifies the popularity of portfolio insurance strategies in a behavioral finance context we run monte carlo simulations as well as historical simulations for popular portfolio insurance strategies and benchmark strategies in order to evaluate the outcomes using cumulative prospect theory our simulation results indicate that most portfolio insurance strategies are the preferred investment strategy for a prospect theory investor moreover the analysis provides insights into how portfolio insurance products should be designed and structured to meet the preferences of prospect theory investors as accurately as possible

performance evaluation of portfolio insurance strategies using stochastic dominance criteria abstract this paper evaluates the performance of the stop loss synthetic put and constant proportion portfolio insurance techniques based on a block bootstrap simulation we consider not only traditional performance measures but also some recently developed measures that capture the non normality of the return distribution value at risk expected shortfall and the omega measure we compare them to the more comprehensive stochastic dominance criteria the impact of changing the rebalancing frequency and level of capital protection is examined we find that even though a buy and hold strategy generates higher average excess returns it does not stochastically dominate the portfolio insurance strategies nor vice versa our results indicate that a 100 floor value should be preferred to lower floor values and that daily rebalanced synthetic put and cppi strategies dominate their counterparts with less frequent rebalancing

crime and local inequality in south africa the authors examine the effects of local inequality on property and violent crime in south africa their findings are consistent with economic theories relating inequality to property crime and also with sociological theories that imply that inequality leads to crime in general burglary rates are 20 30 percent higher in police station jurisdictions that are the wealthiest among their neighbors suggesting that criminals travel to neighborhoods where the expected returns from burglary are highest the authors do not find evidence that inequality between racial groups fosters interpersonal conflict at the local level

optimal portfolios when volatility can jump abstract we consider an asset allocation problem in a continuous time model with stochastic volatility and jumps in both the asset price and its volatility first we derive the optimal portfolio for an investor with constant relative risk aversion the demand for jump risk includes a hedging component which is not present in models without volatility jumps we further show that the introduction of derivative contracts can have substantial economic value we also analyze the distribution of terminal wealth for an investor who uses the wrong model either by ignoring volatility jumps or by falsely including such jumps or who is subject to estimation risk whenever a model different from the true one is used the terminal wealth distribution exhibits fatter tails and in some cases significant default risk