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

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

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

Expanding the Conversation on Adult Learning Theories: Theorizing African American Women’s Learning and Development in Predominantly White Organizations

This study is a qualitative, interpretative examination of nine African American women’s (AAW’s) experiences while working in a leadership position at a predominantly White organization and the learning experiences that emerged from these encounters. Black feminist theory (BFT) is used as a sociocultural framework to explain how the participants learned from these experiences. Three main learning themes emerged: learning from influential sources, learning through divine guidance, and learning through affirmation of self. We posit that sociocultural theories derived from AAW’s ways of knowing is necessary to move the field of adult education toward more inclusive ways of theorizing learning