The Owner-Manager Conflict in Insured Banks: Predetermined Salary vs. Bonus Payments

This paper examines the incentive of a bank's owners and manager to increase the level of assets risk if bank deposits are insured. The model consists of three players: a public insurer (e.g., the FDIC), the bank's owners (owners), and its manager (manager). Empirical evidence has shown that the management of risk (e.g., credit and interest risk) and a low level of audit and control can be instrumental in causing banks to fail or get into financial difficulties. In the model presented here, the form of compensation to the manager plays a crucial role in determining the level of asset risk. We show under which conditions and form of compensation bank's owners and manager have an incentive to raise the risk level. The model is run first under the assumption that the information between the bank and the insurer is symmetrical, and then under the assumption that it is asymmetrical for two forms of pay: a predetermined salary, and bonus payments whose value is not known at the time the contract between the owners and the manager is signed. We also examine whether there is a pareto-optimal contract between the owners and the manager as regards the risk level, given the two forms of pay. This question is important because the absence of such a contract could indicate the existence of a source of instability in the banking system. This paper was presented at the Financial Institutions Center's October 1996 conference on "

Spectral and Diffusive Properties of Silver-Mean Quasicrystals in 1,2, and 3 Dimensions

Spectral properties and anomalous diffusion in the silver-mean (octonacci) quasicrystals in d=1,2,3 are investigated using numerical simulations of the return probability C(t) and the width of the wave packet w(t) for various values of the hopping strength v. In all dimensions we find C(t)\sim t^{-\delta}, with results suggesting a crossover from \delta<1 to \delta=1 when v is varied in d=2,3, which is compatible with the change of the spectral measure from singular continuous to absolute continuous; and we find w(t)\sim t^{\beta} with 0<\beta(v)<1 corresponding to anomalous diffusion. Results strongly suggest that \beta(v) is independent of d. The scaling of the inverse participation ratio suggests that states remain delocalized even for very small hopping amplitude v. A study of the dynamics of initially localized wavepackets in large three-dimensional quasiperiodic structures furthermore reveals that wavepackets composed of eigenstates from an interval around the band edge diffuse faster than those composed of eigenstates from an interval of the band-center states: while the former diffuse anomalously, the latter appear to diffuse slower than any power law.Comment: 11 pages, 10 figures, 1 tabl

Liquidity and Efficiency in Three Related Foreign Exchange Options Markets

The foreign currency market in a small open economy, like Israel, plays a major role in fiscal and monetary policy decisions, through its effects on the financial markets and the real economy. In this paper we explore the liquidity and efficiency in three related foreign exchange options markets and the information content of the instruments traded in these markets. The unique data set on OTC trading and the central bank auctions, in addition to the exchange traded options provide us with insights about the operation of these markets, their relative efficiency, their information content and their interrelationship. An important aspect is the effect of liquidity on the pricing of options in these markets. As expected, we find that, except for extreme cases, liquidity does not affect options prices

Localization of non-interacting electrons in thin layered disordered systems

Localization of electronic states in disordered thin layered systems with b layers is studied within the Anderson model of localization using the transfer-matrix method and finite-size scaling of the inverse of the smallest Lyapunov exponent. The results support the one-parameter scaling hypothesis for disorder strengths W studied and b=1,...,6. The obtained results for the localization length are in good agreement with both the analytical results of the self-consistent theory of localization and the numerical scaling studies of the two-dimensional Anderson model. The localization length near the band center grows exponentially with b for fixed W but no localization-delocalization transition takes place.Comment: 6 pages, 5 figure

Optimization of relativistic laser–ion acceleration

Experiments have shown that the ion energy obtained by laser–ion acceleration can be optimized by choosing either the appropriate pulse duration or the appropriate target thickness. We demonstrate that this behavior can be described either by the target normal sheath acceleration model of Schreiber et al. or by the radiation pressure acceleration model of Bulanov and coworkers. The starting point of our considerations is that the essential property of a laser system for ion acceleration is its pulse energy and not its intensity. Maybe surprisingly we show that higher ion energies can be reached with reduced intensities