Decentralized interaction and co-adaptation in the repeated prisoner's dilemma

The purpose of this paper is to propose a nonparametric interest rate term structure model and investigate its implications on term structure dynamics and prices of interest rate derivative securities. The nonparametric spot interest rate process is estimated from the observed short-term interest rates following a robust estimation procedure and the market price of interest rate risk is estimated as implied from the historical term structure data. That is, instead of imposing a priori restrictions on the model, data are allowed to speak for themselves, and at the same time the model retains a parsimonious structure and the computational tractability. The model is implemented using historical Canadian interest rate term structure data. The parametric models with closed form solutions for bond and bond option prices, namely the Vasicek (1977) and CIR (1985) models, are also estimated for comparison purpose. The empirical results not only provide strong evidence that the traditional spot interest rate models and market prices of interest rate risk are severely misspecified but also suggest that different model specifications have significant impact on term structure dynamics and prices of interest rate derivative securities.

Governance and matching

We investigate the impact of advertising in a simple static differentiated duopoly model. First, we consider the Nash equilibrium of the situation in which the duopolistic firms compete simultaneously with two instruments, i.e. the prices and the advertising expenditures. Second, we examine the Nash equilibrium of the situa-tion in which the firms only compete in prices and do not advertise at all. Next, we compare the two different Nash equilibria in order to assess the impact of advertising. In particular, we characterize in terms of the model parameters the circumstances in which the profits, outputs and/or prices of each firm are greater (smaller) in the Nash equilibrium with advertising than in the Nash equilibrium without advertising. We show that the results depend on (a) the size of the (positive) effect of advertising of a firm on its own demand, (b) the size and nature (stimulating or adverse) of the cross-effect of the advertising of each firm on the demand of the other firm, and (c) the size of the autonomous demand of the firms.