Eroding market stability by proliferation of financial instruments

We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently provides more means for risk diversification, making the market more efficient and complete. In the simple market of interacting traders discussed here, the proliferation of financial instruments erodes systemic stability and it drives the market to a critical state characterized by large susceptibility, strong fluctuations and enhanced correlations among risks. This suggests that the hypothesis of APT may not be compatible with a stable market dynamics. In this perspective, market stability acquires the properties of a common good, which suggests that appropriate measures should be introduced in derivative markets, to preserve stability.Comment: 26 pages, 8 figure

A Framework for Organizational Compliance Management Tactics

Abstract. Organizational compliance with laws, industrial standards, procedures and enterprise architectures has become a highly relevant topic for both practitio-ners and academics. However, both the fundamental insights into compliance as a concept and the tactics for bringing an organization into a compliant state have been described in a fragmented manner. Using literature from various disciplines, this paper presents two contributions. First, it describes the fundamental concepts regarding compliance. Second, it presents a framework in which the various tactics for achieving organizational compliance can be positioned

A Discrete-Time Approach to Arbitrage-Free Pricing of Credit Derivatives

This paper develops a framework for modelling risky debt and valuing credit derivatives that is flexible and simple to implement, and that is, to the maximum extent possible, based on observables. Our approach is based on expanding the Heath-Jarrow-Morton term-structure model to allow for defaultable debt. Rather than follow the procedure of implying out the behavior of spreads from assumptions concerning the default process, we work directly with the evolution of spreads. The risk-neutral drifts in the resulting model possess a recursive representation that facilitates implementation and makes it possible to handle path-dependence and early exercise features without difficulty. The framework permits embedding a variety of specifications for default; we present an empirical example of a default structure which provides promising calibration results.Credit Risk, Derivatives, No-Arbitrage

Creating and sustaining a culture of creativity

Perhaps the most helpful, and clearest, definition of culture is the idea that is 'the way we do things around here'. In education that simple phrase covers a multitude of possibilities in understanding how schools work. What does seem to be consistent is that school culture is to a very significant extent the product of leadership behaviours and values. A key manifestation of a school's culture is the status of creativity. The following questions help set out the possible range of issues associated with creating and sustaining a culture of creativity: to what extent can the relationships in the school be characterised as high-trust? Is creativity an explicit component of school policies, strategies and job definitions? How does the school define the learning process? Are learning and creativity seen as symbiotically related? How widely distributed is leadership? How is leadership defined? In what ways is creativity recognised and celebrated in school? The article explores these questions by first asking, 'why focus on creativity?' then examining the characteristics of creative people. The author concludes that if creativity is to be appropriately valued and achieve the necessary status then the key behaviours of leaders may have to change. [Author abstract, ed