Optimal Changes of Gaussian Measures, with Application to Finance

We derive optimality conditions and calculate approximate solutions to the problem of determining the optimal speed of mean reversion to be applied to a Gaussian state variable. The optimality criterion is the minimization of the variance of the Radon-Nikodym derivative of the measure ”with mean-reversion ” with respect to the measure ”without mean-reversion ”under constraints. Our results have two main applications. First, we show that we can increase the speed of performing resimulation and sensitivity analysis in a Monte Carlo simulation. Second, we show that there is some phase delay between the optimal speed of mean-reversion and volatility. Incorporating this effect into preference modelling could contribute to solve the equity premium puzzle in finance.Equity premium puzzle; Monte Carlo simulation; change of measure

A Comparison of Alternative Methods to Model Endogeneity in Count Models. An Application to the Demand for Health Care and Health Insurance Choice.

Several estimators have been suggested to tackle the problem of endogenous regressors and selectivity in count regression models. They differ in the structure and the degree of parametrization of the underlying models. The estimation of health services utilization conditional on the choice of different forms of health insurance provides a classical example of such problems. In Switzerland, basic health insurance is mandatory and each individual is insured separately. The insurance premium varies by region of residence but is independent of income and risk. The insured face a minimal annual deductible for ambulatory health services. Annually, they are given a choice of higher deductibles to reduce their insurance premium by a regulated percentage. The choice of a higher deductible sets incentives for a more cautious utilization of health services. Clearly, the choice is made based on expected health service utilization. The effect of the choice of a higher than the minimal deductible on the number of physician visits is analyzed. A matching estimator, a GMM estimator, two-stage method of moments estimators which account for selectivity and endogenous switching count regression models are applied to data from the 1997 Swiss Health Survey. Incentive-induced behavioral changes are disentangled from selection effects. The main finding is that most of the observed lower utilization for individuals with a high insurance deductible is caused by self- selection of individuals into the respective insurance contracts which either differ in their preferences or are healthier in unobserved aspects of their health status.demand for health care and insurance, count models, endogenous regressors

A Double-Sided Multiunit Combinatorial Auction for Substitutes: Theory and Algorithms

Combinatorial exchanges have existed for a long time in securities markets. In these auctions buyers and sellers can place orders on combinations, or bundles of different securities. These orders are conjunctive: they are matched only if the full bundle is available. On business-to-business (B2B) exchanges, buyers have the choice to receive the same product with different attributes; for instance the same product can be produced by different sellers. A buyer indicates his preference by submitting a disjunctive order, where he specifies how much of the product he wants, and how much he values each attribute. Only the goods with the best attributes and prices will be matched. This article considers a doubled-sided multi-unit combinatorial auction for substitutes, that is, a uniform price auction where buyers and sellers place both types of orders, conjunctive and disjunctive. We prove the existence of a linear price which is both competitive and surplus-maximizing when goods are perfectly divisible, and nearly so otherwise. We describe an algorithm to clear the market, which is particularly efficient when the number of traders is large.Combinatorial auction, economic equilibrium

Social Union, Migration and the Constitution: Integration at Risk

Europäische Integration, Mobilität, Soziale Integration, Sozialstaat, Europäische Wirtschafts- und Währungsunion, European integration, Mobility, Social integration, Welfare state, European Economic and Monetary Union

Empirical Evidence on the Effects of Marginal Tax Rates on Income – The German Case

In 1990 the German personal income tax schedule underwent a major change. We interpret this reform as a ‘natural experiment´ and use a panel of individual income tax returns to analyze the response of income to changes in the individual tax rates. Our results suggest an average elasticity of taxable income with respect to the net-of-tax rate of around 0.4. Due to the detailed information the panel provides, we are not only able to distinguish between different levels of income but also between different types of income. We found very low elasticity estimates in the case of regular employment income, but values of up to 1.0 for business income and for high-income households.

Credit Risk in a Network Economy

We develop a structural model of credit risk in a network economy. In particular, we are able to account for complex counterparty relationships,where one company may be indirectly affected by the credit risk of another company in the network. In this re-spect,we generalize Jarrow and Yu (2001)and Collin-Dufresne,Goldstein and Hugonnier (2003),but do so in the rich context of a structural form model. We provide closed form formulae for the price of risky debt and equity,which depend upon the lending/borrowing relationships in the economy. Our model applies to completely general lender/borrower relationships,including looping relationships. Our formulae can apply to cases where not only ?nancial ?ows but also operations are dependent across ?rms. In order to achieve these results,we use queueing theory. This paper thus represents one of the ?rst applications of queueing theory to ?nance.Credit Risk; Capital Structure; Queueing Networks

The evolution of income-related inequalities in health care utilization in Switzerland over time

This study investigates equity in access to health care in Switzerland over time, using nationwide representative survey data from 1982, 1992, 1997 and 2002. Both simple quintile distributions and concentration indices are used to assess horizontal equity, i.e. the extent to which adults in equal need for medical care appear to have equal rates of medical care utilization. Looking at each of the four survey years separately the results indicate that by and large, there is little or no inequity in use except with respect to specialist visits which are clearly pro rich distributed as in most other OECD countries. We neither find much significant variation over time despite the fact that the share of health care has grown from close to 8% to more than 11% over this period and that a major reform of the health care system has taken place in 1996health care utilization; inequality

The evolution of income-related health inequalities in Switzerland over time

This paper presents new evidence on income-related health inequality and its development over time in Switzerland. We employ the methods lined out in van Doorslaer and Jones (2003) and van Doorslaer and Koolman (2004) measuring health using an interval regression approach to compute concentration indices and decomposing inequality into its determining factors. Nationally representative survey data for 1982, 1992, 1997 and 2002 are used to carry out the analysis. Looking at each of the four years separately the results indicates the usual positive relationship between income and health, but the distribution is among the least unequal in Europe. No clear trend emerges in the evolution of the inequality indices over the two decades. Inequality is somewhat lower in 1982 and 1992 as compared to 1997 and 2002 but the differences are not significant. The most important contributors to health inequality are income, education and activity status, in particular retirement. Regional differences including the widely varying health care supply, by contrast, do not exert any systematic influenceInequalities in health; concentration index; decomposition analysis