Introduction to the Milestones series

This new series will publish expository commentaries celebrating key contributions (Milestones) to our scholarly heritage

Generally acceptable principles for financial amortization: a modest proposal

We propose a minimal set of commonly acceptable principles to consistently formulate amortization schedules in accordance with different contractual clauses. Our goal is bringing to the fore premises that are sometimes left implicit, and yet seem to draw a wide consensus in practice. We demonstrate by means of examples how these principles may be used to deal with risk or financial innovations, and to fill gaps arising from unforeseen contingencies

Generally acceptable principles for financial amortization: a modest proposal

The paper proposes a minimal set of commonly acceptable principles to consistently formulate amortization schedules in accordance with different contractual clauses. Our goal is bringing to the fore premises that are sometimes left implicit, and yet seem to draw a wide consensus in practice. We demonstrate by means of examples how these principles may be used to deal with risk or financial innovations, and to fill gaps arising from unforeseen contingencies

On the decomposition of stochastic discounted cash flows

This paper extends previous results by Peccati [7] and Beccacece [1] on the decomposition of the discounted cash flow for deterministic financial operations to the stochastic case. Modelling financial operations as processes whose cumulant is a semimartingale, we obtain a very general decomposition formula which allows one to consider even random discount factors. © 1991 Springer-Verlag

Asymmetric information in loan contracts: New evidence from Italian big data

We provide new empirical evidence for an open problem regarding asymmetric information in loan contracts: the effect of higher collateral requirements on the interest rates applied by banks to borrowers is not clear under such asymmetry. Previous literature has argued both for positive and negative links, based on different models and econometric analyses. Our purpose is to examine recent Italian data, analyzing for the first time big data for thousands of borrowers collected by means of a European Central Bank project. First, we apply an unsupervised analysis to this unique microeconomic data set with a focus on the link between interest rate and loan to value. We do not find evidence of a strong link between those variables. Then, we develop a game-theoretic model, which supports the empirical results, based on the principal-agent problem adapted to the specific case of loans. Finally, we analyze loan data in a supervised setting, controlling for different borrowers’ categorical variables related to the interest rate determination. We conclude that the interest rate in loan contracts is influenced by asymmetric information and that higher collateral is not necessarily associated with a lower interest rate

The probability to reach an agreement as a foundation for axiomatic bargaining

We revisit the Nash bargaining model and axiomatize a procedural solution that maximizes the probability of successful bargaining. Our characterization spans several known solution concepts, including the special cases of the Nash, egalitarian, and utilitarian solutions. Using a probability-based language, we offer a natural interpretation for the product operator underlying the Nash solution: when the bargainers’ individual acceptance probabilities are independent, their product recovers the joint acceptance probability

Market equilibrium via classifications of commodities

When a rich variety of available goods is classified into a smaller number of tradable commodities, we have a market economy that relies on a simplified representation. We study how the classification of goods into commodities affects the allocation of scarce resources among agents. We also consider a notion of decentralized equilibrium that is achieved merely by an appropriate classification of the goods, regardless of the presence of a price-based mechanism