estimation of social preferences in generalized dictator games abstract to statistically infer the motives underlying pro social behavior econometric models of choice are required such inference is comparable across studies if the choice model yields estimates that are precise in sample and robust out of sample analyzing two extensive dictator game data sets i find that structural models of choice prevent significant overfitting contrary to regression models structural models with generalized error structure fit the choice pattern and random utility models yield robust identification of subject types contrary to random behavior and random taste models the random utility model for ordered alternatives provides robust estimates across games and is therefore suited for analyses

robust stochastic discount factors when the market is incomplete a new non redundant derivative security cannot be priced by no arbitrage arguments alone moreover there will be a multiplicity of stochastic discount factors and each of them may give a different price for the new derivative security this paper develops an approach to the selection of a stochastic discount factor for pricing a new derivative security the approach is based on the idea that the price of a derivative security should not vary too much when the payoff of the primitive security is slightly perturbed i e the price of the derivative should be robust to model misspecification the paper develops two metrics of robustness the first is based on robustness in expectation the second is based on robustness in probability and draws on tools from the theory of large deviations we show that in a stochastic volatility model the two metrics yield analytically tractable bounds for the derivative price as the underlying stochastic volatility model is perturbed the bounds can be readily used for numerical examination of the sensitivity of the price of the derivative to model misspecification

workforce reorganization and the worker in this article we study the joint decision process of changing the structure of jobs and laying off individual workers in a firm that downsizes its workforce a hierarchical decision model is proposed and estimated using personnel data from a firm in demise comparing the characteristics of the individual workers and the structure of the firm s labour force before and after its reorganization our results show that workers in jobs in the top levels of each skill group s hierarchy are better protected against downsizing due to larger productivity shocks and larger firing costs

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

representative trust and reciprocity prevalence and determinants this paper provides evidence about the determinants of trust and reciprocal inclinations that is a tendency for people to respond in kind to hostile or kind actions in a representative setting we investigate the prevalence of reciprocity in the population the correlation between trust and positive and negative reciprocal inclinations within person the individual determinants of reciprocity and the relationship with psychological measures of personality we find that most people state reciprocal inclinations in particular in terms of positive reciprocity as well as substantial heterogeneity in the degree of trust and reciprocity trust and positive reciprocity are only weakly correlated while trust and negative reciprocity exhibit a negative correlation in terms of determinants being female and increasing age are associated with stronger positive and weaker negative reciprocal tendencies taller people are more positively reciprocal but height has no impact on negative reciprocity psychological traits also affect trust and reciprocity jel d63 j3 j6

the impact of social mobility and within family learning on voter preferences evidence from a sample of twins abstract income maximizing consumers should vote in predictable ways support for liberal redistributive governments should fall as income rises but weak empirical evidence for these voting patterns might suggest that voters are influenced by alternative factors such as perceptions of social mobility from within family learning to examine these effects this paper uses a data set of twins and a recently developed econometric approach to show that within family learning and family specific effects are important determinants of voting preferences and preferences for redistribution

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

fair wages and effort provision combining evidence from a choice experiment and a field experiment the presence of workers who reciprocate higher wages with greater effort can have important consequences for firms and labor markets knowledge about the extent and determinants of reciprocal effort choices is however incomplete we investigate the role of fairness perceptions and social preferences in a field experiment in which workers were hired for a one time job we show that workers who perceive being underpaid at the base wage increase their performance if the hourly wage increases whereas those who feel adequately paid or overpaid at the base wage do not change their performance moreover we find that only the workers who display reciprocity in a choice experiment show reciprocal effort responses in the field the workers who lack reciprocity in the choice experiment do not respond to the wage increase even if they feel underpaid at the base wage our findings suggest that fairness perceptions and social preferences are key in workers performance response to wage increases in our study the wage increase affects effort mainly through the removal of perceived unfairness i e the elimination of negative reciprocity toward the firm rather than positive reciprocity these results are the first direct evidence of the fair wage effort hypothesis in the field and also help interpret previous contradictory findings in the literature data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 1970 this paper was accepted by uri gneezy behavioral economics

the american put option valued analytically an analytic solution to the american put problem is derived herein the hedge ratio and other derivatives of the solution are presented the formula derived implies an exact duplicating portfolio for the american put consisting of discount bonds and stock sold short the formula is extended to consider put options on stocks paying cash dividends a polynomial expression is developed for evaluating these formulae values and hedge ratios for puts on both dividend and nondividend paying stocks are calculated tabulated and compared with values derived by numerical integration and binomial approximation as with european options evaluating an analytic formula is more efficient than approximating the stock price process or the partial differential equation by binomial or finite difference methods finally applications of this american put solution are discussed

a nonparametric approach to modeling choice with limited data choice models today are ubiquitous across a range of applications in operations and marketing real world implementations of many of these models face the formidable stumbling block of simply identifying the right model of choice to use because models of choice are inherently high dimensional objects the typical approach to dealing with this problem is positing a priori a parametric model that one believes adequately captures choice behavior this approach can be substantially suboptimal in scenarios where one cares about using the choice model learned to make fine grained predictions one must contend with the risks of mis specification and overfitting underfitting thus motivated we visit the following problem for a generic model of consumer choice namely distributions over preference lists and a limited amount of data on how consumers actually make decisions such as marginal information about these distributions how may one predict revenues from offering a particular assortment of choices an outcome of our investigation is a nonparametric approach in which the data automatically select the right choice model for revenue predictions the approach is practical using a data set consisting of automobile sales transaction data from a major u s automaker our method demonstrates a 20 improvement in prediction accuracy over state of the art benchmark models this improvement can translate into a 10 increase in revenues from optimizing the offer set we also address a number of theoretical issues among them a qualitative examination of the choice models implicitly learned by the approach we believe that this paper takes a step toward automating the crucial task of choice model selection this paper was accepted by yossi aviv operations management

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

optimal pricing of correlated product options under the paired combinatorial logit model in this paper we study price optimization with price demand relationships captured by the paired combinatorial logit pcl model which overcomes restrictions of the well studied multinomial logit mnl and nested logit nl models the pcl model allows for choice correlation and like the nl model includes the mnl model as a special case compared to the nl models the pcl model does not restrict the sequence of the choice structure and allows for different covariances among all pairs of choices this additional flexibility in structure enables a more accurate representation of some choice settings and broadens its empirical applications hence it is of both theoretical and practical interests to extend the normative studies on the mnl and nl models to the pcl model and examine the pricing problem under this model due to cross nesting of choice alternatives the pricing problem under the pcl model poses a greater challenge than the mnl and nl models however using the concept of p matrix we are abl

displaced diffusion option pricing this paper develops a new option pricing formula that pushes the underlying source of risk back to the risk of individual assets of the firm the formula simultaneously encompasses differential riskiness of the assets of the firm their relative weights in determining the value of the firm the effects of firm debt and the effects of a dividend policy with both constant and random components although this setting considerably generalizes the black scholes 1 analysis it nonetheless produces a formula via riskless arbitrage arguments that given estimated inputs is as easy to use as the black scholes formula

valuing managerial flexibility an application of real option theory to mining investments abstract the value of managerial flexibility is assessed using data on prices costs grades reserves ore extraction and metal output for a panel of canadian copper mines a real option model is estimated and solved for project and option values most empirical researchers i consider the initial investment decision but neglect flexible operation thereafter ii assume that price is stochastic but ignore cost and reserve uncertainty and iii model price as a nonstationary stochastic process the evolution of three state variables price cost and reserves is assessed here differences in assumptions compared to others are found to lead to large differences in estimated project and option values

occupational transition and country of origin effects in the early stage occupational assimilation of immigrants some evidence from australia we examine the occupational attainment of recent immigrants at 2 years post migration in order to study their early stage assimilation into the labour market in australia human capital endowments and country of origin effects are examined for six occupational groups we also study transitions across occupations from source to host country the empirical approach utilizes the ordered generalized extreme value ogev model which embodies differing utility functions across occupational outcomes as well as accounting for any ordering in these outcomes the results suggest that the transferability of knowledge and skills is affected by cultural and social backgrounds and that non western immigrants are disproportionately channelled into inferior jobs post migration the investigation of the country of origin effect on the skilled migrants occupational transition process is especially apt in the context of skill shortages in many host countries

real investment options with multiple sources of rare events abstract we value real investment options when the underlying asset follows a mixed jump diffusion process involving various types sources of rare events jumps these jumps are assumed independent of each other with each type having a log normally distributed jump size and a random poisson distributed arrival time they may represent uncertainties about the arrival and impact on the underlying investment of new information concerning technological innovation competition political risk regulatory effects and other sources an analytic solution is presented for european claims call or put options with multiple sources of jumps a discrete time markov chain methodology implemented within a finite difference scheme is proposed for the valuation of american as well as european options the approach is also applicable to financial options with multiple types of rare events the approach is illustrated through valuing complex real options with compound features involving interactions between optimal investment and subsequent operating decisions specifically we value a growth option and an extension option

the use of the control variate technique in option pricing this paper presents a generalized version of the lattice approach to pricing options it shows how the control variate technique can produce significant improvements in the effi ciency ofthe approach the control variate technique is illustrated using american puts on dividend and nondividend paying stocks

social comparison and effort provision evidence from a field experiment social comparison has potentially far reaching consequences in many economic domains we conducted a field experiment to examine how social comparison affects workers effort provision if their own wage or that of a co worker is cut workers were assigned to groups of two performed identical individual tasks and received the same performance independent hourly wage cutting both group members wages caused a decrease in performance but when only one group member s wage was cut the affected workers decreased their performance more than twice as much as when both workers wages were cut this finding indicates that social comparison among workers affects effort provision because the only difference between the two wage cut treatments is the other group member s wage level in contrast workers whose wage was not cut but who witnessed their group member s pay being cut displayed no change in performance relative to the baseline treatment in which both workers wages remained unchanged this indicates that social comparison exerts asymmetric effects on effort jel c93 j33 m53

gift giving and worker productivity evidence from a firm level experiment abstract we present results from a field experiment designed to measure worker response to a monetary gift from their employer the experiment took place inside a tree planting firm paying its workforce incentive contracts firm managers told a crew of tree planters they would receive a pay raise for one day as a result of a surplus not attributable to past planting productivity we compare planter productivity the number of trees planted per day on the day the gift was handed out with productivity on previous and subsequent days of planting on the same block and thus under similar planting conditions we find direct evidence that the gift had a significant and positive effect on daily planter productivity controlling for planter fixed effects weather conditions and other random daily shocks

fair wages and effort evidence from a field experiment the presence of workers who reciprocate higher wages with greater effort can have important consequences for firms and labor markets knowledge about the extent and determinants of reciprocal effort choices is however incomplete we investigate the role of fairness perceptions and social preferences in a field experiment in which workers were hired for a one time job we show that workers who perceive being underpaid at the base wage increase their performance if the hourly wage increases whereas those who feel adequately paid or overpaid at the base wage do not change their performance moreover we find that only the workers who display reciprocity in a choice experiment show reciprocal effort responses in the field the workers who lack reciprocity in the choice experiment do not respond to the wage increase even if they feel underpaid at the base wage our findings suggest that fairness perceptions and social preferences are key in workers performance response to wage increases in our study the wage increase affects effort mainly through the removal of perceived unfairness i e the elimination of negative reciprocity toward the firm rather than positive reciprocity these results are the first direct evidence of the fair wage effort hypothesis in the field and also help interpret previous contradictory findings in the literature

the impact of default risk on the prices of options and other derivative securities abstract this paper presents a model for valuing derivative securities when there is default risk the holder of a security is assumed to recover a proportion of its no default value in the event of a default by the counterparty both the probability of default and the size of the proportional recovery are random the paper shows how data on bonds issued by the counterparty can be used to provide information about model parameters

an intertemporal general equilibrium model of asset prices this paper develops a continuous time general equilibrium model of a simple but complete economy and uses it to examine the behavior of asset prices in this model asset prices and their stochastic properties are determined endogenously one principal result is a partial differential equation which asset prices must satisfy the solution of this equation gives the equilibrium price of any asset in terms of the underlying real variables in the economy in this paper we develop a general equilibrium asset pricing model for use in applied research an important feature of the model is its integration of real and financial markets among other things the model endogenously determines the stochastic process followed by the equilibrium price of any financial asset and shows how this process depends on the underlying real variables the model is fully consistent with rational expectations and maximizing behavior on the part of all agents our framework is general enough to include many of the fundamental forces affecting asset markets yet it is tractable enough to be specialized easily to produce specific testable results furthermore the model can be extended in a number of straightforward ways consequently it is well suited to a wide variety of applications for example in a companion paper cox ingersoll and ross 7 we use the model to develop a theory of the term structure of interest rates many studies have been concerned with various aspects of asset pricing under uncertainty the most relevant to our work are the important papers on intertemporal asset pricing by merton 19 and lucas 16 working in a continuous time framework merton derives a relationship among the equilibrium expected rates of return on assets he shows that when investment opportunities are changing randomly over time this relationship will include effects which have no analogue in a static one period model lucas considers an economy with homogeneous individuals and a single consumption good which is produced by a number of processes the random output of these processes is exogenously determined and perishable assets are defined as claims to all or a part of the output of a process and the equilibrium determines the asset prices our theory draws on some elements of both of these papers like merton we formulate our model in continuous time and make full use of the analytical tractability that this affords the economic structure of our model is somewhat similar to that of lucas however we include both endogenous production and

convergence from discrete to continuous time contingent claims prices this article generalizes the cox ross and rubinstein 1979 binomial option pricing model and establishes a convergence from discrete time multivariate multinomial models to continuous time multidimensional diffusion models for contigent claims prices the key to the approach is to approximate the n dimensional diffusion price process by a sequence of n variate n 1 nomial processes it is shown that contingent claims prices and dynamic replicating portfolio strategies derived from the discrete time models converge to their corresponding continuous time limits article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

a continuous time equilibrium model of forward prices and futures prices in a multigood economy abstract this paper is a theoretical investigation of equilibrium forward and futures prices we construct a rational expectations model in continuous time of a multigood identical consumer economy with constant stochastic returns to scale production using this model we find three main results first we find formulas for equilibrium forward futures discount bond commodity bond and commodity option prices second we show that a futures price is actually a forward price for the delivery of a random number of units of a good the random number is the return earned from continuous reinvestment in instantaneously riskless bonds until maturity of the futures contract third we find and interpret conditions under which normal backwardation or contango is found in forward or futures prices these conditions reflect the usefulness of forward and futures contracts as consumption hedges

diversity between and within varieties of capitalism transnational survey evidence one of the central debates in contemporary socio economics concerns the relationship between institutions and firm level practices and the persistence of a number of alternative viable models for economic development we examine diversity within and between specific types of capitalism using data from a transnational survey incorporating 14 organizational level practices in a sample of six capitalist archetypes constituting 27 countries and some 6503 firms we focus on one of the key defining features of different varieties of capitalism the interdependence of employers and employees we find that there are clustering tendencies consistent with the literature but also considerable diversity within as well as between the varieties although we did not find diffuse diversity or homogeneity the analysis supports a complex and nuanced relationship within and between varieties of capitalism that has not been previously captured in the literature

a note on the convergence of binomial pricing and compound option models the binomial pricing model of cox ross and rubinstein 2 and the compound option model of geske 3 are both elegant and self contained frameworks for the valuation of american options and related contingent claims each providing us with a distinctive valuation procedure flexible enough to be adapted to a wide variety of problems for american type options on assets with a prices following a lognormal diffusion process and b a continuous time exercise policy such as put options on individual stocks calls and puts on foreign exchange and calls and puts on futures contracts the binomial pricing model approximates both the stochastic process and the exercise opportunity set the latter by restricting exercise to a discrete set of dates the compound option model on the other hand approximates only the exercise opportunity set however it pays for this with a high price in computational requirements specifically with n exercise dates allowed multivariate normal probabilities of every order up to and including n must be evaluated in their article on the valuation of put options geske and johnson 4 provide an ingenious solution to this problem by applying acceleration techniques common in numerical analysis but new to the finance literature letting t be the time to expiration of the option and p the value of a compound option with exercise permitted at the n uniformly spaced dates t n 2t n t they generate the sequence of compound option values p1 p2 pn polynomial extrapolation is then used to estimate p lim n x oo pn they found this procedure to be very accurate over a limited sample of put options with low values of n though not discussed by geske and johnson the reasons for the effectiveness of acceleration techniques in a compound option model are apparent from a cursory examination an acceleration technique will perform best when the approximating sequence converges uniformly on the true value of the contingent claim and worst when convergence includes complex and unpredictable oscilla

testing the heath jarrow morton ho lee model of interest rate contingent claims pricing this paper presents empirical tests of the constant volatility version of the heath jarrow and morton model which is also the continuous time limit of the ho and lee model using a generalized method of moments gmm test on three years of daily data for eurodollar futures and futures options the model can be rejected for most subperiods various biases in the fitted option prices relative to the market prices are documented through a regression study the small sample properties and power of the gmm framework to this setting are also studied through simulations

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

heterogeneous social preferences recent research has shown the usefulness of social preferences for explaining behavior in laboratory experiments this paper demonstrates that models of social preferences are particularly powerful in explaining behavior if they are embedded in a setting of heteroge neous actors with heterogeneous social preferences for this purpose a simple model is in troduced that combines the basic ideas of inequity aversion social welfare preferences recip rocity and heterogeneity this model is applied to 43 games and it can be shown that its pre dictive accuracy is clearly higher than that of the isolated approaches furthermore it can explain most of the anomalies the contradictions that are discussed in goeree and holt 2001

the flexible coefficient multinomial logit fc mnl model of demand for differentiated products we show fc mnl is flexible in the sense of diewert thus its parameters can be chosen to match a well defined class of possible own and cross price elasticities of demand in contrast to models such as probit and random coefficient mnl models fc mnl does not require estimation via simulation it is fully analytic under well defined and testable parameter restrictions fc mnl is shown to be an unexplored member of mcfadden s class of multivariate extreme value discrete choice models therefore fc mnl is fully consistent with an underlying structural model of heterogeneous utility maximizing consumers we provide a monte carlo study to establish its properties and we illustrate its use by estimating the demand for new automobiles in italy

an experimental study of asymmetric reciprocity abstract when deviating from best responses do people have a stronger propensity to increase or decrease other people s payoffs offerman 2002 finds that negative intentions are more likely to induce payoff decreases than positive intentions are to induce payoff increases using the falk and fischbacher 2006 model we approach the same question as offerman but from a structural angle this requires measuring what a subject predicts that other subjects predict that he will do known as a subject s second order expectations this permits us to interpret any asymmetry in the propensities to increase and decrease payoffs in terms of the determinants of payoff increases and decreases our results are largely consonant with offerman 2002 we also find that in situations with exogenously created inequity rather than inequity that is the result of an intentional action by an actor payoff increase is more likely to be used to diminish the inequity than is payoff decrease our results exhibit some sensitivity to whether we obtain second order expectations by eliciting them directly from the subject making the payoff increase decrease decision or by inducing them by reporting to the decider the expectations of the target of the payoff increase decrease

are convertible bonds underpriced an analysis of the french market we investigate the pricing of convertible bonds on the french convertible bond market using daily market prices for a period of 18 months instead of a firm value model as used in previous studies we use a stock based binomial tree model with exogenous credit risk that accounts for all important convertible bond specifications and is therefore well suited for pricing convertible bonds the empirical analysis shows that the theoretical values for the analyzed convertible bonds are on average more than 3 higher than the observed market prices this result applies to both the standard convertibles and the exchangeable bonds in our sample the difference between market and model prices is greater for out of the money convertibles than for at or in the money convertibles a partition of the sample according to maturity indicates that there is a positive relationship between underpricing and maturity with decreasing mispricing for bonds with shorter time to maturity

the many faces of human sociality uncovering the distribution and stability of social preferences there is vast heterogeneity in the human willingness to weigh others interests in decision making this heterogeneity concerns the motivational intricacies as well as the strength of other regarding behaviors and raises the question how one can parsimoniously model and characterize heterogeneity across several dimensions of social preferences while still being able to predict behavior over time and across situations we tackle this task with an experiment and a structural model of preferences that allows us to simultaneously estimate outcome based and reciprocity based social preferences we find that non selfish preferences are the rule rather than the exception neither at the level of the representative agent nor when we allow for several preference types do purely selfish types emerge instead three temporally stable and qualitatively different other regarding types emerge endogenously i e without pre specifying assumptions about the characteristics of types when ahead all three types value others payoffs significantly more than when behind the first type which we denote as strongly altruistic type is characterized by a relatively large weight on others payoffs even when behind and moderate levels of reciprocity the second type denoted as moderately altruistic type also puts positive weight on others payoff yet at a considerable lower level and displays no positive reciprocity while the third type is behindness averse i e puts a large negative weight on others payoffs when behind and behaves selfishly otherwise we also find that there is an unambiguous and temporally stable assignment of individuals to types moreover the three type model substantially improves the out of sample predictions of individuals behavior across additional games while the information contained in subject specific parameter estimates leads to no or only minor additional predictive power this suggests that a parsimonious model with three types captures the bulk of the predictive power contained in the preference estimates

the value of early exercise in option prices an empirical investigation previous studies in the valuation of american options apparently undervalue the right of early exercise this study uses actual prices from the cboe s s p 100 option instead of model generated values deviations from the theoretical put call parity relationship are caused by the possibility of early exercise these deviations are used to infer the value of early exercise the actual value of early exercise is both statistically and economically significant as expected from theoretical considerations the value of early exercise for put options is greater than for call options

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

an analytic approximation for the american put price for options on stocks with dividends in a recent paper johnson 7 has given an analytic approximation to the american put price that delivers values that are very close to numerical solutions the limitation to the johnson approximation is that it is only applicable to put options on stocks without cash dividends this study modifies the johnson approximation to value options on stocks that have one exdividend date prior to the option expiration date and these approximation values are compared to the analytic solutions provided by the geske and johnson 6 american put option pricing model the approximation values are generally very close to the analytic solutions

supply determinants of part time work of dutch married women the influence of taxes and social premiums labour supply is classified into five classes one for zero hours a week i e nonparticipation and four for 1 14 15 24 25 34 and more than 34 hours a week respectively this allows us to investigate whether changes in the taz and social premium system have different effects on the labour supply in different hours classes such an investigation has been carried out by applying a multinomial logit analysis in combination with a method introduced by hausman to allow the incorporatin of taxes and social premiums in the estimation of labour supply functions of dutch married women comparing the 1983 and 1985 tax and social premium systems the results of the analysis indicate that the introduction of the new system has had only a small discouraging effect on the labour supply of dutch married women

temporal stability and psychological foundations of cooperation preferences abstract a core element of economic theory is the assumption of stable preferences we test this assumption in public goods games by repeatedly eliciting cooperation preferences in a fixed subject pool over a period of five months we find that cooperation preferences are very stable at the aggregate level and to a smaller degree at the individual level allowing us to predict future behavior fairly accurately furthermore our results provide evidence on the psychological foundations of cooperation preferences the personality dimension agreeableness is closely related to both the type and the stability of cooperation preferences

untangling supply and demand in occupational choice in this paper we present an econometric framework for modeling occupational choice that allows us to separately and simultaneously model supply side and demand side influences whilst allowing for potential ordering with regard to skill levels across occupations

a clash of capitalisms foreign shareholders and corporate restructuring in 1990s japan this article examines the clash between stakeholder and shareholder based business systems resulting from an increase in foreign portfolio investment in the japanese economy during the 1990s an analysis of 1 108 firms between 1991 and 2000 shows that as foreign institutional investors who were more interested in investment returns than in long term relationships replaced domestic shareholders one fundamental pillar of japan s stakeholder capitalism began to crack japanese firms began to adopt downsizing and asset divestiture practices more characteristic of anglo american shareholder economies the influence of foreigners however was weaker in firms more deeply embedded in the local system through close ties to domestic financial institutions and corporate groups thus foreign investors were influential primarily in firms less embedded in the existing stakeholder system this research contributes to debates on globalization and convergence of business systems institutional change and corporate

a lattice approach for pricing of multivariate contingent claims abstract the lattice approach developed by boyle evnine and gibbs beg is hitherto one of the most appealing when it comes to pricing multivariate contingent claims the beg approach has however some problems two of the major ones being that the method can lead to negative jump probabilities and has a slow rate of convergence in this paper a lattice approach the nek approach is developed which avoids both of the aforementioned problems of the beg approach it is shown that the nek approach has a very fast rate of convergence the results are accurate enough for most needs with as few as ten time steps and the results are astonishingly accurate with twenty time steps moreover the nek approach is simple and easy to understand and also easy to implement the latter property follows from the fact that all jump probabilities are equal and that the formulas for the jump sizes are extremely simple

the relevance of equal splits in ultimatum games abstract in this note we present a slightly altered version of the mini ultimatum game of g e bolton and r zwick 1995 games econ behav 10 95 121 more specifically we replaced exactly equal splits by nearly equal splits either slightly favoring the proposer or the responder such a minor change should not matter if behavior was robust we find however a significant change in behavior fair offers occur less often when equal splits are replaced by nearly equal splits journal of economic literature classification numbers c72 c78 c92

preferences intentions and expectation violations a large scale experiment with a representative subject pool we specify and estimate an econometric model which separately identifies the effects of distributional preferences and penalizing unfair proposer behavior perceived intentions on responder decisions in the ultimatum game we allow the effects of perceived intentions to depend among other things on the subjective probabilities responders attach to the possible offers the latter allows expectation violations to be a driving force for responder behavior we estimate the model on a large representative sample from the dutch population we find that the relative importance of distributional preferences and perceived intentions depends significantly on the socio economic characteristics of responders strong inequity aversion to the other player s disadvantage is found for lower educated and older respondents responders tend to punish more unequal offers made by proposers if they expect that unequal proposals are made less often

spite and development in a wide variety of settings spiteful preferences would constitute an obstacle to cooperation trade and thus economic development this paper shows that spiteful preferences the desire to reduce another s material payoff for the mere purpose of increasing one s relative payoff are surprisingly widespread in experiments conducted in one of the least developed regions in india uttar pradesh in a one shot trust game the authors find that a large majority of subjects punish cooperative behavior although such punishment clearly increases inequality and decreases the payoffs of both subjects in experiments to study coordination and to measure social preferences the findings reveal empirical patterns suggesting that the willingness to reduce another s material payoff either for the sake of achieving more equality or for the sake of being ahead is stronger among individuals belonging to high castes than among those belonging to low castes because extreme social hierarchies are typically accompanied by a culture that stresses status seeking it is plausible that the observed social preference patterns are at least partly shaped by this culture thus an exciting question for future research is the extent to which different institutions and cultures produce preferences that are conducive or detrimental to economic development

altruism spillovers are behaviors in context free experiments predictive of altruism toward a naturally occurring public good abstract this paper addresses the external validity of experiments investigating the characteristics of altruism in the voluntary provision of public goods we conduct two related experiments that allow us to examine whether individuals who act more altruistically in the context free environment are also more likely to act altruistically toward a naturally occurring public good we find that laboratory behavior can be predictive of contributions toward naturally occurring goods but not in a uniform way in fact parametric measures of altruism do a poor job of predicting which subjects are most likely to contribute to a naturally occurring public good

the global economy as instituted process the case of central and eastern europe i argue that economic globalization indicated by the tremendous rise in world foreign direct investment fdi in recent decades is not driven simply by investor considerations of economic risk and return but is significantly shaped by the construction of demand for foreign capital by receiving states states signal this demand through the levels of formal and substantive legitimacy they grant to fdi they institutionalize globalization in formal rule as a normatively desirable development strategy states substantiate this commitment by providing domestic and foreign actors with ideational and organizational resources to facilitate fdi to illustrate this argument i use the case of central and eastern europe which was largely closed to global capital before the collapse of communism analyses of quantitative and qualitative data show that substantive legitimacy granted to fdi by host states more than formal regulations determined the size of foreign capital flows into postsocialist countries in the

moment based estimation of stochastic volatility abstract this paper makes use of the distributional information contained in high frequency data to test for the specification of the functional form of the volatility process within the class of stochastic volatility models it s calculus is implemented in order to obtain the first and second conditional moment of the driving stochastic differential equation for the volatility process these analytical expressions are augmented by their lag and lag squared and are used to form the corresponding gmm estimator the base case stochastic volatility model is extended to allow for the leverage effect and jumps in returns empirical estimation confirms the presence of fast mean reversion in volatility and jumps in returns for the 5 min s p 500 stock market index further estimation results also seem to indicate the presence of jumps in the volatility process that are correlated to the jumps in returns

a discrete choice model for ordered alternatives a generalization of the multinomial logit mnl model is developed for cases where discrete alternatives are ordered by allowing stochastic correlation among alternatives in close proximity the model belongs to the generalized extreme value class and is therefore consistent with random utility maximization an extension can handle cases where observations have been selected from a truncated choice set a two stage procedure using mnl computer software provides a specification test for mnl against the proposed model two empirical applications are briefly described copyright 1987 by the econometric society

a lattice framework for option pricing with two state variables a procedure is developed for the valuation of options when there are two underlying state variables the approach involves an extension of the lattice binomial approach developed by cox ross and rubinstein to value options on a single asset details are given on how the jump probabilities and jump amplitudes may be obtained when there are two state variables this procedure can be used to price any contingent claim whose payoff is a piece wise linear function of two underlying state variables provided these two variables have a bivariate lognormal distribution the accuracy of the method is illustrated by valuing options on the maximum and minimum of two assets and comparing the results for cases in which an exact solution has been obtained for european options one advantage of the lattice approach is that it handles the early exercise feature of american options in addition it should be possible to use this approach to value a number of financial instruments that have been created in recent years

an ordered generalised extreme value model with application to alcohol consumption in australia an ordered generalised extreme value ogev model by small 1987 is proposed for application to ordered discrete choice data relative to conventional ordered probit logit op ol and multinomial logit mnl models the ogev model is flexible is defined by random utility maximization and allows for correlation across choices via unobservable individual characteristics according to locations of the choices in the ordering the ogev model is applied to unit record data from australia to study the impacts of prices income and demographic characteristics on levels of alcohol consumption model selection analysis suggests that ogev is preferred to both op and mnl for the application

do wage cuts damage work morale evidence from a natural field experiment employment contracts are often incomplete leaving many responsibilities subject to workers discretion high work morale is therefore essential for sustaining voluntary cooperation and high productivity in firms we conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity wage cuts had a detrimental and persistent impact on productivity reducing average output by more than 20 percent an equivalent wage increase however did not result in any productivity gains the results from an additional control experiment with high monetary performance incentives demonstrate that workers could still produce substantially more output leaving enough room for positive reactions altogether these results provide evidence consistent with a model of reciprocity as opposed to inequality aversion

degrowth and techno business model innovation the case of riversimple there is an emergent understanding that humanity has precipitated an anthropocene such that we are now operating in a reduced space for humanity in which urgent action is required this case study paper links degrowth technological innovation business model innovation and corporate governance the arguments are illustrated with the case of an embryonic vehicle and mobility business called riversimple the paper shows that radical technology innovations in the vehicle itself are achieved by underlying principles that focus on mass decompounding powertrain de coupling whole system design and low volume production systems the characteristics of the technologies are fundamental to and in part derive from the business model adopted by the case and the governance structures designed to avoid the primacy usually afforded to returns to financial shareholders while the case is embryonic the paper argues that an important possible contribution is the ability to commence a disruptive transition to a degrowth future from within existing legal frameworks social practices cultural expectations and physical infrastructures

comparative dynamics of an equilibrium intertemporal asset pricing model this paper uses recursive competitive theory to develop a general equilibrium asset pricing model in this framework all prices and rates of return are endogenously determined thus enabling us to analyze the effects of changes in preferences technological uncertainty and expectations on the structure of security prices in particular we focus on how the market risk premium varies with changes in the underlying economic environment an issue which other asset pricing models have chosen not to address

delineating markets for bundles with consumer level data the case of triple play abstract the question of whether bundles of telecommunication services are relevant product markets is addressed as a first step demand for bundles of services as well as the associated services is modeled as a discrete choice problem with a potentially large number of products a unique invoice based consumer level data set from portuguese telecommunications firms is collected this choice based data set is combined with survey data to characterize the market shares of all potential combinations of services available several discrete choice models are estimated a cross nested logit model is the most parsimonious description of the substitution patterns between the large number of products available the demand model used coupled with the definition of choice alternatives proposed generates flexible substitution patterns which produce reasonable price elasticities of demand the demand for triple play products is elastic with own price elasticities for the larger firms ranging between 3 2 and 1 3 and a market own price elasticity of 1 4 some of the products analyzed are found to be complementary our results indicate that triple play bundles are a relevant product market