rational household labor supply traditionally household behavior is derived from the maximization of a unique utility function in this paper we propose an alternative approach in which the household is modeled as a two member collectivity taking pareto efficient decisions the consequences of this assumption are analyzed in a three good model in which only total consumption and each member s labor supply are observable if the agents are assumed egoistic i e they are only concerned with their own leisure and consumption it is possible to derive falsifiable conditions upon household labor supplies from both a parametric and nonparametric viewpoint if alternatively agents are altruistic restrictions obtain in the nonparametric context useful interpretation stems from the comparison with the characterization of aggregate demand for a private good economy

pricing multiasset equity options how relevant is the dependence function abstract in this paper we test how different choices for the dependence function can affect the prices of a set of multiasset equity options we conduct the analysis for various 5 dimensional baskets of uk shares and a wide range of payoffs for the multiasset options consistent with the instruments traded on the market we also test the relevance of the dependence specification over both volatile and quiet market scenarios interestingly we find that in most circumstances the choice of a dependence structure richer than the standard linear correlation does not seem to affect option prices substantially however the dependence function becomes more relevant in particularly volatile market conditions

marriage market divorce legislation and household labor supply this paper provides a theoretical framework for analyzing the impact of the marriage market and divorce legislation on household labor supply in our approach the sex ratio in the marriage market and the rules governing divorce are examples of distribution factors these factors are defined as variables that affect the household members bargaining position but not preferences or the joint budget set we extend the collective labor supply model developed by chiappori to allow for distribution factors we show that our model imposes new restrictions on the labor supply functions and eases the identification of individual preferences and the intrahousehold decision process the model is estimated using psid data for the year 1988 our results do not reject the restrictions imposed by the model also the sex ratio and divorce laws deemed favorable to women are found to affect labor supply behavior and the decision process in the directions predicted by the theory and to have sizable effects

building the family nest premarital investments marriage markets and spousal allocations we develop a model of the household in which spousal incomes are determined by premarital investments the marriage market is characterized by assortative matching and endogenously determined sharing rules form the basis of intra household allocations by incorporating pre marital investments and spousal matching into the collective household model we are able to identify the fundamental determinants of endogenously determined and maritally sustainable intra marital sharing rules in particular we find that all sharing rules along the assortative order support unconditionally efficient outcomes where both pre marital investments and intra household allocations are efficient the efficiency of both pre marital choices and household allocations then enables us to show that for each couple the marriage market generates a unique and maritally sustainable sharing rule that is a function of the distribution of pre marital endowments and the sex ratios in the market

estimating market prices and assessed values for income properties assessors perform property valuations for the purpose of tax assessment buyers and sellers make investment decisions culminating in a market price the valuation by assessors is supposed to be fair and equitable and to amount to a prescribed proportion of market value we investigate the property features considered by assessors in arriving at the assessed value and by buyers and sellers in arriving at the market price we also explore what factors appear to be considered differently by the assessors and the market thus contributing to overassessment or underassessment of property taxes the analysis deals with income properties centrally located in stockholm sweden

estimating distance gradients for apartment properties the effect of distance from the city centre on selling price tax assessment and gross income is investigated for income property in proximity to the city centre hedonic estimation with a multiplicative model specification is used to estimate the relationship between property characteristics on the one hand and price assessment and income on the other the sample consists of centrally located apartment buildings in downtown stockholm sold during a recent three year period the application is specific to stockholm but the methodology and the insights gained are general the results include the estimation of price gradients for the dependent variables the models are used for estimating the implicit capitalisation rates in the property market as a function of the distance to the centre we also estimated where the market appears to place the city centre as implied by the observations although no rent gradient was found we were able to detect a significant negative price gradient the former is reasonab

how do sex ratios affect marriage and labor markets evidence from america s second generation sex ratios i e relative numbers of men and women can affect marriage prospects labor force participation and other social and economic variables but the observed association between sex ratios and social and economic conditions may be confounded by omitted variables and reverse causality this paper uses variation in immigrant flows as a natural experiment to study the effect of sex ratios on the children and grandchildren of immigrants the flow of immigrants affected the second generation marriage market because second generation marriages were mostly endogamous i e to members of the same ethnic group the empirical results suggest that high sex ratios had a large positive effect on the likelihood of female marriage and a large negative effect on female labor force participation perhaps surprisingly the marriage rates of second generation men appear to be a slightly increasing function of immigrant sex ratios higher sex ratios also appear to have raised male earnings and the incomes of parents with young children the empirical results are broadly consistent with theories where higher sex ratios increase female bargaining power in the marriage market

did unilateral divorce laws raise divorce rates a reconciliation and new results application of the coase theorem to marital bargaining suggests that shifting from a consent divorce regime to no fault unilateral divorce laws should not affect divorce rates each iteration of the empirical literature examining the evolution of divorce rates across us states has yielded different conclusions about the effects of divorce law liberalization i show that these results reflect a failure to jointly consider both the political endogeneity of these divorce laws and the dynamic response of divorce rates to a shock to the political regime taking explicit account of the dynamic response of divorce rates to the policy shock i find that liberalized divorce laws caused a discernible rise in divorce rates for about a decade but that this increase was substantially reversed over the next decade that said this increase explains very little of the rise in the divorce rate over the past half century both administrative data on the flow of new divorces and measures of the stock of divorcees from the census support this conclusion these results are suggestive of spouses bargaining within marriage with an eye to their partner s divorce threat

derivative pricing using multivariate affine generalized hyperbolic distributions abstract in this paper we use multivariate affine generalized hyperbolic magh distributions introduced by schmidt et al 2006 to show how to price multidimensional derivatives when the underlying asset follows a magh distribution we also illustrate the approach using market data from the bovespa sao paulo stock exchange and the exchange rate of the brazilian real vs us dollar to price some multidimensional derivatives

measuring the cost of shelter for homeowners theoretical and empirical considerations recent economic developments have aroused substantial interest in the treatment in the consumer price index cpi of the cost of shelter for homeowners from december 1977 when the latest version of the cpi was introduced until december 1980 the all items cpi increased at an average annual rate of 11 6 while the homeownership component increased at an average annual rate of 16 2 relative to all of the other goods and services in the cpi the homeownership component has increased by 17 5 over the same time period if the relative price of homeownership had remained constant the growth rate of the cpi would have been reduced to 10 1 the question which has been raised is whether the rapid relative increase in the homeownership component which has had such an important impact on the cpi truly reflects changes in the cost of shelter this question is not only important but difficult encompassing many subsidiary questions and auxiliary issues the purposes of this paper are threefold 1 to outline briefly a conceptual framework for the cpi which leads to a straightforward specification of what the shelter component of the cpi should measure 2 to evaluate the theoretical properties of alternative procedures designed to approximate this measurement objective and 3 present empirical evidence on the operational difficulties involved in pursuing a new approach to shelter cost measurement two main conclusions are reached first on both theoretical and empirical grounds a rental equivalence approach to measuring shelter costs for owner occupants is preferred second an estimated rental equivalence measure has grown more slowly over at least the past six years than the official cpi homeownership component given the way in which the cpi is used to escalate both private and public expenditures these results demonstrate that the choice of measurement technique has important distributional implications

the impact of supply constraints on house prices in england we test the theoretical prediction that house prices respond more strongly to changes in local earnings in places with tight supply constraints using a unique panel dataset of 353 local planning authorities in england between 1974 and 2008 exploiting exogenous variation from a policy reform vote shares and historical density to identify the endogenous constraints measures we find that regulatory constraints have a substantive positive impact on the house price earnings elasticity the effect of constraints due to scarcity of developable land is largely confined to highly urbanised areas and uneven topography has a quantitatively less meaningful impact

tempered stable and tempered infinitely divisible garch models abstract in this paper we introduce a new garch model with an infinitely divisible distributed innovation this model which we refer to as the rapidly decreasing tempered stable rdts garch model takes into account empirical facts that have been observed for stock and index returns such as volatility clustering non zero skewness and excess kurtosis for the residual distribution we review the classical tempered stable cts garch model which has similar statistical properties by considering a proper density transformation between infinitely divisible random variables we can find the risk neutral price process thereby allowing application to option pricing we propose algorithms to generate scenarios based on garch models with cts and rdts innovations to investigate the performance of these garch models we report parameter estimates for the dow jones industrial average index and stocks included in this index to demonstrate the advantages of the proposed model we calculate option prices based on the index

wage gradients rent gradients and the price elasticity of demand for housing an empirical investigation abstract as developed in muth s cities and housing attainment of locational equilibrium within an urban area implies a necessary functional correspondence between wage and price gradients and the compensated price elasticity of demand for housing in this paper estimates of the rent and wage gradients are utilized to generate price elasticity estimates via this equilibrium correspondence the box cox transformation technique is used with data from the metropolitan chicago area to test for the functional forms of the wage and rent gradients the optimal maximum likelihood functional forms for both gradients yield a price elasticity estimate of 0 40

transfers among divorced couples evidence and interpretation we analyze divorce settlements made by a cohort of whites who graduated from high school in 1972 the effects of spouses incomes on the divorce transfer are estimated and used to simulate the welfare effects of divorce on husbands wives and children under alternative assumptions about marriage contracts and the ability of a couple to continue coordinating resources in the aftermath of divorce we find a positive negative relationship between divorce transfers and the growth of husband s wife s earnings during marriage the estimated expenditure on children in the divorce state is only half the accustomed level during marriage

balancing energy strategies in electricity portfolio management traditional management of electricity portfolios is focused on the day ahead market and futures of longer maturity within limits market participants can however also resort to the balancing energy market to close their positions in this paper we determine strategic positions in the balancing energy market and identify corresponding economic incentives in an analysis of the german balancing energy demand we find that those strategies allow an economically optimal starting point for real time balancing and create a marketplace for flexible capacity that is more open than alternative marketplaces the strategies we proffer in this paper we believe will contribute to an effective functioning of the electricity market

informal insurance arrangements with limited commitment theory and evidence from village economies recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income thus rejecting the hypothesis of full risk pooling we attempt to explain these observations by adding limited commitment as an impediment to risk pooling we provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment and test the model using data from three indian villages we find that the model can fully explain the dynamic response of consumption to income but that it fails to explain the distribution of consumption across households

estimating the effect of land leases on prices of inner city apartment buildings the effect of land leases as opposed to freehold tenure on selling price is investigated for income property in proximity to the city centre hedonic estimation with multiplicative and additive models in a cross section analysis is used to estimate the relationship between property characteristics on the one hand and selling price on the other if land leases are valued by the market as the present value of the lease payments independent of other property features an additive lease component should be appropriate if on the other hand the valuation of the land lease aspect is not independent of other property features a multiplicative lease component should be appropriate theoretical arguments can be advanced for either point of view making it interesting to study the issue empirically a sub issue of interest is the effect on value of distance to the city centre the sample consists of major apartment buildings centrally located in downtown stockholm sold during a selected three year period

rehabilitation decisions in rental housing an empirical analysis abstract housing policy makers show increased interest in encouraging rehabilitation of the existing housing stock but little is known about what factors influence the decision to invest particularly in rental housing making policy design difficult this paper presents an empirical analysis of individual landlords housing rehabilitation decisions in one housing market the analysis tests hypotheses about the impacts of detailed neighborhood structure and site characteristics on each owner s investment activity findings support the general hypothesis that economic returns to investment have a major effect on rehabilitation decisions identify some other important circumstances and suggest which among many specific policy levers should be effective

precaution and liquidity in the demand for housing we exploit cross sectional mortgage data to investigate the importance of liquidity constraints and a precautionary motive in the demand for housing households that are not liquidity constrained consume housing services essentially as the life cycle hypothesis suggests but with a significant precautionary component households that are liquidity constrained in terms of not meeting standard loan to value or payments to income constraints are similar to unconstrained households in most respects including the precautionary motive but they respond somewhat less to fluctuations in their lifetime income suggesting some influence of bank induced liquidity constraints we additionally find however that banks enforce liquidity constraints only weakly jel d91 d12 r21 i introduction the benchmark theory in the economics of consumption is the life cycle or permanent income hypothesis lcpi based on the work of modigliani and brumberg 1954 and friedman 1957 its empirical validity is sometimes questionable especially when compared against alternatives that incorporate liquidity constraints or the precautionary motive for saving see for instance deaton 1992 for a survey rejection of the lcpi may however be just a manifestation of the poor quality of consumption data at the micro level these data are typically subject to the reporting biases and omissions inherent in consumer surveys there are further difficulties in measuring a desired stream of consumption services nondurable consumption goods are a small fraction of total consumption and in the case of food essentials hardly a consumer choice variable durable consumption goods have the feature that they are lumpy and that the consumption services at any point in time are hard to measure we propose to test the lcpi at the micro level with a quite different type of data the data are obtained from the residential mortgage finance database collected by the national association of realtors they are based on actual home purchases and the associated mortgage transactions reported by realtors and thus avoid some of the reporting biases of the consumer surveys more important they allow us to accurately identify households that in principle have instantaneous access to additional liquidity by lowering the down payment for the house purchase or increasing the size of the loan further the purchase of a house provides an accurate measure of a relatively large fraction of consumption services obtained for a medium to long horizon and measured at the time of the consumption decision although our data also have some serious shortcomings they allow a look at the lcpi from an unconventional vantage point perhaps the most influential study employing the standard consumer survey in testing the lcpi at the micro level is that of hall and mishkin 1982 it examines food expenditure from the panel study of income dynamics one of their key results is that consumption tracks income more closely than would be expected under the lcpi they demonstrate that this result could be explained by assuming a group of liquidity constrained consumers consuming their income at each point in time of 20 of the total sample some of the drawbacks of this study are the use of food expenditures to represent consumption the underreporting of income and absence of proper wealth data inherent in the consumer survey and the associated inability to individually separate liquidity constrained consumers from the rest of the sample several previous studies have attempted to improve on this way of testing the lcpi by examining other data sets bernanke 1984 used data on durable consumption goods automobiles to overcome the drawbacks of using food consumption in the hall and mishkin study his results support the lcpi but are still suspect because of possible reporting biases and the lack of good wealth and savings observations

portfolio choices for homeowners abstract in this paper i show that introducing frictions associated with housing into standard life cycle models can partially resolve the portfolio choice puzzle i calibrate a model in which a representative household endogenously transits from renting to mortgage financed homeownership the household can later adjust housing status either voluntarily or because of a forced move by paying transaction costs it is shown that homeownership crowds out stock market participation risky owner occupied housing substitutes for stocks while bonds provide liquidity young and middle aged households regardless of whether they are currently homeowners hold much less stock than predicted by traditional models without housing

assumption financing and selling price of single family homes periods of high mortgage interest rates that characterized the early 1980s have escalated the use of assumption financing in home buying in these periods there is an increased demand for alternative sources of financing and a movement away from conventional sources the purpose of this study is to provide a theoretical and empirical analysis of the effect of the increased use of assumption financing on selling prices of single family residential housing aside from physical characteristics the financing arranged by the homebuyer is considered a major influence in determining house prices this is especially true in real estate appraisal practice where differences in types of financing are one of the major categories of adjustment see 1 4 and 10

how does intergenerational investment respond to changes in the marriage market evidence from china abstract this paper examines how intergenerational investment responds to changes in the marriage market two major channels are modeled and empirically tested first expecting gender specific impacts on the future marriage market for their children parents adjustments in educational investment differ by the gender of children and second changes in marriage market conditions have contemporaneous impacts on intrahousehold bargaining because they change existing couples remarriage options which affects their educational investment in their children we test our model by exploiting a policy change in favor of local urban men in the urban marriage market in china we find that educational investment by local local couples decreases for sons but changes little for daughters consistent with the decrease in children s educational investment female favored consumption decreases while male favored consumption increases these results provide evidence of interaction between the intrahousehold bargaining and the future marriage prospect effects

muslim family law prenuptial agreements and the emergence of dowry in bangladesh we explain trends in dowry levels in bangladesh by drawing attention to an institutional feature of marriage contracts previously ignored in the literature the mehr or traditional islamic brideprice we develop a model of marriage contracts in which mehr serves as a barrier to husbands exiting marriage and a component of dowry as an amount that ex ante compensates the groom for the cost of mehr we investigate how mehr and dowry respond to exogenous changes in the costs of polygamy and divorce and show that our model gives a dierent set of predictions than traditional models we show that major changes in dowry levels took place precisely after the legal changes corresponding to simultaneous changes in levels of mehr

match quality new information and marital dissolution this article investigates the role of surprises in marital dissolution surprises consists of changes in the predicted earning capacity of either spouse data from the national longitudinal study of the high school class of 1972 is used we find that an unexpected increase in the husband s earning capacity reduces the divorce hazard while an unexpected increase in the wife s earning capacity raises the divorce hazard couples sort into marriage according to characteristics that are likely to enhance the stability of the marriage the divorce hazard is initially increasing with the duration of marriage and the presence of children and high levels of property stabilizes the marriage

financial market models with levy processes and time varying volatility abstract asset management and pricing models require the proper modeling of the return distribution of financial assets while the return distribution used in the traditional theories of asset pricing and portfolio selection is the normal distribution numerous studies that have investigated the empirical behavior of asset returns in financial markets throughout the world reject the hypothesis that asset return distributions are normally distribution alternative models for describing return distributions have been proposed since the 1960s with the strongest empirical and theoretical support being provided for the family of stable distributions with the normal distribution being a special case of this distribution since the turn of the century specific forms of the stable distribution have been proposed and tested that better fit the observed behavior of historical return distributions more specifically subclasses of the tempered stable distribution have been proposed in this paper we propose one such subclass of the tempered stable distribution which we refer to as the kr distribution we empirically test this distribution as well as two other recently proposed subclasses of the tempered stable distribution the carr geman madan yor cgmy distribution and the modified tempered stable mts distribution the advantage of the kr distribution over the other two distributions is that it has more flexible tail parameters for these three subclasses of the tempered stable distribution which are infinitely divisible and have exponential moments for some neighborhood of zero we generate the exponential levy market models induced from them we then construct a new garch model with the infinitely divisible distributed innovation and three subclasses of that garch model that incorporates three observed properties of asset returns volatility clustering fat tails and skewness we formulate the algorithm to find the risk neutral return processes for those garch models using the change of measure for the tempered stable distributions to compare the performance of those exponential levy models and the garch models we report the results of the parameters estimated for the s p 500 index and investigate the out of sample forecasting performance for those garch models for the s p 500 option prices

a model of housing in the presence of adjustment costs a structural interpretation of habit persistence building on the model of sanford j grossman and guy laroque 1990 this paper provides a model of household consumption and portfolio allocation which incorporates the role of housing as both a consumption good and as a component of wealth the model captures the following features of the household s problem a utility depends probably nonseparably on two distinct goods nondurable consumption and housing b nondurable consumption can be adjusted cost lessly but housing is subject to an adjustment cost c households face housing price risk in the sense that the relative price of housing varies over time and d in addition to the house the household can invest in a wide variety of financial assets this single reasonably tractable model generates testable implications for portfolio allocation risk aversion asset pricing and the dynamics of nondurable consumption because the original grossman and laroque model considers a utility function in which the durable good is the sole argument and thus abstracts completely from nondurable consump tion their analysis cannot address either the potential spillover effects of the adjustment costs of the durable good on the dynamics of nondurable consumption or the implications for portfolio allocation of housing risk arising from variation in the relative price of housing in addition to generating implications for issues on which the original grossman and laroque model was silent the housing model delivers a strikingly different message concerning asset pricing that is in contrast to the grossman and laroque result that the consumption based capital asset pricing model consumption capm fails the housing model implies that the consumptioncapm holds we assume that the household incurs an adjustment cost when altering the holding of the dura ble good or house although financial assets can be bought and sold costlessly consumption of the nondurable good can also be adjusted costlessly when choosing a new house the consumer takes into account the fact that the consumption of housing services will be constant at the new level until the subsequent stopping time when it is again worthwhile to incur the adjustment cost thus the home purchase decision is endogenous and fully rational but because of the adjustment cost infrequent in this continuous time setting the household s decision process has a recursive structure at each instant the household first decides whether it is optimal to sell the house immediately on those rare occasions that it is optimal to incur the adjustment cost the household sells the old house and buys a new one instantaneously if the household decides that it is not optimal to sell the house immediately it then determines its optimal holdings of financial assets and optimal level of nondurable consumption conditional on the current housing stock in essence because of the adjustment costs associated with the durable good the current

housing and location choices of retiring households evidence from france in this paper a study is made of the mobility and housing choices of the elderly when retiring using household data collected in france from a theoretical viewpoint individuals are likely to decrease their housing quantity because of an income loss when retiring but they may also increase it to benefit from more housing comfort for leisure using the 1992 trois generations survey it is first shown that housing mobility at retirement is substantial in france with a variety of self reported motives then using the 1994 2001 french europanel survey evidence is found of both upsizing and downsizing for mobile recent retirees in many cases housing adjustments lead to a correction of the initial disequilibrium between the number of rooms and the number of occupants however a significant proportion of mobile recent retirees improve the quality of their dwelling

extracting market information from equity options with exponential levy processes levy processes have been successfully applied in the modeling of financial assets useful information such as implied volatility skewness and risk preferences can be derived from market option prices in this paper we advocate using esscher conjugate levy processes to estimate risk neutral and empirical densities more specifically we employ the exponential meixner and nig processes to calculate in closed form the pricing kernel in the equity market and then study the evolution of equity market behavior between 2002 and 2010 our empirical analysis using s p 500 options shows that the risk preferences of equity investors were signalling an anomaly in the market well before the subprime prime mortgage crisis august 2007 and the crisis of confidence that followed anticipating the downfall in equity markets in 2008 but then returning to normal levels in 2009

did unilateral divorce raise divorce rates evidence from panel data since early 1996 at least eight states have begun to consider rolling back unilateral and no fault divorce a major reversal of the liberalizing trend in divorce laws which began around 1970 the proponents of tightening the divorce regime often argue that making divorce more difficult will strengthen families however both theoretical and empirical evidence is decidedly mixed over whether the no fault revolution actually contributed to the sharp increase in divorce rates in the united states observed over the last 30 years in this paper i address the dispute by using a panel of state level divorce rates including state specific trends allows unobserved state divorce propensities to trend linearly and even quadratically over time and reveals that unilateral divorce raised divorce rates significantly and strongly excerpt

a garch option pricing model with α stable innovations we develop an option pricing model which is based on a garch asset return process with stable innovations with truncated tails the approach utilizes a canonic martingale measure as pricing measure which provides the possibility of a model calibration to market prices the garch stable option pricing model allows the explanation of some well known anomalies in empirical data as volatility clustering and heavy tailedness of the return distribution finally the results of monte carlo simulations concerning the option price and the implied volatility with respect to different strike and maturity levels are presented

tenure neutral and equitable housing taxation equity and neutrality are distinct concepts in housing taxation and weak and strong tenure neutrality should be distinguished when a tax system is tested for those criteria the taxes paid by landlords must be included as they affect the rents renters pay this paper defines appropriate tests applies them to a stylised tax system and proposes tax changes designed to restore tenure equity and or neutrality it shows how the homeowner s implicit income should be computed for taxes to be fundamentally tenure neutral or equitable or both it also shows the key role played by the cost differential in producing housing services under owner occupation and renting

static and intertemporal household decisions we discuss the most popular static and dynamic models of household behavior our main objective is to explain which aspects of household decisions different models can account for using this insight we describe testable implications identification results and estimation findings obtained in the literature particular attention is given to the ability of different models to answer various types of policy questions

time series analysis for financial market meltdowns abstract there appears to be a consensus that the recent instability in global financial markets may be attributable in part to the failure of financial modeling more specifically it is alleged that current risk models have failed to properly assess the risks associated with large adverse stock price behavior in this paper we first discuss the limitations of classical time series models for forecasting financial market meltdowns then we set forth a framework capable of forecasting both extreme events and highly volatile markets based on the empirical evidence presented in this paper our framework offers an improvement over prevailing models for evaluating stock market risk exposure during distressed market periods

yours mine and ours do divorce laws affect the intertemporal behavior of married couples divorce laws establish spouses individual property rights over household resources and determine when divorce is allowed this paper examines how such laws inuence the intertemporal behavior and the welfare of u s married couples i build a model of household choice about consumption labor supply and divorce under multiple divorce law regimes and i estimate it using exogenous variation in u s divorce laws from the 1970s to the 1990s couples responded to equal division of property and unilateral divorce by increasing tangible assets up to 19 which suggests the presence of a strong income eect for the primary earner and by reducing female employment by over 5 percentage points because the threat of divorce granted additional bargaining power to married woman the bargaining weight of women implied by these responses in the model corresponds to a third of the weight of men this indicates that equal division of assets beneted women when it was

a closed form garch option valuation model this paper develops a closed form option valuation formula for a spot asset whose variance follows a garch p q process that can be correlated with the returns of the spot asset it provides the first readily computed option formula for a random volatility model that can be estimated and implemented solely on the basis of observables the single lag version of this model contains heston s 1993 stochastic volatility model as a continuous time limit empirical analysis on s p500 index options shows that the out of sample valuation errors from the single lag version of the garch model are substantially lower than the ad hoc black scholes model of dumas fleming and whaley 1998 that uses a separate implied volatility for each option to fit to the smirk smile in implied volatilities the garch model remains superior even though the parameters of the garch model are held constant and volatility is filtered from the history of asset prices while the ad hoc black scholes model is updated every period the improvement is largely due to the ability of the garch model to simultaneously capture the correlation of volatility with spot returns and the path dependence in volatility article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

estimating the demand for the characteristics of housing a hstract estimates of the demand for the characteristics contained in a differentiated product such as housing can be based on hedonic regressions however previous studies have not dealt with several potential problems in such estimation a more appropriate framework for the estimation is provided in this paper also data from a number of cities are used to eliminate the identification problem and the endogeneity of the marginal prices derived from non linear hedonic equations is considered in the estimation the results on own and cross price elasticities expenditure elasticities and the effects of socio economic vafiables accord well with expectations

household intertemporal behaviour a collective characterization and a test of commitment in this paper a formal test of intra household commitment is derived and performed to that end two models of household intertemporal behaviour are developed in both models household members are characterized by individual preferences in the first formulation household decisions are always on the ex ante pareto frontier in the second model the assumption of intra household commitment required by ex ante efficiency is relaxed it is shown that the full efficiency household euler equations are nested in the no commitment euler equations using this result the hypothesis that household members can commit to future allocations of resources is tested using the consumer expenditure survey i strongly reject this hypothesis it is also shown that the standard unitary framework is a special case of the full efficiency model however if household members are not able to commit household intertemporal behaviour cannot be characterized using the standard life cycle model these findings have two main implications first policy makers can change household behaviour by modifying the decision power of individual household members second to evaluate programmes designed to improve the welfare of household members it would be beneficial to replace the standard unitary model with a characterization of household behaviour that allows for lack of commitment

homeownership in the 1980s and 1990s aggregate trends and racial gaps abstract housing policy under the clinton and bush administrations has sought to boost homeownership while also narrowing racial gaps in owner occupancy rates against that backdrop homeownership rose sharply in the 1990s but white minority gaps remain in excess of 25 percentage points we analyze these patterns using data from the 1983 to 2001 survey of consumer finances results indicate that household characteristics explain most of the increase in homeownership and roughly two thirds of the white minority homeownership gap credit barriers account for no more than 5 percentage points of the remaining gap this suggests that policy makers will need to look beyond innovations in mortgage finance if their goal is to further expand homeownership

the fine structure of asset returns an empirical investigation we investigate the importance of diffusion and jumps in a new model for asset returns in contrast to standard models we allow for jump components displaying finite or infinite activity and variation empirical investigations of time series indicate that index dynamics are devoid of a diffusion component which may be present in the dynamics of individual stocks this leads to the conjecture confirmed on options data that the risk neutral process should be free of a diffusion component we conclude that the statistical and risk neutral processes for equity prices are pure jump processes of infinite activity and finite variation

investment in schooling and the marriage market we present a model in which investment in schooling generates two kinds of returns the labor market return resulting from higher wages and a marriagemarket return defined as the impact of schooling on the marital surplus share one can extract men and women may have different incentives to invest in schooling because of different market wages or household roles this asymmetry can yield a mixed equilibrium with some educated individuals marrying uneducated spouses when the labor market returns to schooling rises home production demands less time and the traditional spousal labor division norms weaken more women may invest in schooling than men

changing the rules midway the impact of granting alimony rights on existing and newly formed partnerships this article analyses the effect of a reform granting alimony rights to cohabiting couples in canada a collective household model with a matching framework predicts that changes in alimony laws would affect existing couples and couples to be differently for existing couples it benefits the intended beneficiary but for couples not yet formed it generates offsetting intra household transfers and lower intra marital allocations for the beneficiary our empirical analyses confirm these predictions among couples united before the reform obtaining the right to petition for alimony led women to lower their labour force participation but not among newly formed cohabiting couples

law property and marital dissolution this paper challenges the view that legal rights are not important in affecting whether people divorce but it puts as much emphasis on property rights given for example by the law on alimony as on dissolution rights in the united states the paper sets out two stylised models of marriage and examines the consequences of fuller compensation for economic sacrifices made during marriage if the dominant economic issue in a marriage is who undertakes household tasks then a law giving fuller compensation makes divorce more likely if the dominant issue is child custody divorce is less likely excerpt

the private rented sector a characteristics approach the paper applies the characteristics approach developed with respect to the labour market in order to examine why the percentage of households who rent privately varies across the country regression analysis is used to show that the distribution of private renting is closely related to the distribution of particular household characteristics and that the relationship varies systematically between sub sectors certain local market factors are also shown to be important particularly with respect to the furnished sector within a given urban area the relative size of the rented sector appears to be even more strongly related to household characteristics certain implications for spatial policy are then discussed

the cost of quality in existing housing estimates from an implicit markets model abstract rosen s implicit markets approach is used to model and estimate the cost of improving the state of repair of rental housing in existing structures particular attention is devoted to potential errors in the measurement of state of repair and to the inconsistent estimates of supply and demand parameters implied by rosen s original econometric technique cost estimates imply that improvements in low income housing could be provided much less expensively in existing housing than by either public new construction or the section 8 existing housing program

collective labor supply and welfare the paper develops a general collective model of household labor supply in which agents are characterized by their own possibly altruistic preferences and household decisions are only assumed to be pareto efficient an alternative interpretation is that there are two stages in the internal decision process agents first share nonlabor income according to some given sharing rule then each one optimally chooses his or her own labor supply and consumption this setting is shown to generate testable restrictions on labor supplies moreover the observation of labor supply behavior is sufficient for recovering individual preferences and the sharing rule up to a constant finally the traditional tools of welfare analysis can be adapted to the new setting

hedonic analysis of a housing market in disequilibrium abstract this paper tests the hypothesis that information about housing market activity and about specific dwellings becomes capitalized into single family dwelling prices through a disequilibrium adjustment process a dynamic price adjustment model which is an extension of the standard hedonic model widely used in the literature is derived specified and tested with both micro and aggregated data from the city of chicago and for the period 1972 1976 the results show that from 32 to 75 of the variance in dwelling prices unexplained by the standard hedonic attributes under assumptions of equilibrium is explained by market activity signals such as mortgage interest rates and neighborhood transaction rates of the preceding period dwellings about which there is less information making comparison pricing difficult are shown to command a price premium the standard equilibrium hypothesis appears readily rejectable and better predictions are obtained from the disequilibrium specifications several directions for extending this line of research are discussed

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

who marries whom in a surging housing market abstract this paper investigates the impact of a surging housing market on marital sorting our empirical analysis shows that there is increasing assortativeness on original family background in response to housing price appreciation that is for husbands when the down payment doubles one more year of paternal schooling predicts a marriage in which the father in law s schooling is 0 057 year greater than in a scenario in which the down payment does not increase the rising assortativeness could exacerbate the already expanding inequality caused by the booming housing market in addition to the benchmark analysis we find that a divorce reform which awards assets proportionate to the shares the spouses paid for the initial down payment rather than awarding equal shares upon divorce alleviates assortativeness the evidence suggests that joint investment in housing is likely to be a significant consideration in marital sorting

the engel curves of non cooperative households we provide a set of necessary and sufficient conditions for a system of engel curves to have been generated by a non cooperative model of family behaviour these conditions fully characterise the local behaviour of household level consumption in the cross section i e as a function of total income and distribution factors in this setting any demand system compatible with a non cooperative model is also compatible with a collective model but the converse is not true we describe how these nested conditions may be tested using standard instrumental variables strategies

the impacts of lending race and ownership on rental housing rehabilitation abstract this paper presents an empirical analysis of landlords rehabilitation investment decisions in a large sample of buildings in one city focusing on impacts of lending patterns race and ownership the study finds that availability of loans from major institutional lenders banks and savings and loans in a neighborhood has a substantial independent impact on repair decisions after controlling for a multitude of other neighborhood and building variables for all landlords taken together loan availability problems rather than owners discriminatory attitudes seem to discourage some otherwise profitable repairs in black neighborhoods but significant differences appear between owner occupant landlords and others after detailing these findings the paper summarizes several policy directions they suggest

job security provisions and employment european countries have enacted various job security provisions over the last 30 years employers are required to pay workers on separation or to give advance notice of termination in anything less than a perfectly functioning market there are effects of the provisions on employment incumbents are more likely to retain their jobs but new workers are less likely to be hired an examination of the european data suggests that severance pay requirements reduce employment

a bayesian approach to assessing the robustness of hedonic property value studies hedonic price models are widely employed to estimate implicit prices for bundled attributes residential property value studies dominate these applications using a representative cross sectional property value data set we employ bayesian methods to translate a range of priors in covariate selection typical of hedonic property value studies into a range of posterior estimates we also formulate priors regarding measurement error in individual covariates and compute the ranges of resulting posterior means finally we empirically demonstrate that a greater and more systematic use of prior information drawn from one s own data and from other studies can break the collinearity deadlock in this data

alimony rights and intrahousehold allocation of resources evidence from brazil can family policy affect well being of individuals without altering the resources available to their families this article examines the extension of alimony rights and obligations to cohabiting couples in brazil for women in intact relationships alimony rights upon dissolution should improve outside options strengthening their negotiating positions and increasing their influence over intrahousehold allocation of resources robust econometric evidence indicates that more decision power in the hands of women impacts hours worked by female adults and investments in the education of children this suggests that family policy and models of family decision making should take intrahousehold heterogeneity of preferences into account

the impact of rental properties on the value of single family residences abstract this study examines the effects that single family rental properties in a residential neighborhood have on the value of single family residences in that area the analysis blends real estate valuation concepts with evidence found in the housing maintenance literature and urban succession theory to develop testable hypotheses regarding the property specific proximity related and neighborhood wide impacts of rental properties on property values the data used to test the hypotheses include the tenure status of 23 119 single family residences and 1 162 single family sales regression results support all three hypotheses although numerous studies on the value impacts of other externalities have been published this is the first study to examine the separation of property rights the results of this study provide additional insights into housing maintenance and also have implications for neighborhood zoning regulations

marriage and divorce informational constraints and private contracting the relationship between divorce rates in the united states and laws regulating divorce are analyzed using data from a special current population survey undertaken in 1979 with particular reference to the adoption by many states of no fault divorce laws the author utilizes a contract theoretic framework to examine the impact of both legal and informational constraints on several aspects of the marriage relationship 1 the probability of divorce 2 compensation at divorce i e the terms of the divorce settlement 3 the probability of entering marriage and 4 incentives for investment in marriage specific capital two different models are developed the first assumes that ex post information about the value of each spouses opportunites at divorce is symmetric and that since divorce would only occur if the joint benefits outweigh the joint costs the law has no effect on the divorce rate the second model asserts that the existence of asymmetric information results in a fixed wage marriage contract and that divorce would be higher in states that allow unilateral divorce the evidence supports the first of these hypotheses excerpt

the transition to home ownership and the black white wealth gap this paper analyzes differences in the likelihood that black and white families become homeowners by following a sample of black and white renters over time we are able to separately study racial differences in the likelihood of applying for a mortgage and in the likelihood that a mortgage application is accepted although its effect on the race gap in housing transitions is small we find strong evidence that black applicants are almost twice as likely as comparable white households to be rejected even when credit history proxies and measures of household wealth are accounted for we show that the housing transition gap exists primarily because blacks are less likely to apply for mortgages in the first place the analysis suggests that differences in income family structure and in the ability and willingness of parents to provide down payment assistance are the primary reasons for this applications gap we speculate that the portion of the gap that remains unexplained after controlling for income d

cvar sensitivity with respect to tail thickness abstract the sensitivity of a risk measure with respect to the parameters of the hypothesized distribution is a useful tool in investigating the impact of marginal rebalancing decisions on the portfolio return distribution and also in the analysis of the asymptotic variability of the risk estimator we calculate the relative importance of the conditional value at risk cvar sensitivity with respect to tail thickness and scale of the portfolio return distribution in the case of regularly varying tails and in the case of exponential and faster than exponential decay we discuss the implications for asset return modeling and the asymptotic variability of the risk estimator

collective labour supply with children we extend the collective model of household behavior to allow for the existence of public consumption we show how this model allows the analysis of welfare consequences of policies aimed at changing the distribution of power within the household our setting provides a conceptual framework for addressing issues linked to the targeting of specific benefits or taxes we also show that the observation of the labor supplies and the household demand for the public good allow one to identify individual welfare and the decision process this requires either a separability assumption or the presence of a distribution factor

upgrades switching costs and the leverage theory of tying this article investigates the role of product upgrades and consumer switching costs in the tying of complementary products previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential where essential means that all uses of the complementary good require the initial monopolised product we show that this is not true in settings characterised by product upgrades and consumer switching costs we also discuss various extensions including the role of the reversibility of tying

housing price inflation family growth and the move from rented to owner occupied housing this paper uses data from annual housing surveys to investigate the relationship between growth in family size and the move from rented to owner occupied housing in the mid and late 1970s a series of studies conducted in the 1950s and 1960s established that growth in the size of the family triggered moves from rented to owner occupied housing changes in house price inflation during the 1970s may have altered the social and economic conditions associated with a move from rented to owner occupied housing log linear analyses of data from the 1974 and 1978 annual housing surveys indicate that while growth in the size of a renter s family continued to predict the purchase of owner occupied housing in 1978 the composition of the purchasing group changed significantly between 1974 and 1978 with childless couples increasing and households with children decreasing the declines in the latter group occurred primarily among poorer households the implications of these changes for the life cycle housing cycle

separate spheres bargaining and the marriage market this paper introduces the separate spheres bargaining model a new model of distribution within marriage it differs from divorce threat bargaining models e g manser brown mcelroy horney in that the threat point is not divorce but a noncooperative equilibrium within marriage this noncooperative equilibrium reflects traditional gender roles the predictions of our model thus differ from those of divorce threat bargaining models in the separate spheres model cash transfer payments to the mother and payments to the father can but need not imply different equilibrium distributions in existing marriages in the long run the distributional effects of transfer policies may be substantially altered by changes in the marriage market equilibrium

property rights over marital transfers in developing countries the extent to which women possess property rights is shaped in large part by transfers received at the time of marriage focusing on dowry we develop a simple model of the marriage market with intra household bargaining in order to understand the incentives for brides parents to allocate the rights over the dowry between their daughter and her groom in doing so we clarify and formalize the dual role of dowry as a pre mortem bequest and as a market clearing price identified in the literature we use the model to shed light on the intriguing observation that in contrast to other rights women s rights over the dowry tend to deteriorate with development we show how marriage payments are utilized even when they are inefficient and how the marriage market mitigates changes in other dimensions of women s rights even to the point where women are worse off following a strengthening of such rights we also generate predictions for when marital transfers will disappear and highlight the importance of female human capital for the welfare of women

the effects of price risk on housing demand empirical evidence from u s markets this article examines how price risk affects housing demand it identifies two relevant channels a financial risk effect that reduces demand and a hedging effect that increases demand since current homes may hedge future housing costs the latter dominates when hedging incentives are strong namely when the likelihood of moving up the housing ladder is high and the tendency to move across markets is low for households with weak hedging incentives the article finds negative effects of price risk on the timing and size of home purchases but positive effects for households with strong hedging incentives

income and outcomes a structural model of intrahousehold allocation there is evidence from several sources that one cannot treat many person households as a single decision maker if this is the case then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household we develop a method of identifying how incomes affect outcomes given conventional family expenditure data the basic assumption we make is that household decision processes lead to efficient outcomes we apply our method to a sample of canadian couples with no children we find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth

efficient responses to targeted cash transfers we estimate and test the restrictions of a collective model of household consumption using z conditional demands in the context of a large conditional cash transfer program in rural mexico the model can explain the impacts of the program on the structure of food consumption we use two plausible and novel distribution factors the random allocation of a cash transfer to women and the relative size and wealth of the husband s and wife s family networks our structure does better at predicting the effect of exogenous increases in household income than an alternative unitary structure we cannot reject efficiency of household decisions