The valuation of employee stock options : how good is the standard?

This study contributes to the valuation of employee stock options (ESO) in two ways: First, a new pricing model is presented, admitting a major part of calculations to be solved in closed form. Designed with a focus on good replication of empirics, the model fits with publicly observable exercise characteristics better than earlier models. In particular, it is able to account for the correlation of the time of exercise and the stock price at exercise, suspected of being crucial for the option value. The impact of correlation is weak, however, whereas cancellations play a central role. The second contribution of this paper is an examination to what extent the ESO pricing method of SFAS 123 is subject to discretion of the accountant. Given my model were true, the SFAS price would be a good proxy. Yet, outside shareholders usually cannot observe one of the SFAS input parameters. On behalf of an example I show that there is wide latitude left to the accountant

MANAGING THE FINANCIAL FLOWS: GLOBALIZATION ASPECT

The basic trends in financial flows movement on the regional level have being examined in context of integration and globalization processes. The influence of financial flows on the financial potential of the region and its ability to develop own financial infrastructure have being analyzed. The directions for overcoming the negative influence of the institutional factors on the financial flows movement have being defined.The basic trends in financial flows movement on the regional level have being examined in context of integration and globalization processes. The influence of financial flows on the financial potential of the region and its ability to develop own financial infrastructure have being analyzed. The directions for overcoming the negative influence of the institutional factors on the financial flows movement have being defined

The impact of downward rating momentum on credit portfolio risk

Rating downgrades are known to make subsequent downgrades more likely. We analyze the impact of this ?downward momentum? on credit portfolio risk. Using S&P ratings from 1996 to 2005, we estimate a transition matrix that is insensitive to and a second matrix that is sensitive to previous downgrades. We then derive differences between the insensitive portfolio Value-at-Risk (VaR) and the momentum-sensitive VaR. We find realistic scenarios where investors who rely on insensitive transition matrices underestimate the VaR by eight percent of the correct value. The result is relevant for risk managers and regulators since banks neglecting the downward rating momentum might hold insufficient capital. -- In der Analyse von Ratingänderungen spricht man von einem Ratingimpuls (rating momentum), wenn die Wahrscheinlichkeit zukünftiger Ratingänderungen und Ausfälle nicht nur vom aktuellen Rating, sondern auch von früheren Ratingänderungen abhängt. Für Herabstufungen ist ein Ratingimpuls vielfach empirisch belegt: Innerhalb einer Ratingklasse haben die Anleihen mit vorangegangenen Herabstufungen eine höhere Ausfallwahrscheinlichkeit und eine höhere Wahrscheinlichkeit, herabgestuft zu werden, als solche ohne vorangegangene Herabstufungen. Dieser Ratingimpuls hat einen Einfluss auf das Wertänderungsrisiko eines Anleihenportfolios: Vergleicht man zwei Portfolios mit gleicher Ratingzusammensetzung, von denen das erste einen hohen Anteil zuvor herabgestufter Anleihen hat und das zweite einen geringen, dann sind im ersten Portfolio mehr Ausfälle und Barwertverluste durch die Neubewertung nach Herabstufungen zu erwarten als im zweiten. Wir messen den Einfluss des Ratingimpulses auf das Kreditportfoliorisiko unter möglichst realistischen Annahmen. Mit Standard-and-Poor?s-Daten von 1996 bis 2005 schätzen wir zunächst eine Ratingmigrationsmatrix, die den Ratingimpuls berücksichtigt, und eine Matrix, die den Impuls ignoriert. Anschließend verwenden wir die Matrizen in einem Kreditportfoliomodell vom Typ CreditMetrics und berechnen Unterschiede zwischen dem Value-at-Risk (VaR) mit und ohne Berücksichtigung des Ratingimpulses, wobei wir ersteren als richtig ansehen. Wir nehmen dabei an, dass der Portfoliomanager das aktuelle Rating, aber nicht den Ratingimpuls beachtet, also rein zufällig einige zuvor herabgestufte Anleihen ausgewählt hat. Wir gewinnen damit ein Risikomaß für die Fehleinschätzung des VaR. Es zeigt sich, dass ohne Berücksichtigung des Ratingimpulses der VaR von 6,7 % den korrekten VaR mit Ratingimpuls im Mittel um 0,24 % des Portfoliovolumens (3,5 % des richtigen VaR) unterschätzt. Bedeutsamer sind aber die erheblichen Schwankungen: Unter normalen Bedingungen gibt es eine Wahrscheinlichkeit von 5 %, dass der VaR ohne Ratingimpuls den korrekten VaR um mehr als 0,59 % (8,1 % des richtigen VaR) unterschätzt; in einer ökonomischen Stress-Situation kann der Fehler leicht 1,8 % (6.8 % des richtigen VaR) betragen. Das Ergebnis ist relevant für Risikomanager und Bankenaufseher, denn Banken, die den Ratingimpuls vernachlässigen, halten möglicherweise nicht ausreichend Kapital vor.Rating drift,Downward momentum,Credit portfolio risk,Value-at-Risk

Pressure dependence and non-universal effects of microscopic couplings on the spin-Peierls transition in CuGeO_3

The theory by Cross and Fisher (CF) is by now commonly accepted for the description of the spin-Peierls transition within an adiabatic approach. The dimerization susceptibility as the essential quantity, however, is approximated by means of a continuum description. Several important experimental observations can not be understood within this scope. Using density matrix renormalization group (DMRG) techniques we are able to treat the spin system exactly up to numerical inaccuracies. Thus we find the correct dependence of the equation of state on the spin-spin interaction constant J, still in an adiabatic approach. We focus on the pressure dependence of the critical temperature which is absent in the CF theory as the only energy scale with considerable pressure dependence is J which drops out completely. Comparing the theoretical findings to the experimentally measured pressure dependence of the spin-Peierls temperature we obtain information on the variation of the frustration parameter with pressure. Furthermore, the ratio of the spectral gap and the transition temperature is analyzed.Comment: 5 pages, 5 figures and 1 table include

How do banks adjust their capital ratios? Evidence from Germany

We analyze the dynamics of banks' regulatory capital ratios. Using monthly data of regulatory capital ratios for a subset of large German banks, we estimate the target level and the adjustment speed of the capital ratio for each bank separately. We find evidence that, first, there exists a target level for a substantial percentage of banks; second, that private banks and banks with liquid assets are more likely to adjust their capital ratio tightly; and third, that banks compensate for low target capital ratios with low asset volatilities and high adjustment speeds. Fourth, banks with a target capital ratio seem to use an internal lower limit for their current ratios that is just above the regulatory minimum of 8%. --Regulatory bank capital,target capital ratio,partial adjustment,Ornstein-Uhlenbeck process

Helping Others: Looking at Culture, Language, and Time

As a social phenomena, giving and receiving help is a complex behavior. This paper will highlight the specific language used in context of providing social support, and how this language has changed over time, as well as the impact of age on the act of helping another individual. Other social factors such as different identity constructs, power, and motivation will also be covered in relation to how they govern prosocial behavior. A particular focus on the notion of filial piety and helping others in South Korea will also be given to provide a cross-cultural comparative to the American context. (Faculty Sponsor: Gaelyn Aguilar