evaluating leases with complex operating options abstract the paper deals with the numerical valuation of leasing contracts with a variety of embedded operating options unlike earlier work which either ignores such options or focuses on only one type of operating option in isolation this paper recognizes that leasing is a context in which complex options typically occur as well as the importance of using computational methods to quantify the interactions among several options present in combination it describes a contingent claims analysis cca of operating lease options and suggests a cca based numerical analysis method for valuing leasing contracts with multiple such options a numerical leasing example with the options to cancel the lease early extend its life and purchase the leased asset is presented for illustration

analytical upper bounds for american option prices american options require numerical methods namely lattice models to provide accurate price estimates the computations can become expensive when more than one state variable is involved analytical upper bounds can therefore provide a useful guideline for how high american values can reach in this paper we derive analytical closed form upper bounds for american option prices under stochastic interest rates stochastic volatility and jumps where american option prices are difficult to compute with accuracy in a stochastic volatility model heston 1993 and scott 1997 that has two random factors we demonstrate that the upper bound only takes a very small fraction of the time that the american option needs to compute

option bounds with finite revision opportunities this article generalizes the single period linear programming bounds on option prices by allowing for a finite number of revision opportunities it is shown that in an incomplete market the bounds on option prices can be derived using a modified binomial option pricing model tighter bounds are developed under more restrictive assumptions on probabilities and risk aversion for this case the upper bounds are shown to coincide with the upper bounds derived by perrakis while the lower bounds are shown to be tighter in 1984 perrakis and ryan 6 derived upper and lower bounds on european option prices in discrete time and under modest assumptions on preferences and

the institutional determinants of health insurance moving away from labor market marriage and family attachments under the aca for more than a century the american welfare state required working age adults to obtain social welfare benefits through their linkages to employers spouses or children recent changes to u s h

upper and lower bounds of put and call option value stochastic dominance approach applying stochastic dominance rules with borrowing and lending at the risk free interest rate we derive upper and lower values for an option price for all unconstrained utility functions and alternatively for concave utility functions the derivation of these bounds is quite general and fits any kind of stock price distribution as long as it is characterized by a nonnegative beta transaction costs and taxes can be easily incorporated in the model presented here since investors are not required to revise their portfolios continuously the price that is paid for this generalization is that a range of values rather than a unique value is obtained in the last decade there has been an increasing interest in the options market by both academicians and practitioners the most well known valuation models are the black scholes 4 model the jump stochastic process model see cox and ross 6 the binomial model see cox ross and rubinstein 7 rendleman and bartler 19 and sharpe 22 and rubinstein s discrete model 21 recently perrakis and ryan 18 using rubinstein s approach have derived upper and lower bounds for option prices the relative pricing theory of contingent claims differs in the continuous time and discrete time models in a continuous time framework the instantaneous expected rate of return of the option and that of the underlying stock must follow a certain market equilibrium condition in this case the equilibrium condition is easily determined by a continuous hedging strategy in the discrete time case there is no hedging strategy to provide a simple relationship between the option and the stock price however for a given value distribution of the stock the value distribution of the option is uniquely determined by the option exercise price and this suggests some possible relationships between the stock and option values

production economics and process quality a taguchi perspective abstract although several studies have analyzed the interaction between the economics of production and process quality most of them view quality from a very traditional perspective reject when outside specified limits or else accept recent views on quality have shown that such a definition greatly underestimates the costs of poor quality and leads to sub optimal decisions the primary intent in this paper is to revisit this interaction of the economics of production with process quality from a non traditional yet more realistic taguchi quality cost perspective specifically we investigate the possibility of investing in a process to decrease its variance although such an investment reduces the proportion of defects and when large enough the taguchi s loss it also increases the cost of holding inventory our model determines the optimal levels of inventory and the production lot size that minimizes the sum of inventory and quality related costs

option pricing when the variance changes randomly theory estimation and an application in this paper we examine the pricing of european call options on stocks that have vari ance rates that change randomly we study continuous time diffusion processes for the stock return and the standard deviation parameter and we find that one must use the stock and two options to form a riskless hedge the riskless hedge does not lead to a unique option pricing function because the random standard deviation is not a traded security one must appeal to an equilibrium asset pricing model to derive a unique option pricing function in general the option price depends on the risk premium associated with the random standard deviation we find that the problem can be simplified by assuming that volatility risk can be diversified away and that changes in volatility are uncorrelated with the stock return the resulting solution is an integral ofthe black scholes formula and the distribution function for the variance of the stock price we show that accurate option prices can be computed via monte carlo simulations and we apply the model to a set of actual prices

insecure alliances risk inequality and support for the welfare state popular support for the welfare state varies greatly across nations and policy domains we argue that these variations vital to understanding the politics of the welfare state reflect in part the degree to which economic disadvantage low income and economic insecurity high risk are correlated when the disadvantaged and insecure are mostly one and the same the base of popular support for the welfare state is narrow when the disadvantaged and insecure represent two distinct groups popular support is broader and opinion less polarized we test these predictions both across nations within a single policy area unemployment insurance and across policy domains within a single polity the united states using a new survey results are consistent with our predictions and are robust to myriad controls and specifications when disadvantage and insecurity are more correlated the welfare state is more contested hy do citizens support the welfare state the answer remains as elusive as the question is fundamental we know that patterns of public support vary greatly across nations and domains of social policy we also know that these differences are associated with variations in levels of spending and program generosity brooks and manza 2006a 2006b 2007 kang and powell 2010 svallfors 1997 2004 yet there has only been limited effort to explain why patternsofpublicsupportvary thatis whyaggregatepublic support polarization of opinion and the breadth of opposition to the welfare state differ across societies and social policy areas in this article we develop such a proposition distinguish it from other leading claims and show that it finds strong confirmation not only in cross national analysis but also when examining popular support for different social policies within the united states the proposition is that the structure of support for the welfare state varies with the joint distribution of economic disadvantage low income and economic in

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

on option pricing bounds the purpose of this article is to compare the perrakis and ryan bounds of option prices in a single period model with option bounds derived using linear programming it is shown that the upper bounds are identical but that the lower bounds are different a comparison of these bounds together with merton s bounds and the black scholes prices in a lognormal securities market is presented the black scholes 1 option pricing model is preference free its simplicity derives from the continuous trading assumption which enables a portfolio of stock and bonds to be constructed so as to replicate the payouts of the option in an incomplete market with only finite opportunities to revise portfolios no preference free option price can be constructed 3 6 for this case preferencedependent prices can be established rather than place restrictive assumptions on preferences perrakis and ryan pr 5 have recently derived upper and lower bounds for a single and multiple period call option price the development of these bounds is based on the single price law and arbitrage arguments and requires modest assumptions on preferences the bounds exist as equilibrium values given a consensus on stock price distributions in this article we shall develop bounds for option prices based on primitive prices in incomplete markets and compare these bounds to the single period bounds derived by perrakis and ryan towards this goal we first review the pricing approach for primitive securities and proceed to re express the pr bounds as derived from their arbitrage portfolios then using linear programming bounds on option prices are derived linear programming approaches for obtaining relationships among option prices have been investigated garman 2 for example established an algebra for evaluating hedge portfolios using this algebra a one period linear program can be established that provides a way to search for arbitrage opportunities over an infinite number of portfolio strategies one of the features of the algebra is that only one linear program need be solved to determine if riskless arbitrage strategies can be established by investigating the dual of the linear program garman obtained necessary and sufficient conditions for rational option pricing in a one period setting these bounds were shown to be consistent with the bounds determined by merton 4 unlike garman s approach the linear programming approach presented here places constraints on time preferences risk aversion and state probabilities under specific sets of assumptions linear programs are formulated where the objective function to be optimized is the call price minimization and maximi

household energy and climate mitigation policies investigating energy practices in the housing sector abstract one central aim of climate change mitigation in the european union is to reduce energy consumption in the housing sector in order to ensure effectiveness of policies targeting household energy conservation it is important to investigate existing energy practices of different social groups this article describes and explains energy practices in three leading states in environmental politics technological innovation and support for renewable energy production denmark austria and the united kingdom based on a longitudinal analysis of housing utility costs from the european community statistics on income and living conditions we show that income plays a central role in households energy practices while high income households have higher overall energy consumption low income groups spend a larger share of their income on utility costs the variation of energy consumption across income groups is related to household characteristics characteristics of the dwellings and cross national differences in the housing sector

the material consequences of welfare states benefit generosity and absolute poverty in 16 oecd countries several recent studies have focused attention on the relationship between welfare states and poverty looking primarily at relative poverty and employing concepts of welfare state generosity that are problematic this has made it difficult to evaluate claims that equality has come at the expense of economic growth in this article the authors examine more directly the relationship between welfare state generosity in three social insurance programs unemployment sickness and pensions and poverty levels in advanced industrial democracies in the past quarter of the 20th century the results strongly suggest that more generous entitlements to key social insurance programs are associated not only with lower relative poverty but also with lower absolute poverty this supports the contention that promoting relative economic equality can improve the absolute material well being of the poor however no evidence suggests that relatively more generous unemployment benefits systematically reduce poverty

investor valuation of the abandonment option abstract we investigate whether investors price the option to abandon a firm at its exit value theory prices this real option as an american put with both a stochastic strike price exit value and a stochastic value of the underlying security the value of cash flows the empirical implications are that firm value increases in exit value after controlling for expected going concern cash flows and that more generalizable assets produce more abandonment option value using discounted earnings forecasts to proxy for expected cash flows and prior literature to categorize asset generalizability we find strong support for the predictions of abandonment option theory

diminished expectations redistributive preferences in truncated welfare states in latin america the relationship between income and support for redistribution is weak and variable despite the region s extreme income inequality this article shows that this condition is rooted in the truncated structure of many latin american welfare states heavy spending on contributory social insurance for formal sector workers flat or regressive subsidies and informal access barriers mean that social spending does far less for the poor in latin america than it does in advanced industrial economies using public opinion data from across latin america and original survey data from colombia the author demonstrates that income is less predictive of attitudes in the countries and social policy areas in which the poor gain less from social expenditures social policy exclusion leads the poor to doubt that they will benefit from redistribution thereby dampening their support for it the article reverses an assumption in political economy models that welfare exclusion unleashes demands for greater redistribution instead truncation reinforces skepticism about social policy helping the poor welfare state reforms to promote social inclusion are essential to strengthen redistributive coalitions

the local structure of the welfare state uneven effects of social spending on poverty within countries research has shown that there is a strong negative relationship between social spending and poverty levels among urban inequality researchers it is often assumed that compared with the usa the welfare state has mitigated social differences explaining lower levels of urban inequality in most european countries however research on the role of the welfare state is often conducted on the national level and is thus unable to draw conclusions on the effects of social spending and redistribution on a lower level failing to take the within country variation into account this study connects welfare state research to urban inequality research by investigating the effects of social spending on poverty in urban and non urban areas we have conducted a cross national multilevel logistic regression analysis using eurostat and european social survey data of 2008 our findings suggest that the effects of social spending are unequally distributed within countries

nonparametric conditional pricing of higher order multivariate contingent claims abstract this paper describes and applies a nonparametric model for pricing multivariate contingent claims multivariate contingent claims are contracts whose payoffs depend on the future prices of more than one underlying variable the pricing however of these kinds of contracts represents a challenge all known models are adaptations of earlier ones that have been introduced to price plain vanilla calls and puts they are imposing strong assumptions on the distributional properties of the underlying variables in contrast this study adopts a methodology that relaxes such restrictions following barone adesi g bourgoin f giannopoulos k 1998 don t look back risk 11 august 100 104 barone adesi g engle r mancini l 2004 garch options in incomplete markets mimeo university of applied sciences of southern switzerland long x 2004 semiparametric multivariate garch model mimeo university of california riverside multivariate pathways for a set of underlying variables are constructed before the option payoffs are computed this enables the covariances in addition to the means and variances to be modelled in a dynamic and nonparametric manner the model is particular suitable for options whose payoffs depend on variables that are characterised by high nonlinearities and extremes and on higher order multivariate options whose underlying variables are more unlikely to conform to a common theoretical distribution

budgetary units a weberian approach to consumption1 established consumption theory relies heavily on application of individualistic frames and market models of behavior a framework built around consumption oriented groups would facilitate progress toward a more general theory of consumption this article reintroduces and extends weber s budgetary unit concept to address this gap correcting key problems dogging the consumption literature the budgetary unit concept 1 offers a new framework for theorizing and better accounting for observed consumption patterns 2 reveals how consumption units have organizational logics preferences strengths and vulnerabilities that are consequentially distinct from market logic of production and profit and 3 focuses attention on social processes and features enabling theorization of general social patterns of consumption across diverse contexts this article highlights the explanatory power and broad applicability of weber s budgetary unit approach using the conventionally dissimilar cases of russian organized

paradoxes of social policy welfare transfers relative poverty and redistribution preferences korpi and palme s 1998 classic the paradox of redistribution and strategies of equality claims that universal social policy better reduces poverty than social policies targeted at the poor this article revisits korpi and palme s classic and in the process explores and informs a set of enduring questions about social policy politics and social equality specifically we investigate the relationships between three dimensions of welfare transfers transfer share the average share of household income from welfare transfers low income targeting and universalism and poverty and preferences for redistribution we analyze rich democracies like korpi and palme but we also generalize to a broader sample of developed and developing countries consistent with korpi and palme we show 1 poverty is negatively associated with transfer share and universalism 2 redistribution preferences are negatively associated with low income targeting and 3 universalism is positively associated with transfer share

fictitious freedom a polanyian critique of the republican revival prominent republican theorists invoke anonymous orders such as the market as mechanisms that secure freedom as non domination drawing on karl polanyi s account of fictitious commodities and demonstration of the impossibility of a just and rational market society this article critically scrutinizes neo republican assumptions regarding the market develops an alternate social theory within which to situate the ideal of non domination and illustrates the importance of this reconfiguration for the kind of collective agents and political strategies that can be expected to advance republican freedom in the economy

employers and the welfare state the political economic organization of firms and social policy in contemporary capitalist democracies the authors argue that the organization of employers shapes social policy support among firms and in turn affects social policy outcomes specifically the authors argue that the centralization and cohesion of employer groups and economic cooperation across enterprises positively affects social welfare provision empirically the authors assess the impacts of business organization on social welfare effort in 15 developed democracies between the 1970s and 1990s the authors also provide analysis of the impact of employer organization on active labor market policy the authors find that the organization of employers is one of the most important determinants of overall social welfare effort the authors also find that employer organization affects the development of active labor market policies and it influences the degree to which social democratic parties pursue active labor market programs the authors conclude with a discussion of the findings implications for theories of social corporatism and the w

power resources and employer centered approaches in explanations of welfare states and varieties of capitalism protagonists consenters and antagonists the power resources approach underlining the relevance of socioeconomic class and partisan politics in distributive conflict within capitalist economies is challenged by employer centered approaches claiming employers and cross class alliances to have been crucial in advancing the development of welfare states and varieties of capitalism theoretically and empirically these claims are problematic in welfare state expansion employers have often been antagonists under specific conditions consenters but very rarely protagonists well developed welfare states and coordinated market economies have emerged in countries with strong left parties in long term cabinet participation or in countries with state corporatist institutional traditions and confessional parties in intensive competition with left parties

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

an option pricing approach to evaluating petroleum projects abstract option pricing applications in capital budgeting decisions are still in the development stage this paper uses concepts and methods from option pricing theory to evaluate real projects rather than financial ones within a petroleum projects context such real options include development and operations of satellite fields break even values of incremental capacity and flexibility value with compound development and operations options the option pricing results may be quite different from those obtained by traditional capital budgeting and decision tree approaches some related papers on real options are also briefly noted

political economy of pension plans impact of institutions gender and culture abstract national pension systems are an important part of financial intermediation and worker welfare in most countries but how and why do they differ internationally controlling for important political economic and social institutions we document that international differences in pension progressivity or how pensions reflect lifetime earnings are negatively related to masculinity uncertainty avoidance individualism long term orientation employment rights average pension levels social trust and economic inequality we also find that pension progressivity is positively related to the economic and societal role of women the extent of catholicism as well as political voice and accountability these results provide important insights for both public policy and mnc managers

options on the minimum or the maximum of two risky assets analysis and applications this paper provides analytical formulas for european put and call options on the minimum or the maximum of two risky assets the properties of these formulas are discussed in detail options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists applications discussed in this paper include the valuation of foreign currency debt option bonds compensation plans risk sharing contracts secured debt and growth opportunities involving mutually exclusive investments

exploratory evidence on the behavior of quality costs this study examines the time series behavior of quality costs reported by 49 manufacturing units of 21 companies analyses using both pooled annual data and plant specific quarterly data indicate that the majority of units in the sample achieved ongoing reductions in nonconformance costs while maintaining or reducing reported prevention and appraisal costs these findings are consistent with recent quality based learning and continuous improvement models which suggest that once an effective quality program is established companies can reduce nonconformance costs over time with little or no subsequent increase in conformance expenditures

has the minimum wage policy been important for reducing poverty in brazil a decomposition analysis for the period from 2002 to 2013 abstract this study aims to analyze the contribution of the minimum wage valorization policy to the reduction in poverty that occurred in the first decade of the 21st century in brazil considering not only the incidence of poverty but also its intensity and severity a decomposition methodology was used to isolate the marginal contribution of the minimum wage in the observed changes taking into account the roles of setting the values of basic pension and social assistance benefits the beneficio de prestacao continuada or bpc in addition to setting the wage floor between 2002 and 2013 the minimum wage contributed to a 38 2 reduction in the proportion of impoverished people a 39 4 reduction in the intensity of poverty and 40 6 decrease in the severity of poverty our results also reveal geographic differences with the minimum wage being more important in the poorest regions

inequality in the world polity the structure of international organization recent research reveals strong effects of involvement in international organizations on state policies but much of this research downplays inequality in world political participation and there is only a limited understanding of what explains world polity ties using data on memberships in intergovernmental and international non governmental organizations igos and ingos for 1960 through 2000 this study analyzes inequality in the world polity igo ties are fairly evenly distributed but the level of inequality in ingo ties is as high as the level of world income inequality since 1960 inequality in ties to igos decreased sharply but inequality in ties to ingos remained more stable a conflict centered model of the world polity is developed here that explains world political participation as a function of material and symbolic conflict rich core western states and societies have significantly more ties to the world polity than do others powerful states dominate igos less now than they did in 1960 but rich core western societies have grown more dominant in the ingo field

the pricing of stock index options in a general equilibrium model this paper analyzes the pricing of stock index options in a simple general equilibrium model in this model the volatility of the stock index and the spot rate of interest are functions of a stochastic variable the paper investigates the biases that arise when using the black scholes model with the assumed volatility and interest rate dynamics it is shown that the model can in principle explain the biases observed in empirical work on stock index options

real options theory in international business the last quarter century has witnessed substantial growth in applications of real options theory rot to international business ib research in this review we explicate the core rot concepts in the ib context and discuss the contributions of rot based research to three core ib issues timing and scale of market entry or exit entry mode and governance form and the role of multinational networks based on our review we propose a holistic rot view of the multinational enterprise that synthesizes the insights of existing studies finally to move the field forward we highlight key questions and challenges in current rot based work provide a more precise definition of exogenous and endogenous uncertainty suggest empirical designs to test unique rot predictions and explore areas where rot can be combined with other theoretical perspectives to better understand ib phenomena

option bounds in discrete time extensions and the pricing of the american put in a recent paper perrakis and ryan 1984 upper and lower bounds on european option prices were derived in discrete time these bounds were based on an extension of the discrete time derivation of black scholes pricing first presented in the work of black and scholes 1973 the bounds are functions of the stock and exercise prices the riskless rate of interest the time to maturity and the entire distribution of stock returns in other words they need more information than black scholes for their computation and the derived results are weaker on the other hand they are significantly more general in their assumptions insofar as they do not rely on the continuous time riskless hedge of the original black scholes derivations or on the assumption of a binomial distribution of stock returns used in cox ross and rubinstein 1979 and rendleman and bartter 1979 for this reason they are likely to be particularly useful in valuing options on assets for which the black scholes methodology is clearly this paper generalizes and tightens the discrete time bounds for european options and develops similar bounds for american puts the stock return has a distribution with a finite range and is subject to the restriction that the stock be nonnegative beta the bounds are derived from arbitrage portfolios using the stock the option and the riskless asset they converge to the previous ones when the range coincides with the nonnegative real line and they both become equal to the binomial option model under a two state stock return upper and lower bounds for the american put are derived recursively by the same method with arbitrage portfolios involving the stock the riskless asset and american and european puts an example is provided with a trinomial return distribution part of this research was done while i was a visiting professor 1983 84 ecole superieure de commerce et d administration des entreprises reims france i wish to thank peter ryan albert madansky and a referee of this journal for helpful advice and comment while retaining all responsibility for any remaining errors or omissions 1 note however that this is also true of other blackscholes generalizations such as merton 1976

an economic production quantity model with flexibility and reliability considerations abstract the classical economic production quantity epq model assumes that items are produced by a perfectly reliable production process with a fixed set up cost while the reliability of the production process cannot be perfect without a price its set up cost can be reduced with investment in flexibility improvement an epq model with a flexible and imperfect production process is proposed in this paper this inventory optimization problem is then formulated as a geometric program gp and solved to obtain closed form optimal solutions after the theoretical treatment a numerical example is provided to illustrate how the gp theories are applied to solve a given problem finally some aspects of post optimality sensitivity analysis based on the gp approach are discussed

social democracy christian democracy constitutional structure and the welfare state the literature on the determinants of welfare state effort displays many inconsistencies and contradictins this article takes imoprtant stepts toward resolving these issues with the use of pooled

welfare and work incentives a north european perspective introduction a b atkinson work incentives a b atkinson taxes and transfers in sweden incentive effects on labour supply bjorn gtistafsson and anders klevmarken taxation and labour supply incentives in the uk richard blundell have social security benenfits seriously damaged work incentives in britain a b atkinson labour responses to taxes and benefits in germany klaus f zimmermann the welfare state and taxation in denmark peder j pedersen conclusions a b atkinson bibliography index contributors

an analytic approximation for the american put price black and scholes 1 derived the pricing equation for a european put when the stock price follows geometric brownian motion for this same case merton 5 derived the pricing equation for an american put with infinite time to maturity brennan and schwartz 2 rubinstein and cox 7 and parkinson 6 have developed numerical solutions for the price of an american put numerical solutions are expensive and do not provide much intuition naturally an analytic solution would be much preferred unfortunately pricing the american put requires solving a formidable and presumably intractable boundary value problem

the valuation of multivariate contingent claims in discrete time models there are several examples in the literature of contingent claims whose payoffs depend on the outcomes of two or more stochastic variables familiar cases of such claims include options on a portfolio of options options whose exercise price is stochastic and options to exchange one asset for another this paper derives risk neutral valuation relationships rnvrs in a discrete time setting that facilitate the pricing of such complex contingent claims in two specific cases joint lognormally distributed underlying variables and constant proportional risk aversion on the part of investors and joint normally distributed underlying variables and constant absolute risk aversion preferences respectively this methodology is then applied to the valuation of several interesting complex contingent claims such as multiperiod bonds multicurrency option bonds and investment options

semi parametric upper bounds for option prices and expected payoffs abstract upper bounds on the expected payoff of call and put options are derived these bounds depend only on the mean and variance of the terminal stock price and not on its entire distribution so they are termed semi parametric a corollary of this result is a set of upper bounds for option prices obtained by the risk neutral valuation approach of cox and ross as an example these bounds are shown to obtain across both lognormal diffusions and mixed diffusion jump processes for any given data set we present an illustrative example that suggests these bounds may be of considerable practical value

who gives who gains progressivity and preferences the extent to which popular support for the welfare state depends on income varies greatly across nations and policy domains we argue and show formally that these variations largely overlooked yet essential to understanding the politics of redistribution reflect in part the design of tax and transfer policies in terms of progressivity when progressivity is high politics is perceived by income groups as a zero sum game and conflicts over who gets what intensify when progressivity is low and tax contributors and benefit recipients overlap redistributive struggles become politically less salient we test these predictions both across nations and across policy domains within a sample of advanced industrial democracies our findings indicate that the progressivity of the tax and transfer system is a major determinant of the predictive power of income on preferences for redistribution

political resources and the growth of welfare in affluent capitalist democracies 1960 1982 explanations of welfare effort in affluent postwar democracies are partially integrated within a political resource framework political resource models of welfare effort fare well when tested with pooled time series data for 1960 82 use of governmental authority by the left use of disruption by the working class and the petty burgeois and use of lobbying voting and or entitlement rights by the elderly and the unemployed constitute means of political action among more diffusely available infraresources state revenue expansion economic growth and inflation appear to buoy welfre expansion as do left corporatism and bureaucratic paternalism some mediating effects of economic epoch and state structure are explored

social policy by popular demand why are unemployment benefits more generous in some countries this article argues that citizens trade off the redistributive and insuring effect of social insurance as a result the distribution of risk in a society has important consequences via popular demand for social policy making at the microlevel the article shows that in addition to income the risk of unemployment is a key predictor of individual level preferences for unemployment benefits based on the microlevel findings the article argues that at the macrolevel the homogeneity of the risk pool is an important determinant of benefit generosity the more equally unemployment risk is distributed the higher unemployment replacement rates are empirical testing at both levels finds support for this account of social policy by popular demand

the limit of equality projects public sector expansion sectoral conflicts and income inequality in postindustrial economies in this study we investigate how structural economic changes constrain an equality project the public sector expansion strategy first we describe a three stage process in which a growing produc

option pricing bounds in discrete time upper and lower bounds are derived for call options traded at discrete intervals these bounds are independent of assumptions on the stock price distribution other than a restriction satisfied by the stock being non negative beta the development of the bounds relies on the single price law and arbitrage arguments both single period and multiperiod results are produced and put option bounds follow by extension the bounds exist as equilibrium values given a consensus on stock price distribution they are also valid for empirical studies being adjustable for dividends and commissions following the impetus of the black scholes pricing model the majority of option analyses have been in continuous time such approaches have relied on the formation of perfect riskless hedges involving the option its underlying security and a riskless asset since the hedge must be continuously revised and maintained while actual trading opportunities are discrete this crucial assumption limits the accuracy and applicability of the black scholes and related formulae in fact the black scholes formula can only be considered as a valid approximation to the discrete time solution merton 8 p 663 while the closeness of that approximation has not been ascertained in general 1 earlier discrete models such as boness 3 and samuelson 12 have been succeeded by those of brennan 5 cox et al 6 and rubinstein 11 in which distributional restrictions are imposed on share returns usually the discrete formula converges to the black scholes expression under appropriate limit conditions using the rubinstein 11 approach we derive upper and lower bounds for option prices with both a general price distribution and discrete trading opportunities the bounds are functions of the share and exercise prices the riskless rate of interest the distribution of the share price change per period and the number of periods of expiration of the option the lower bound is tighter than that of merton 7 derived from more general arbitrage considerations while being less exact than the results already mentioned for restricted distributions

tight bounds on american option prices in contrast to the constant exercise boundary assumed by broadie and detemple 1996 broadie m detemple j 1996 american option valuation new bounds approximations and comparison of existing methods review of financial studies 9 1211 1250 we use an exponential function to approximate the early exercise boundary then we obtain lower bounds for american option prices and the optimal exercise boundary which improve the bounds of broadie and detemple 1996 with the tight lower bound for the optimal exercise boundary we further derive a tight upper bound for the american option price using the early exercise premium integral of kim 1990 kim i j 1990 the analytic valuation of american options review of financial studies 3 547 572 the numerical results show that our lower and upper bounds are very tight and can improve the pricing errors of the lower bound and upper bound of broadie and detemple 1996 by 83 0 and 87 5 respectively the tightness of our upper bounds is comparable to some best accurate efficient methods in the literature for pricing american options moreover the results also indicate that the hedge ratios deltas and gammas of our bounds are close to the accurate values of american options

nominal contracts in a bimetallic standard as its central feature a bimetallic standard grants nominal debtors an option to deliver either of two metals with results from the option pricing literature construction of a formula to evaluate the bimetallic option in debt instruments is straightforward with this formula one can compute the option value in a wide range of nineteenth century u s treasury securities posession of the option values permits an adjustment of the yields on u s securities to make them comparable to yields on nonmetallic european securities evaluating the option allows the estimation of transfers from debtors to creditors copyright 1986 by american economic association

option pricing when the variance is changing the monte carlo method is used to solve for the price of a call when the variance is changing stochastically

explaining social policy preferences evidence from the great recession to what extent do personal circumstances as compared to ideological dispositions drive voters preferences on welfare policy addressing this question is difficult because a person s ideological position can be an outcome of material interest rather than an independent source of preferences the article deals with this empirical challenge using an original panel study carried out over four years tracking the labor market experiences and the political attitudes of a national sample of americans before and after the eruption of the financial crisis the analysis shows that the personal experience of economic hardship particularly the loss of a job had a major effect on increasing support for welfare spending this effect was appreciably larger among republicans than among democrats a result that was not simply due to a ceiling effect however the large attitudinal shift was short lived dissipating as individuals employment situations improved the results indicate that the personal experience of an economic shock has a sizable yet overall transient effect on voters social policy preferences

capitalist systems deindustrialization and the politics of public education recent years have seen a number of studies on the determinants of educational spending almost all of the existing work emphasizes the importance of left wing governments as a motor of expansion because such expansion allegedly ensures both redistribution and the facilitation of a supply side economy the existing literature thereby corroborates the power resource theory against this common wisdom the article presents an argument building on the varieties of capitalism approach it is argued that education is a poor instrument for redistribution because access is universal and high income groups have a tendency to use education even more than low income groups instead we argue that deindustrialization is the main driver of educational spending because deindustrialization constitutes one of the most salient threats to workers in modern societies as deindustrialization rises workers risk ending up with redundant skills especially in countries where the average skills specificity is high that is coord

swedish economic performance and swedish economic debate a view from outside the papers by korpi henrekson and agell raise important questions both about the swedish economy and about the way in which evidence on economic growth should be handled in debate on economic policy i want to comment in particular on the fundamental question of whether the international evidence allows us to judge that swedish growth has been below par the papers raise two further questions on the first whether growth is inhibited by high taxation and a large welfare state the hallmarks of the post war swedish economy agell provides as good an assessment of the cross country macroeconomic evidence as we can probably hope to get at the moment unproven on the final vexed question of whether the structure of the economics profession has been inimical to open debate i have only a few comments to make let me start with the criteria and method by which we should attempt to assess relative economic performance this is a methodological minefield there are numerous paths leading to divergent conclusions the least we can do is to be explicit about our choices and subject our provisional conclusions to some checks for robustness what performance measure is relevant we could look at gdp or consumption scaled per head of population or per member of the workforce or per hour worked what deflators do we use we can reduce measures denominated in local currency to a common unit using exchange rates or using fixed international prices or using utility based indexes which derivative of the performance measure do we use we might want to compare levels or rankings or we might choose to assess relative rates of growth or even relative changes in growth rates which time period is relevant in particular comparisons of growth rates are often very sensitive to choice of start and end years when business cycle fluctuations are asynchronous what is the reference pointfor assessing underor overachievement the definition of par might be either the best performance or average performance for some group of countries for some period of time finally what exogenousfactors are to be taken into account we might wish to control for the influence on our preferred performance measure of a wide range of factors which are extraneous to the policy question under examination i will take a brisk jog through this minefield explaining briefly some of the choices which seem most relevant to the problem in hand but without attempting a full exposition of the problems the most usual starting place is to choose real gdp per capita as a measure of aggregate performance this

preferences in context micro preferences macro contexts and the demand for social policy political economists have increasingly looked to understand social welfare policy as a product of individual level demand for social spending this work hypothesizes that individuals with riskier j

a paradox of redistribution in international aid the determinants of poverty oriented development assistance summary donors differ in the amount of official development assistance dedicated to poverty reduction we investigate the causes of variation over time and donors by employing both a regression approach with aggregate data on bilateral aid and two short country studies on germany and the united kingdom we find that there is a trade off between the total amount of money given and the amount of money given to poor countries the trade off is similar to the paradox of redistribution of targeting vs redistribution in rich welfare states case study evidence illustrates how countries have managed this tradeoff

guaranteed employment or guaranteed income abstract the paper critically reviews the arguments for and against both employment guarantees and income guarantees when viewed as rights based policy instruments for poverty reduction in a developing economy decentralized implementation of the right to work poses serious challenges in poor places evidence on india s national rural employment guarantee act does not suggest that the potential for either providing work when needed or reducing current poverty is realized despite pro poor targeting instead work is often rationed by local leaders and the poverty impact is small when all the costs are considered the option of income support using cash transfers also has both pros and cons widely used methods for finely targeting cash transfers tend to miss many poor people and can discourage those reached from earning extra income yet it cannot be presumed that switching to a universal basic income will reduce poverty more than workfare or finely targeted transfers that is an empirical question and the answer will undoubtedly vary across settings belying the generalizations often heard from advocates nonetheless more incentive neutral universal and or state contingent transfer schemes merit consideration in settings in which existing public spending is skewed against poor people and or there is scope for raising taxes on the rich

institutional feedback and support for the welfare state the case of national health care researchers interested in the political consequences of the welfare state argue that cross country variations in the design of social policy institutions produce distinct patterns of public support for the welfare state this research proposes an institutional feedback effect in which welfare institutions once created transform political debate generate new constituencies and alter how individuals and interest groups interpret their preferences existing research has found mixed results for these proposed institutional feedback effects on public opinion this project contributes to research on institutional feedback through an analysis of cross national variation in public support for national health care national health care provides a unique opportunity for studying institutional feedback by avoiding problems with the measurement of key variables common to previous work in this area this research offers evidence in support of institutional feedback effects by demonstrating links between the struct

welfare states and social trust this article tests the linkage between institutional configuration and social trust highlighting the role of the welfare states in coordinating interests among different labor market actors this study initially builds a theoretical framework distinguishing training supplemented welfare regimes from transfer based welfare regimes evidence from descriptive and multivariate analyses of world values survey based on 17 advanced industrial democracies supports my argument that public investment in skill provision prevalent in training supplemented welfare states leads to higher accumulation of social trust whereas passive social transfers result in lower social trust especially high investment in public skill provision leads to a decreased gap in social trust between employers and low skilled workers as well as among different occupational groups in addition the negative effect of passive social transfers on trust is greatly ameliorated when it is jointly configured with high active labor market polici

options on the maximum or the minimum of several assets using an intuitive approach that also provides new intuition concerning the black and scholes equation this paper extends the results of johnson and stulz to the pricing of options on the minimum or the maximum of several risky assets

an exact bond option formula this paper derives a closed form solution for european options on pure discount bonds assuming a mean reverting gaussian interest rate model as in vasicek 8 the formula is extended to european options on discount bond portfolios

the paradox of redistribution and strategies of equality welfare state institutions inequality and poverty in the western countries the structure of welfare state institutions 2 a trade off exists between the degree of low income targeting and the size of redistributive budgets 3 outcomes of market based distribution are often more unequal than those of earnings related social insurance programs we argue that social insurance institutions are of central importance for redistributive outcomes using new data our comparative analyses of the effects of different institutional types of welfare states on poverty and inequality indicate that institutional differences lead to unexpected outcomes and generate the paradox of redistribution the more we target benefits at the poor and the more concerned we are with creating equality via equal public transfers to all the less likely we are to reduce poverty and inequality social scientists and social reformers have long debated how the welfare state and social policies should be designed so as to best reduce poverty and inequality this debate involves two different issues one question concerns whether social policies should be targeted or universal that is should they be organized for the poor only or should the welfare state include all citizens in the context of nontargeted programs another question concerns the level of benefits should benefits be equal for all or should they be related to previous earnings and in

option values under stochastic volatility theory and empirical estimates abstract this paper numerically solves the call option valuation problem given a fairly general continuous stochastic process for return volatility statistical estimators for volatility process parameters are derived and parameter estimates are calculated for several individual stocks and indices the resulting estimated option values do not differ dramatically from black scholes values in most cases although there is some evidence that for longer maturity index options black scholes overvalues out of the money calls in relation to in the money calls

social policy responsiveness in developed democracies do mass policy preferences influence the policy output of welfare states in developed democracies this is an important issue for welfare state theory and research and this article presents an analysis that builds from analytical innovations developed in the emerging literature on linkages between mass opinion and public policy the authors analyze a new dataset combining a measure of social policy preferences with data on welfare state spending alongside controls for established causal factors behind social policy making the analysis provides evidence that policy preferences exert a significant influence over welfare state output guided also by statistical tests for endogeneity the authors find that cross national differences in the level of policy preferences help to account for a portion of the differences among social christian and liberal welfare state regimes the results have implications for developing fruitful connections between welfare state scholarship comparative opinion research and recent opinion policy studies

pricing options with extendible maturities analysis and applications many common types of financial contracts incorporate options with extendible maturities this paper derives closed form expressions for options that can be extended by the optionholder and presents a number of applications including the valuation of american options with stochastic dividends junk bonds and shared equity mortgages we also derive closed form expressions for writer extendible options and discuss the writer s economic incentives for extending an out of the money option we apply these results to show that corporate debtholders have a strong incentive to extend the maturity of defaulting debt if there are liquidation costs we model and solve the debtholders optimal extension problem and show that the possibility of an extension can induce shareholders in highly levered firms to accept negative npv projects many common types of financial contracts and contingent claims incorporate options with extendible maturities for example a growing number of firms in many cases firms involved in leveraged buyouts are issuing bonds with maturities that can be extended at the firm s option options on real estate often allow the optionholder to extend the expiration date by paying an additional fixed amount to the option writer corporate warrants frequently give the issuing firm the right to unilaterally extend the life of the warrants a right that is often exercised in general any financial contract that could involve a rescheduling of payments a renegotiation of terms an early call or exercise provision or some similar type of flexibility over the timing of cash flows could be viewed as including an option with an extendible maturity this paper derives valuation expressions for extendible options examines the analytical properties of these prices and presents a wide variety of applications and examples in this analysis we distinguish between options that can be extended by the optionholder and options that are extended by the option writer since they differ fundamentally in their pricing implications focusing on the

income inequality democracy and public sector size this study synthesizes and tests explanations of how public sector size and democracy affect income inequality the results based on unbalanced panel data for 64 developing and developed countries

the geography of inequality difference and determinants of wage and income inequality across us metros florida r and mellander c the geography of inequality difference and determinants of wage and income inequality across us metros regional studies this paper examines the geographic variation in wage inequality and income inequality across us metros the findings indicate that the two are quite different wage inequality is closely associated with skills human capital technology and metro size in line with the literature but these factors are only weakly associated with income inequality furthermore wage inequality explains only 15 of income inequality across metros income inequality is more closely associated with unionization race and poverty no relationship is found between income inequality and average incomes and only a modest relationship between it and the percentage of high income households

static hedging of multivariate derivatives by simulation we propose an approximate static hedging procedure for multivariate derivatives the hedging portfolio is composed of statically held simple univariate options optimally weighted minimizing the variance of the difference between the target claim and the approximate replicating portfolio the method uses simulated paths to estimate the weights of the hedging portfolio and is related to monte carlo control variates techniques we report numerical results showing the performance of this static hedging procedure on bivariate options on the maximum of two assets and on 2 and 7 dimensional portfolio options it is shown that in the presence of transaction costs value at risk and expected shortfall of the dynamically hedged positions can be higher than the ones obtained by a static hedge

poverty inequality and income distribution in comparative perspective the luxembourg income study lis the luxembourg income study is a unique database that makes possible comparisons between countries at the individual and family levels seven countries are in the database at present and more are being added on a regular basis this book describes the technical and methodological aspects of the lis database and uses lis data to compare income distribution and redistribution poverty and the relationship between age and income across nations

the relation between forward prices and futures prices abstract this paper consolidates the results of some recent work on the relation between forward prices and futures prices it develops a number of propositions characterizing the two prices these propositions contain several testable implications about the difference between forward and futures prices many of the propositions show that equilibrium forward and futures prices are equal to the values of particular assets even though they are not in themselves asset prices the paper then illustrates these results in the context of two valuation models and discusses the effects of taxes and other institutional factors

earnings inequality and welfare spending a disaggregated analysis the welfare state is generally viewed as either providing redistribution from rich to poor or as providing publicly financed insurance both views are incomplete welfare policies provide both insurance and redistribution in varying amounts depending on the design of the policy the authors explore the political consequences of the mix of redistribution and insurance in the context of studying the impact of income inequality on expenditures in different categories of welfare spending in advanced industrial societies from 1980 to 1995 they find that spending on pensions health care family benefits poverty alleviation and housing subsidies is largely uncorrelated with income inequality but that spending on income replacement programs such as unemployment insurance sickness pay occupational illness and disability are significantly higher in countries with more egalitarian income distributions they show that this pattern is exactly what a theory of political support for redistributive social insurance programs would predict

determinants of relative poverty in advanced capitalist democracies using relative poverty measures based on micro level data from the luxembourg income study in conjunction with pooled time series data for 14 advanced capitalist democracies between 1970 and 1997 the authors analyze separately the rate of pretax transfer poverty and the reduction in poverty achieved by systems of taxes and transfers socioeconomic factors including de industrialization and unemployment largely explain pre tax transfer poverty rates of the working age population in these advanced capitalist democracies the extent of redistribution measured as poverty reduction via taxes and transfers is explained directly by welfare state generosity and constitutional structure number of veto points and the strength of the political left both in unions and in government

stopped in the name of the law administrative burden and its implications for cash transfer program effectiveness summary cash transfer programs have achieved wide ranging success in reducing poverty yet there is little empirical research on how program rules and administrative capacity might limit program effectiveness we examine administrative burden and quantify its implications for grant access and impacts in the south african child support grant csg program as the age of eligibility and application requirements changed over time we find that approximately 60 of the sampled children experienced an interruption or disconnection in cash transfer receipt and that both timing and dosage loss are associated with adolescent engagement in risky behaviors and for females lower educational attainment

on the pricing of european and american foreign currency call options abstract this study uses cox ross analysis and dynamic programming techniques to price foreign currency call options we show that under certain conditions the american call price will exceed its european counterpart while under other conditions the two prices will be identical we find that the american premium is a complex function of the degree to which an option is in or out of the money and that this premium is greatest when an option is near in or out we present empirical evidence which shows that the american model significantly improves upon a european model however significant pricing errors associated with the american model remain

generalized analytical upper bounds for american option prices this paper generalizes and tightens chen and yeh s 2002 analytical upper bounds for american options under stochastic interest rates stochastic volatility and jumps where american option prices are difficult to compute with accuracy we first generalize theorem 1 of chen and yeh 2002 and apply it to derive a tighter upper bound for american calls when the interest rate is greater than the dividend yield our upper bounds are not only tight but also converge to accurate american call option prices when the dividend yield or strike price is small or when volatility is large we then propose a general theorem that can be applied to derive upper bounds for american options whose payoffs depend on several risky assets as a demonstration we utilize our general theorem to derive upper bounds for american exchange options and american maximum options on two risky assets

portfolio management and appropriation of private benefits of control in many countries around the globe portfolio managers utilize well accepted models assuming that a partial stake of ownership is proportionally valued this assumption is incorrect in markets in which traded firms or publicly held firms are controlled by major owners who would take any possible measure to protect and maintain a lock on control so they can secure a sellable asset to another control seeker in this case estimation of key parameters such as volatility expected returns and diversification effect may be grossly distorted we would argue that a major trigger for the value of the benefits of control is the ability of control owners to transfer assets from their own portfolio to a controlled publicly traded firm while it is obvious that these transfers will take place if and only if it is beneficial to the control owners the impact on the minor shareholders may not necessarily be negative and may vary depending on several parameters thus the benefits of control are not entirely private i e appropriation and diversion of the resources of publicly traded firms for the benefit of the control owners this paper aims to model the effect of the benefits of control on the value of a minority held public firms it focuses on two related issues that are discussed in the literature on the benefits of control what drives the value of the benefits of control given the empirical evidence that control seekers are willing to pay a significant premium for control and secondly can these benefits be rationally modeled to better understand these issues it then models a specific drive on the part of control seekers who in addition to their stake in a publicly traded firm own a private portfolio it could be argued that they may transfer inferior investments to the public firms that they control exploiting less than perfect transparency however while they own this valuable option of transferring inferior investments into the public firm these actions may still be beneficial to the minority shareholders we establish a model and derive a simulation procedure that are applied to several cases in which transfers are made in exchange for cash or equity instances of full disclosure or partial transparency the likelihood that the control owners actions will be contested in court level of risk and other parameters then we will compare the results to empirical finding the final model will be greatly simplified so that the end formula can be easily used by practitioners