A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
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- Please kindly let me know [mingze.gao@mq.edu.au] in case of any errors.
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22,315 resources
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We study how financial incentives can be used to overcome a history of coordinationfailure using controlled laboratory experiments. Subjects' payoffs depend on coordinatingat high effort levels. In an initial phase, the benefits of coordination arelow, and play typically converges to an inefficient outcome. We then explore varyingfinancial incentives to coordinate at a higher effort level. An increase in the benefitsof coordination leads to improved coordination, but large increases have no moreimpact than small increases. Once subjects have coordinated on a higher effortlevel, reductions in the incentives to coordinate have little effect on behavior. (JELC92, D23, J31, L23, M52)
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The daily and intraday behavior of returns on Chicago Board Options Exchange options is examined. Option returns contain systematic patterns even after adjusting for patterns in the means and variances of the underlying assets. This is consistent with the hypothesis that informed trading in options can make the order flow in the options market informative about the value of the underlying asset, making options nonredundant. The intraday patterns in adjusted option return variances are further consistent with a model of strategic trading by informed and discretionary liquidity traders.
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This paper develops a closed-form option valuation formula for a spot asset whose variance follows a GARCH(p, q) process that can be correlated with the returns of the spot asset. It provides the first readily computed option formula for a random volatility model that can be estimated and implemented solely on the basis of observables. The single lag version of this model contains Heston's (1993) stochastic volatility model as a continuous-time limit. Empirical analysis on S&P500 index options shows that the out-of-sample valuation errors from the single lag version of the GARCH model are substantially lower than the ad hoc Black-Scholes model of Dumas, Fleming and Whaley (1998) that uses a separate implied volatility for each option to fit to the smirk/smile in implied volatilities. The GARCH model remains superior even though the parameters of the GARCH model are held constant and volatility is filtered from the history of asset prices while the ad hoc Black-Scholes model is updated every period. The improvement is largely due to the ability of the GARCH model to simultaneously capture the correlation of volatility, with spot returns and the path dependence in volatility.
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I use a new technique to derive a closed-form solution for the price of a European call option on an asset with stochastic volatility. The model allows arbitrary correlation between volatility and spot-asset returns. I introduce stochastic interest rates and show how to apply the model to bond options and foreign currency options. Simulations show that correlation between volatility and the spot asset's price is important for explaining return skewness and strike-price biases in the Black-Scholes (1973) model. The solution technique is based on characteristic functions and can be applied to other problems.
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The authors develop a model in which states may choose to form coalitions to capture efficiency gains from policy coordination. Joining a coalition entails setting the policy variable to maximize the coalition's aggregate payoff at a Nash equilibrium against nonmembers and to commit to a transfer scheme to share the gains. With two states, the unique equilibrium structure is complete federation; with more than two states, incomplete federation can be the unique equilibrium. Interpreting this result in terms of custom unions, the trend to trading-bloc formation may be equilibrium behavior even with cooperation and transfers within customs unions. Copyright 1997 by American Economic Association.
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- American Economic Review (10,442)
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