technology adoption under seed access constraints and the economic impacts of improved pigeonpea varieties in tanzania dry land legumes well adapted to drought prone areas have largely been neglected in the past despite the good opportunities they offer for income growth and food and nutritional security for the poor this study evaluated the adoption and impact of two farmer and market preferred and disease resistant pigeonpea varieties that were developed and promoted in semi arid tanzania the new varieties were resistant to fusarium wilt a fungal disease devastating the crop however farmers wanting to adopt new varieties did not adopt due to seed access constraints and under developed seed delivery systems adoption of new varieties is therefore analyzed using an augmented double hurdle model that allows estimating variety adoption conditional on seed access thresholds accounting for the additional information on sample separation the study identifies the crucial role of seed access local supply extension education participatory decision making capital and household assets in determining adoption the social economic benefits of the technology and policies for improved seed access were further analyzed using the extended economic surplus method dream model even under restrictive assumptions overall discounted benefits were found to be quite attractive indicating the need for additional efforts to scale up the success story analysis of changes in research benefits from relaxing the seed access constraint showed that net gains would increase by up to 30 if farmer access to improved seeds can be assured smallholder farmers are the major beneficiaries along with consumers and rural net buyers who gain from productivity induced lower market prices

modeling correlated market and credit risk in fixed income portfolios abstract current risk assessment methodologies separate the analysis of market and credit risk and thus misestimate security and portfolio risk levels we propose a new approach that relates financial market volatility to firm specific credit risk and integrates interest rate interest rate spread and foreign exchange rate risk into one overall fixed income portfolio risk assessment accounting for the correlation between these significant risk factors as well as portfolio diversification results in improved risk measurement and management the methodology is shown to produce reasonable credit transition probabilities prices for bonds with credit risk and portfolio value at risk measures

differential technology adoption and income distribution in pakistan implications for research resource allocation a multi market model of technological change in food production is used to simulate the long run income distributional implications of differential diffusion of currently available wheat technologies in pakistan the results indicate that a research agenda emphasizing technologies suited to pakistan s favored production environments would enhance overall production without compromising inter group equity it is found that when commodity prices are market determined net consuming households are the major beneficiaries of technological change however in the more common situation of government intervention in markets for staple foods net producing households are the principal beneficiaries of technological change

pricing american interest rate claims with humped volatility models abstract some of the most recent empirical studies on interest rate derivatives have found humped shapes in the volatility structure of interest rates in this paper we propose a simple model that allows for humped volatility structures and that can be described by one state variable with the model american style claims can be priced very efficiently which is very important if the model has to be calibrated daily to market prices of standard american options furthermore the model allows for explicit formulas for european style options finally the computational efficiency of our model in the li et al 1995 framework is compared with the efficiency in a typical hull and white 1993a 1994 1996 framework in fact we can use both procedures for our model since we prove that if a deterministic volatility model can be embedded in either of these algorithms then so it does in the other one empirical evidence from option data supporting our model is provided as well

bond pricing and the term structure of interest rates a new methodology for contingent claims valuation this paper presents a unifying theory for valuing contingent claims under a stochastic term structure of interest rates the methodology based on the equivalent martingale measure technique takes as given an initial forward rate curve and a family of potential stochastic processee for its subsequent movements a no arbitrage condition restricts this family of processes yielding valuation formulae for interest rate sensitive contingent claims which do not explicitly depend on the market prices of risk examples are provided to illustrate the key results in relation to the term structure of interest rates arbitrage pricing theory has two purposes the first is to price all zero coupon default free bonds of varying maturities from a finite number of economic fundamentals called state variables the second is to price all interest rate sensitive contingent claims taking as given the prices of the zero coupon bonds this paper presents a general theory and a unifying framework for understanding arbitrage pricing theory in this context of which all existing arbitrage pricing models are special cases in particular vasicek 1977 brennan and schwartz 1979 langetieg 1980 ball and torous 1983 ho and lee 1986 schaefer and schwartz 1987 and artzner and delbaen 1988 the primary contribution of this paper however is a new methodology for solving the second problem i e the pricing of interest rate sensitive contingent claims given the prices of all zero coupon bonds the methodology is new because i it imposes its stochastic structure directly on the evolution of the forward rate curve ii it does not require an inversion of the term structure to eliminate the market prices of risk from contingent claim values and iii it has a stochastic spot rate process with multiple stochastic factors influencing the term structure the model can be used to consistently price and hedge all contingent claims american or european on the term structure and it is derived from necessary and more importantly sufficient conditions for the absence of arbitrage the arbitrage pricing models of vasicek 1977 brennan and schwartz 1979 langetieg 1980 and artzner and delbaen 1988 all require an iformerly titled bond pricing and the term structure of interest rates a new methodology

the impact of research led agricultural productivity growth on poverty reduction in africa asia and latin america abstract twenty percent of the world s population or 1 2 billion live on less than 1 per day 70 of these are rural and 90 are in asia and sub saharan africa research led technological change in agriculture generates sufficient productivity growth to give high rates of return in africa and asia and has a substantial impact on poverty currently reducing this number by 27 million per annum whereas productivity growth in industry and services has no impact the per capita cost of poverty reduction by means of agricultural research expenditures in africa is 144 and in asia 180 or 50 cents per day but this is covered by output growth by contrast the per capita cost for the richer countries of latin america is over 11 000

a dynamic programming approach for pricing options embedded in bonds abstract we propose a dynamic programming dp approach for pricing options embedded in bonds the focus being on call and put options with advance notice an efficient procedure is developed for the cases where the interest rate process follows the vasicek cox ingersoll ross cir or generalized vasicek models our dp methodology uses the exact joint distribution of the interest rate and integrated interest rate at a future date conditional on the current value of the interest rate we provide numerical illustrations for the vasicek and cir models comparing our dp method with finite difference methods our procedure compares quite favorably in terms of both efficiency and accuracy an important advantage of the our dp approach is that it can be applied to more general models calibrated to capture the term structure of interest rates e g the generalized vasicek model

pricing and risk management of interest rate swaps this paper reformulates the valuation of interest rate swaps swap leg payments and swap risk measures all under stochastic interest rates as a problem of solving a system of linear equations with random perturbations a sequence of uniform approximations which solves this system is developed and allows for fast and accurate computation the proposed method provides a computationally efficient alternative to monte carlo based valuations and risk measurement of swaps this is demonstrated by conducting numerical experiments and so our method provides a potentially important real time application for analysis and calculation in markets

accepting market failure cultural worldviews and the opposition to corrective environmental policies abstract to explore whether and why people sometimes reject environmental policies that improve individual and collective outcomes we create an experimental market in which transactions generate a negative externality market participants endogenously determine whether to implement corrective policies we consider three policy instruments pigouvian taxes and subsidies and quantity regulation and two levels of policy efficiency full and half we then explore how individual cultural worldviews might contribute to the rejection of policies that correct the market failure our results indicate that people often oppose policies that improve their material outcomes and we find that such opposition is significantly explained by cultural worldviews interesting connections emerge between individual worldviews and specific policy instruments

productivity and land enhancing technologies in northern ethiopia health public investments and sequential adoption the adoption of more efficient farming practices and technologies that enhance agricultural productivity and improve environmental sustainability is instrumental for achieving economic growth food security and poverty alleviation in sub saharan africa our research examines the interaction between public investments community health and adoption of productivity and land enhancing technologies by households in the northern ethiopian state of tigray agricultural technology adoption decisions are modeled as a sequential process where the timing of choices can matter we find that time spent sick and opportunity costs of caring for sick family members are significant factors in adoption sickness through its impact on household income and labor allocation decisions for healthcare and other activities significantly reduces the likelihood of technology adoption our findings suggest that agencies working to improve agricultural productivity and land resource conservation should consider not only the financial status of potential adopters but also their related health situation

measuring the impacts of agricultural research on poverty reduction policymakers are increasingly calling upon agricultural research managers to consider poverty reduction objectives when making resource allocations the authors present a simple method to measure the impact of agricultural research on the poor this method has the advantage that it presents the results in a manner consistent with commonly used measures of poverty this consistency and focus should facilitate and enhance dialogue between policymakers and research managers when deciding on resource allocations and assessing impacts on poverty reduction an illustrative application is presented using data from malawi

pricing american style securities using simulation abstract we develop a simulation algorithm for estimating the prices of american style securities i e securities with opportunities for early exercise our algorithm provides both point estimates and error bounds for the true security price it generates two estimates one biased high and one biased low both asymptotically unbiased and converging to the true price combining the two estimators yields a confidence interval for the true price the proposed algorithm is especially attractive compared with lattice and finite difference methods when there are multiple state variables and a small number of exercise opportunities preliminary computational evidence is given

soft exchange rate bands and speculative attacks theory and evidence from the erm since august 1993 we present a model of a soft exchange rate target zone and interpret it as a stylized description of the post august 1993 erm our central bank targets a moving average of the current and past exchange rates rather than the exchange rate s current level thus allowing the rate to move within wide margins in the short run but within narrow margins in the long run for realistic parameters soft target zones are significantly less vulnerable to speculative attacks than hard target zones these predictions are consistent with the erm s experience and the abatement of speculative pressure in european markets since the bands widening in 1993

pricing caps with hjm models the benefits of humped volatility in this paper we compare different multifactor hjm models with humped volatility structures to each other and to models with strictly decreasing volatility all the models are estimated on euribor and swap rates panel data maximizing the quasi likelihood function obtained from the kalman filter we develop the analysis in two steps first we study the in sample properties of the estimated models then we test the pricing performance on caps we find the humped volatility specification to greatly improve the model estimation and to provide sufficiently accurate cap prices although the models has been calibrated on interest rates data and not on cap prices moreover we find the two factor humped volatility model to outperform the three factor models in pricing caps

estimating the benefits of plant breeding research methodological issues and practical challenges impact assessment studies consistently show that the benefits generated by plant breeding are large positive and widely distributed numerous case studies have concluded that investment in plant breeding research generates attractive rates of return compared to alternative investment opportunities that welfare gains resulting from the adoption of modern varieties mvs reach both favoured and marginal environments and that benefits are broadly shared by producers and consumers but just how reliable are the results of studies that estimate the benefits of plant breeding research this article reviews methods used to estimate the benefits of plant breeding research and discusses theoretical and empirical issues that often receive inadequate attention in applied impact assessment work our objective is not to question the validity of the theoretical frameworks commonly used to estimate the benefits of plant breeding research but rather to examine problems that can arise when the widely accepted theoretical frameworks are used for empirical analysis most of these problems can be grouped into three basic categories 1 problems associated with measuring adoption and diffusion of mvs 2 problems associated with estimating benefits attributable to adoption of mvs and 3 problems associated with assigning credit among the various plant breeding programmes that participated in developing the mvs

simple binomial processes as diffusion approximations in financial models a binomial approximation to a diffusion is defined as computationally simple if the number of nodes grows at most linearly in the number of time intervals it is shown how to construct computationally simple binomial processes that converge weakly to commonly employed diffusions in financial models the convergence of the sequence of bond and european option prices from these processes to the corresponding values in the diffusion limit is also demonstrated numerical examples from the constant elasticity of variance stock price and the cox ingersoll and ross 1985 discount bond price are provided article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

peanut research and poverty reduction impacts of variety improvement to control peanut viruses in uganda a procedure is developed and applied for predicting ex ante impacts of agricultural research on aggregate poverty using as an example the poverty reducing impact of peanut research in uganda market level information on economic surplus changes is combined with a procedure for allocating income changes to individual households characteristics of farmers that affect their likelihood of technology adoption are used to create a technology adoption profile associated changes in poverty resulting from adoption are computed using poverty indices predicted income changes at the household level are aggregated to the market level and reconciled with calculations of economic surplus changes

option pricing with mean reversion and stochastic volatility many underlying assets of option contracts such as currencies commodities energy temperature and even some stocks exhibit both mean reversion and stochastic volatility this paper investigates the valuation of options when the underlying asset follows a mean reverting lognormal process with stochastic volatility a closed form solution is derived for european options by means of fourier transform the proposed model allows the option pricing formula to capture both the term structure of futures prices and the market implied volatility smile within a unified framework a bivariate trinomial lattice approach is introduced to value path dependent options with the proposed model numerical examples using european options american options and barrier options demonstrate the use of the model and the quality of the numerical scheme

pricing and hedging interest rate options evidence from cap floor markets we examine the pricing and hedging performance of interest rate option pricing models using dailydata on us dollar cap and floor prices across both strike rates and maturities our results show that fitting the skew of the underlying interest rate probability distribution provides accurate pricing results within a one factor framework however for hedging performance introducing a second stochastic factor is more important than fitting the skew of the underlying distribution this constitutes evidence against claims in the literature that correctly specified and calibrated one factor models could replace multi factor models for consistent pricing and hedging of interest rate contingent claims 2004 elsevier b v all rights reserved

an empirical examination of the convexity bias in the pricing of interest rate swaps abstract this paper examines the convexity bias caused by the non linearity of payoffs in the pricing of interest rate swaps off the eurocurrency futures curve the evidence from four major currencies dm and during 1987 1996 suggests that swaps were initially being priced off the futures curve ignoring the convexity adjustment subsequently the market swap rates drifted below the rates implied by futures prices after rejecting alternative explanations we use alternative term structure models to show that the convexity bias is related to the empirically observed swap futures differential we interpret these results as evidence of mispricing of swap contracts during the early years which was eliminated over time

discretized reality and spurious profits in stochastic programming models for asset liability management in the literature on stochastic programming models for practical portfolio investment problems relatively little attention has been devoted to the question how the necessarily approximate description of the asset price uncertainty in these models influences the optimal solution in this paper we will show that it is important that asset prices in such a description are arbitrage free descriptions which have been suggested in the literature are often inconsistent with observed market prices and or use sampling to obtain a set of scenarios about the future we will show that this effectively introduces arbitrage opportunities in the optimization model for an investor who cannot exploit arbitrage opportunities directly because of market imperfections and trading restrictions we will illustrate that the presence of such arbitrage opportunities may cause substantial biases in the optimal investment strategy

a one factor model of interest rates and its application to treasury bond options 1990 a one factor model of interest rates and its application to treasury bond options financial analysts journal vol 46 no 1 pp 33 39

ex ante agricultural research evaluation with site specific technology generation the case of sorghum in kenya abstract agricultural commodity research has very site specific productivity impacts crucial determinants of the magnitude and distribution of research benefits include agroecological conditions for technology generation and adoption as well as commodity market structure this paper presents a process for ex ante research evaluation which accounts for these factors with a dynamic spatial multi market model simulation results based on sorghum research in kenya demonstrate that potential research benefits can vary dramatically across program research target zones in kenya however population induced demand growth not technological development will have the greatest influence on future sorghum markets

term structure movements and pricing interest rate contingent claims this paper derives an arbitrage free interest rate movements model ar model this model takes the complete term structure as given and derives the subsequent stochastic movement of the term structure such that the movement is arbitrage free we then show that the ar model can be used to price interest rate contingent claims relative to the observed complete term structure of interest rates this paper also studies the behavior and the economics of the model our approach can be used to price a broad range of interest rate contingent claims including bond options and callable bonds

arbitrage opportunities in arbitrage free models of bond pricing mathematical models of bond pricing are used by both academics and wall street practitioners with practitioners introducing time dependent parameters to fit arbitrage free models to selected asset prices we show in a simple one factor setting that the ability of such models to reproduce a subset of security prices need not extend to state contingent claims more generally we argue that the additional parameters of arbitrage free models should be complemented by close attention to fundamentals which might include mean reversion multiple factors stochastic volatility and or nonnormal interest rate distributions

a comparative evaluation of alternative models of the term structure of interest rates abstract in the paper alternative models of the term structure of interest rates are classified in two different approaches the no arbitrage and the general equilibrium approach it is maintained that the general equilibrium approach is superior on a theoretical ground for two main reasons first relevant variables such as the spot interest rate and the interest risk premium are endogenous second the relationship between the real and the financial side of the economy becomes a clear and important element in the understanding of the term structure as regards the applications however the advantages of the general equilibrium over the no arbitrage approach are not so clear the major role in the empiricil performance of alternative models is played by their ability to capture volatility at the current state of the literature there is no model that outperforms others in particular on the empirical side

the pricing of options on default free bonds recent developments in the finance literature dealing with the valuation of contingent claims have been triggered by black and scholes 2 with their valuation of european options on corporate stocks the type of valuation model derived by black and scholes is attractive because it is independent of preferences this independence is possible due to the fact that the contingent claims are usually assumed to be contingent on traded assets or traded state variables for example a european call option is a claim contingent on the value of the corresponding stock to maintain the independence of the claim from preferences however some variables have to be discarded and considered as constants for example the rate of interest which is not a traded state variable is considered a constant in most of the literature see black and scholes 2 merton 11 and ingersoll 9 though this approximation might not cause important discrepancies in the case of corporate liabilities and options on corporate liabilities the effect of such an approximation on the value of default free bonds and options on default free bonds is more important since these liabilities depend only on the rate of interest

stress testing interest rate risk exposure abstract in the current low interest rate environment the possibility of a sudden increase in rates is a potentially serious threat to financial stability as a result analyzing interest rate risk irr is critical for financial institutions and supervisory agencies we propose a new method for generating yield curve scenarios for stress testing banks exposure to irr based on the nelson siegel 1987 yield curve model we show that our method produces yield curve scenarios with a wider variety of slopes and shapes than scenarios generated by the historical and hypothetical methods typically used in the banking industry and proposed in the literature we stress test the economic value of equity of a bank balance sheet based on call report data from a large u s bank we show that our method provides more information about the bank s exposure to irr using fewer yield curve scenarios than the alternative historical and hypothetical methods

a comparison of yield curve estimation techniques using uk data abstract i compare different methods of estimating the term structure of interest rates on a daily uk treasury bill and gilt data that spans the period from january 1995 to january 1999 in sample and out of sample statistics reveal the superior pricing ability of certain methods characterised by an exponential functional form in addition to these standard goodness of fit statistics model performance is judged in terms of two trading strategies based on model residuals both strategies reveal that parsimonious representations of the term structure perform better than their spline counterparts characterised by a linear functional form this is valid even when abnormal returns are adjusted for market movements linear splines overfit the data and are likely to give misleading results

welfare effects of maize technologies in marginal and high potential regions of kenya this paper describes the findings of a study that used a multi market model to assess the potential impact of improved maize technologies on the welfare of various types of rural and urban households in kenya the modelling results indicate that technologies developed for high potential regions are likely to have more profound aggregate impacts on maize production and lead to greater reductions in import demand if prices are controlled or maize prices if maize prices are flexible technology adoption in high potential regions is likely to have substantially greater positive impacts on aggregate real incomes but inferior income distributional outcomes compared to technology adoption in marginal regions

on alternative interest rate processes abstract in this paper alternative interest rate processes are estimated for denmark germany sweden and the uk using the generalized method of moments gmm in line with the study by chan karolyi longstaff and sanders 1992 on us data there seems to be a positive relation between interest rate level and volatility for some countries in contrast to their study it is found that mean reversion plays an important role for the specification of the interest rate dynamics the results seem to be robust to the use of different moment conditions and simulations of the estimated models reveal that they are fairly able to capture non fitted moments as well in addition there is evidence of a structural change in the danish interest rate process in august 1985 which may be due to a change in monetary policy the small sample properties of the gmm estimators are also studied through simulations

one factor interest rate models and the valuation of interest rate derivative securities this paper compares different approaches to developing arbitrage free models of the term structure it presents a numerical procedure that can be used to construct a wide range of one factor models of the short rate that are both markov and consistent with the initial term structure of interest rates

bond and option pricing when short rates are lognormal this article describes a one factor model for bond and option pricing that is based on the short term interest rate and that allows the target rate mean reversion and local volatility to vary deterministically through time for any horizon the distribution of possible short rates is lognormal so the rate neither falls below zero nor reflects off a barrier at zero a model like this allows one to match the yield curve the volatility curve and the cap curve surprisingly adding to future local volatility lowers the volatility curve a conventional binary tree with probabilities of 0 5 but variable time spacing is used to value bonds and options when the inputs are constant the slope of the yield curve starts out positive and ends up negative while its curvature shifts from negative to positive even when mean reversion is zero the volatility curve has a negative slope the differential cap curve rises steeply through the effects of volatility and then falls steeply through the effects of discounting and a falling forward rate used as the strike price

stochastic volatility movements in short term interest rates and bond option values abstract two classes of models for pricing interest rate contingent claims are compared the first contains standard single factor models while the second includes stochastic volatility variants of these it is demonstrated that incorporating stochastic volatility significantly improves the ability of the models to fit movements in short term interest rates the fundamental reason for this is that standard univariate models do not generate enough conditional heteroskedasticity the models are also compared on the basis of bond option prices when each is constrained to fit a particular yield curve the results suggest that stochastic volatility models will typically produce lower option values than corresponding single factor models particularly for near the money to deep out of the money options this is because estimated historical volatilities are significantly lower under stochastic volatility when single factor models are constrained to the same level of volatility as implied by stochastic volatility models in most cases the pricing differences become minor

an empirical comparison of forward rate and spot rate models for valuing interest rate options our main goal is to investigate the question of which interest rate options valuation models are better suited to support the management of interest rate risk we use the german market to test seven spot and forward rate models with one and two factors for interest rate warrants for the period from 1990 to 1993 we identify a one factor forward rate model and two spot rate models with two factors that are not significantly outperformed by any of the other four models further rankings are possible if additional criteria are applied

lattice models for pricing american interest rate claims this article establishes efficient lattice algorithms for pricing american interest sensitive claims in the heath jarrow and morton paradigm under the assumption that the volatility structure of forward rates is restricted to a class that permits a markovian representation of the term structure the class of volatilities that permits this representation is quite large and imposes no severe restrictions on the structure for the spot rate volatility the algorithm exploits the markovian property of the term structure and permits the efficient computation of all types of interest rate claims specific examples are provided

optimal stopping and early exercise an eigenfunction expansion approach this paper proposes a new approach to solve finite horizon optimal stopping problems for a class of markov processes that includes one dimensional diffusions birth death processes and jump diffusions and continuous time markov chains obtained by time changing diffusions and birth and death processes with levy subordinators when the expectation operator has a purely discrete spectrum in the hilbert space of square integrable payoffs the value function of a discrete optimal stopping problem has an expansion in the eigenfunctions of the expectation operator the bellman s dynamic programming for the value function then reduces to an explicit recursion for the expansion coefficients the value function of the continuous optimal stopping problem is then obtained by extrapolating the value function of the discrete problem to the limit via richardson extrapolation to illustrate the method the paper develops two applications american style commodity futures options and bermudan style abandonment and capaci

discrete time continuous state interest rate models we show how to implement arbitrage free models of the short term interest rate in a discretetime setting that allows a continuum of rates at any particular date discrete time allows approximate pricing of interest rate contingent claims that cannot be valued in continuous time models it is usually associated with discrete states with possible interest rates restricted to a limited number of outcomes as in the lattice model of hull and white 1994 we develop a method for approximating the prices of contingent claims without that restriction we use numerical integration to evaluate the risk neutral expectations that define those prices and function approximation to efficiently summarize the information the procedure is simple and flexible we illustrate its properties in the extended vasicek model of hull and white and show it to be an effective alternative to lattice methods

nonparametric tests of alternative option pricing models using all reported trades and quotes on the 30 most active cboe option classes from august 23 1976 through august 31 1978

single factor heath jarrow morton term structure models based on markov spot interest rate dynamics this paper considers the class of heath jarrow morton term structure models where the spot interest rate is markov and the term structure at time t is a function of time maturity and the spot interest rate at time t a representation for this class of models is derived and i show that the functional forms of the forward rate volatility structure and the initial forward rate curve cannot be arbitrarily chosen i provide necessary and sufficient conditions indicating which combinations of these functional forms are allowable i also derive a partial differential equation representation of the term structure dynamics that does not require explicit modeling of both the market price of risk and the drift term for the spot interest rate process using the analysis presented in this paper a class of intertemporal term structure models is derived

a cyclical square root model for the term structure of interest rates this paper presents a cyclical square root model for the term structure of interest rates assuming that the spot rate converges to a certain time dependent long term level this model incorporates the fact that the interest rate volatility depends on the interest rate level and specifies the mean reversion level and the interest rate volatility using harmonic oscillators in this way we incorporate a good deal of flexibility and provide a high analytical tractability under these assumptions we compute closed form expressions for the values of different fixed income and interest rate derivatives finally we analyze the empirical performance of the cyclical model versus that proposed in cox et al 1985 and show that it outperforms this benchmark providing a better fitting to market data

bond pricing and the term structure of interest rates a discrete time approximation this paper studies the binomial approximation to the continuous trading term structure model of heath jarrow and morton 1987 the discrete time approximation makes the original methodology accessible to a wider audience and provides a computational proce dure necessary for calculating the contingent claim values derived in the continuous time paper this paper also extends and generalizes ho and lee s 1986 model to include multiple random shocks to the forward rate process and to include an analysis of continu ous time limits the generalization provides insights into the limitations of the existing empirical implementation of ho and lee s model

risk management implications of time inconsistency model updating and recalibration of no arbitrage models a widespread approach in the implementation of asset pricing models is based on the periodic recalibration of its parameters and initial conditions to eliminate any conflict between model implied and market prices modern no arbitrage market models facilitate this procedure since their solution can usually be written in terms of the entire initial yield curve as a result the model fits by construction the interest rate term structure this procedure is however generally time inconsistent since the model at time t 0 completely specifies the set of possible term structures for any t 0 in this paper we analyze the pros and cons of this widespread approach in pricing and hedging both theoretically and empirically the theoretical section of the paper shows a under which conditions recalibration improves the hedging errors by limiting the propagation of an initial error b that recalibration introduces timeinconsistent errors that violate the self financing argument of the standard replication strategy the empirical section of the paper quantifies the trade off between a and b under several scenarios first we compare this trade off for two economies with and without model specification error then we discuss the trade off when the underlying economy is not markovian 2005 elsevier b v all rights reserved

sizing up social science research economists and especially agricultural economists have invested considerable amounts of time and intellectual effort in the question of measuring the benefits of and returns to scientific research and development extensive sets of estimation techniques have been developed and healthy and productive debates about estimated rates of return to science research and development r d and optimal science r d policies have been carried out by economists and agricultural economists in contrast a virtual methodological and empirical vacuum exists in the economics literature with respect to the benefits of and returns to social science research and more especially agricultural economics research this void poses a serious problem for agricultural economics research in the current public research policy environment policy makers and directors of research institutions are confronted with increasingly tight public budgets for r d part of their response has been to seek credible ex ante estimates of

targeting poverty alleviation in priority setting for agricultural research abstract this paper provides a brief overview of research priority setting methods at various levels in national research systems noting the changing emphasis from supply to demand driven approaches at both macro and micro levels of priority setting the scope for incorporating a poverty dimension into priority setting is then reviewed within a general framework that recognises the complexity of the link between research investments and poverty alleviation the effectiveness of this targeting is likely to be very situation specific a case study of macro priority setting in pakistan shows the limited scope to target benefits to the poor through re allocation of research resources among commodities relative to a ranking based on the efficiency objective given present knowledge enhancing the efficiency and effectiveness of research systems in promoting broad based technical change should be emphasised more than major efforts to target poverty directly this will involve a combination of supply and demand driven approaches to priority setting at different levels in the research system that will enhance both the efficiency and poverty alleviation impacts of research

is now a good time for iowa to invest in cellulosic biofuels a real options approach considering construction lead times abstract the revised renewable fuel standard of the u s mandates a production of 16 billion gallons per year by 2022 from cellulosic biofuels iowa rich in agricultural residues like corn stover is a major player in contributing to the fulfillment of the cellulosic biofuels mandate is it a good time for iowa to start investing in cellulosic biofuels using a fast pyrolysis facility as an example we present a real options approach for valuing the investment of a new technology for producing cellulosic biofuels subject to construction lead times and uncertain fuel price we conduct a case study on iowa in which the decision maker finds the optimal investment time for the fast pyrolysis facility subject to production and distribution constraints our result indicates that the project is profitable if the facility is invested now but could be more profitable if invested later namely now it is not the optimal time for iowa to start constructing the fast pyrolysis facility we also find that the impact of the lead time on the project value is too significant to overlook the profitability of the project is sensitive to the outlook of fuel price if the future retail fuel price drops just 7 lower than forecasted by the energy information administration the investment may not be profitable the impact of the technology improvement production yield and biomass feedstock price is also analyzed using regression

agricultural research priority setting under multiple objectives an example from zimbabwe abstract strategic priorities are assessed for the agricultural research system in zimbabwe in a situation characterized by multiple objectives farm types and agro ecological zones economic surplus analysis is used to rank research programs by commodity and research program areas in total and disaggregated by large and small farms in high and low potential regions no funding current funding and 50 more funding are allowed for each program in the analysis an optimal research portfolio is developed first with all weight placed on efficiency and second with increasing weights placed on benefits going to small holder farmers even with no additional weight placed on small holders research programs for both small farms and low potential areas enter into the optimal research portfolio as more emphasis is given to small holders the reduction in overall efficiency gained due to research is relatively modest maize and cotton were the highest ranked commodity research programs of the 36 commodities considered for both large and small farms agronomy and soils research are relatively more important for small holders while plant breeding and crop protection are relatively more important for large scale farmers

pricing interest rate derivative securities this article shows that the one state variableinterest rate models of vasicek 1977 and cox ingersoll and ross 1985b can be extended sothat they are consistent with both the current termstructure of interest rates and either the currentvolatilities of all spot interest rates or the currentvolatilities of all forward interest rates theextended vasicek model is shown to be very tracta ble analytically the article compares option pricesobtained using the extended vasicek model withthose obtained using a number of other models