Bounds for the price of discrete arithmetic Asian options.

In this paper the pricing of European-style discrete arithmetic Asian options with fixed and floating strike is studied by deriving analytical lower and upper bounds. In our approach we use a general technique for deriving upper (and lower) bounds for stop-loss premiums of sums of dependent random variables, as explained in Kaas, Dhaene and Goovaerts (2000), and additionally, the ideas of Rogers and Shi (1995) and of Nielsen and Sandmann (2003). We are able to create a unifying framework for discrete Asian options through these bounds, that generalizes several approaches in the literature as well as improves the existing results. We obtain analytical and easily computable bounds. The aim of the paper is to formulate an advice of the appropriate choice of the bounds given the parameters, investigate the effect of different conditioning variables and compare their efficiency numerically. Several sets of numerical results are included. We also show that the hedging using these bounds is possible. Moreover, our methods are applicable to a wide range of (pricing) problems involving a sum of dependent random variables.Asian option; Choice; Efficiency; Framework; Hedging; Methods; Options; Premium; Pricing; Problems; Random variables; Research; Stop-loss premium; Variables;

Bessel bridges decomposition with varying dimension. Applications to finance

We consider a class of stochastic processes containing the classical and well-studied class of Squared Bessel processes. Our model, however, allows the dimension be a function of the time. We first give some classical results in a larger context where a time-varying drift term can be added. Then in the non-drifted case we extend many results already proven in the case of classical Bessel processes to our context. Our deepest result is a decomposition of the Bridge process associated to this generalized squared Bessel process, much similar to the much celebrated result of J. Pitman and M. Yor. On a more practical point of view, we give a methodology to compute the Laplace transform of additive functionals of our process and the associated bridge. This permits in particular to get directly access to the joint distribution of the value at t of the process and its integral. We finally give some financial applications to illustrate the panel of applications of our results

Using knowledge for decision-making purposes

Abstract: Policy-related research in general, and Impact Assessments in particular, are too loosely connected to decision-making processes. The result is often sub-optimal or even undesirable, as one of two situations arises: 1) much research is done; however, those with the real power to make decisions do not make use of all of the resulting information, or 2) advocates of contrary opinions struggle with each other, using policy-related research as ammunition. To avoid these unwanted situations, the connection between the world of knowledge and the world of decisionmaking should be carefully constructed, by connecting the process of decision-making to the academic research and carefully developing research goals in response to the demands of decision-makers. By making these connections in a stepwise manner, knowledge may generate new insights and views for involved decision-makers and stakeholders, thus changing perceptions and problem definitions. In this way, these actors learn about the possibilities of several alternatives as well as each other’s perceptions, and thus can make educated decisions leading to the most desirable and socially acceptable solution. The way this proposed method works is illustrated using two cases in The Netherlands: the project “Mainport Rotterdam” (the enlargement of the port of Rotterdam), the project “A fifth runway for Amsterdam Airport (Schiphol)”

Regional variations in diffuse nitrogen losses from agriculture in the Nordic and Baltic regions

International audienceThis paper describes nitrogen losses from, and the characteristics of, 35 selected catchments (12 to 2000 ha) in the Nordic and Baltic countries. Average annual losses of N in 1994?1997 ranged from 5 to 75 kg ha-1, generally highest and characterised by significant within-country and interannual variations, in Norway and the lowest losses were observed in the Baltic countries. An important finding of the study is that the average nutrient losses varied greatly among the studied catchments. The main explanations for this variability were water runoff, fertiliser use (especially the amount of manure), soil type and erosion (including stream bank erosion). However, there were several exceptions, and it was difficult to find general relationships between the individual factors. For example, there was poor correlation between nitrogen losses and surpluses. Therefore, the results suggest that the observed variability in N losses cannot have been due solely to differences in farm management practices, although the studied catchments do include a wide range of nutrient application levels, animal densities and other relevant elements. There is considerable spatial variation in the physical properties (soil, climate, hydrology, and topography) and the agricultural management of the basins, and the interaction between and relative effects of these factors has an important impact on erosion and nutrient losses. In particular, hydrological processes may have a marked effect on N losses measured in the catchment stream water. The results indicate that significant differences in hydrological pathways (e.g. the relationship between fast- and slow-flow processes) lead to major regional differences in N inputs to surface waters and therefore also in the response to changes in field management practices. Agricultural practices such as crop rotation systems, nutrient inputs and soil conservation measures obviously play a significant role in the site-specific effects, although they cannot explain the large regional differences observed in this study. The interactions between agricultural practices and basic catchment characteristics, including hydrological processes, determine the final losses of nitrogen to surface waters, hence it is necessary to understand these interactions to manage diffuse losses of agricultural nutrients efficiently. Keywords: agriculture, catchments, diffuse sources, nitrogen, losses, Baltic, Nordi

Urban agriculture: a global analysis of the space constraint to meet urban vegetable demand

Urban agriculture (UA) has been drawing a lot of attention recently for several reasons: the majority of the world population has shifted from living in rural to urban areas; the environmental impact of agriculture is a matter of rising concern; and food insecurity, especially the accessibility of food, remains a major challenge. UA has often been proposed as a solution to some of these issues, for example by producing food in places where population density is highest, reducing transportation costs, connecting people directly to food systems and using urban areas efficiently. However, to date no study has examined how much food could actually be produced in urban areas at the global scale. Here we use a simple approach, based on different global-scale datasets, to assess to what extent UA is constrained by the existing amount of urban space. Our results suggest that UA would require roughly one third of the total global urban area to meet the global vegetable consumption of urban dwellers. This estimate does not consider how much urban area may actually be suitable and available for UA, which likely varies substantially around the world and according to the type of UA performed. Further, this global average value masks variations of more than two orders of magnitude among individual countries. The variations in the space required across countries derive mostly from variations in urban population density, and much less from variations in yields or per capita consumption. Overall, the space required is regrettably the highest where UA is most needed, i.e., in more food insecure countries. We also show that smaller urban clusters (i.e., <100 km2 each) together represent about two thirds of the global urban extent; thus UA discourse and policies should not focus on large cities exclusively, but should also target smaller urban areas that offer the greatest potential in terms of physical space

Integrated Water Resources Management: STRIVER Efforts to Assess the Current Status and Future Possibilities in Four River Basins

The contemporary concept of Integrated Water Resources Management (IWRM) was primarily conceived for the purpose of promoting sustainable water management. There are many elements included in modern IWRM perceptions, e.g., natural resource utilization planning combined with at strategy to balance between social, economic and environmental objectives based on an overall sustainability concept. However, the concept behind IWRM is not new. The historical development of the concept of Integrated Water Resources Management (IWRM) can be found in Rahaman and Varis (2005).Peer Reviewe

On the Existence of Shadow Prices

For utility maximization problems under proportional transaction costs, it has been observed that the original market with transaction costs can sometimes be replaced by a frictionless "shadow market" that yields the same optimal strategy and utility. However, the question of whether or not this indeed holds in generality has remained elusive so far. In this paper we present a counterexample which shows that shadow prices may fail to exist. On the other hand, we prove that short selling constraints are a sufficient condition to warrant their existence, even in very general multi-currency market models with possibly discontinuous bid-ask-spreads.Comment: 14 pages, 1 figure, to appear in "Finance and Stochastics