The Endowment Effect, Status Quo Bias and Loss Aversion: Rational Alternative Explanation

The endowment effect, status quo bias, and loss aversion are robust and well documented results from experimental psychology. They introduce a wedge between the prices at which one is willing to sell or buy a good. The objective of this paper is to address this wedge. We show that the presence of asymmetric information in a rational-agent framework can account for the endowment effect, status quo bias and loss aversion as well as psychology-based explanations proposed in the past.Endowment effect, Status quo bias, Loss aversion, Asymmetric information, Bid/ask spread

Hedging Barrier Options: Current Methods and Alternatives

This paper applies to the static hedge of barrier options a technique, mean-square hedging, designed to minimize the size of the hedging error when perfect replication is not possible. It introduces an extension of this technique which preserves the computational efficiency of mean-square hedging while being consistent with any prior pricing model or with any linear constraint on the hedging residual. This improves on current static hedging methods, which aim at exactly replicating barrier options and rely on strong assumptions on the availability of traded options with certain strikes or maturities, or on the distribution of the underlying asset.Barrier options, Static hedging, Mean-square hedging

The Treasury securities market: overview and recent development

The market for U.S. Treasury securities is by many measures the largest, most active debt market in the world, and the securities play a pivotal role in world financial markets. The market has evolved over time in keeping with the changing needs of both the Treasury and investors. After describing the market's structure and examining the factors driving the demand for Treasury securities in some detail, this article discusses recent developments, including the introduction of inflation-indexed securities and a decline in the issuance of Treasury securities.Treasury bills ; Treasury notes ; Government securities

Effects of Securities Transaction Taxes on Depth and Bid-Ask Spread

This paper investigates the effects of transaction taxes on depth and bid-ask spread under asymmetric information. The paper uses a static model where a monopolistic market maker faces liquidity and informed traders. Introducing transaction taxes could, surprisingly, lead to increase in depth. Under some distributional assumptions, when market conditions are favorable to the dealer, the spread responds less than proportionally to an increase in the transaction tax while the depth actually increases. In contrast, when market conditions are unfavorable to the dealer, the spread widens more than proportionally and the depth decreases, potentially to zero, in response to an increase in the transaction tax. Our model sheds light on the disagreement in the empirical literature on the relative magnitude of transaction costs on trading volume.Asymmetric information, Securities transaction taxes, Liquidity

Ist die Studienwahl abhängig von der besuchten Schule?

Dans cet article, nous tentons d’étudier les différences de choix d’études d’élèves en fin de secondaire en Communauté française de Belgique, en fonction de leurs caractéristiques individuelles (sexe, SES, filière, redoublement), mais aussi en fonction de l’école fréquentée (effet de l’offre d’enseignement et du recrutement social de l’école). L’analyse multiniveau montre que les projets d’études supérieures ne sont pas seulement indépendants des caractéristiques de l’individu mais également, dans certains cas, de l’établissement dans lequel les élèves sont scolarisés en fin de secondaire après contrôle des caractéristiques individuelles. En effet, lorsqu’on étudie le choix d’aller à l’université plutôt que non, on constate un effet de la composition sociale de l’établissement. Toutes choses égales par ailleurs, l’offre d’enseignement n’a quant à elle pas d’effet significatif sur les aspirations d’études. (DIPF/Orig.)In diesem Beitrag wird die Studienwahl von Schülerinnen und Schülern am Ende der Sekundarstufe II im französischsprachigen Teil Belgiens untersucht. Dabei werden sowohl individuelle Merkmale der Schüler/innen (Geschlecht, sozioökonomischer Hintergrund, Klassenwiederholung) als auch Merkmale der besuchten Schule (Unterrichtsangebot, soziale Herkunft der Schüler/innen) zur Erklärung der Studienwahl herangezogen. Die Mehrebenenanalyse zeigt zwar, dass die Studienvorhaben nicht unabhängig von den individuellen Merkmalen sind. Sie zeigt aber zusätzlich, dass – nach Kontrolle der individuellen Merkmale – auch die Institution, die die Schüler/innen am Ende der Sekundarstufe II besuchen, in einigen Fällen eine Rolle spielt. Der Entscheid, ob jemand an die Universität geht oder nicht, wird von der sozialen Zusammensetzung der Herkunftsschulen beeinflusst. Das Bildungsangebot der Herkunftsschule alleine hat demgegenüber keinen Einfluss auf die angestrebten Studien. (DIPF/Orig.

Extracting Risk-Neutral Probability Distributions from Option Prices Using Trading Volume as a Filter

This paper introduces a new technique to infer the risk-neutral probability distribution of an asset from the prices of options on this asset. The technique is based on using the trading volume of each option as a proxy of the informativeness of the option. Not requiring the implied probability distribution to recover exactly the market prices of the options allows us to weight each option by a function of its trading volume. As a result, we obtain implied probability distributions that are both smoother and should be more reflective of fundamentals.Implied risk-neutral probability distribution, Implied-tree method

Extracting Risk-Neutral Probability Distributions from Option Prices Using Trading Volume as a Filter

Abstract: This paper introduces a new technique to infer the risk-neutral probability distribution of an asset from the prices of options on this asset. The technique is based on using the trading volume of each option as a proxy of the informativeness of the option. Not requiring the implied probability distribution to recover exactly the market prices of the options allows us to weight each option by a function of its trading volume. As a result, we obtain implied probability distributions that are both smoother and should be more reflective of fundamentals.

Motion of a spherical capsule in simple shear flow: influence of the bending resistance

National audienceWe simulate the motion of an initially spherical capsule in a simple shear flow in order to determine the influence of the bending resistance on wrinkle formation on the membrane. We use a numerical method coupling a nonlinear shell finite element method for the capsule wall mechanics with a boundary integral method to solve the Stokes equation. The capsule wall is discretized with MITC linear triangular shell finite elements. We find that, at low flow strength, buckling occurs in the central region of the capsule. The number of wrinkles on the membrane decreases with the bending stiffness and above a critical value, wrinkles no longer form. For thickness to radius ratios below 5%, the bending stiffness does not have any significant effect on the overall capsule motion and deformation. The mean capsule shape is identical whether the wall is modeled as a shell or a two-dimensional membrane, which shows that the dynamics of thin capsules is mainly governed by shear elasticity and membrane effects