Boris Wälchli, A Proximity Based Stress Testing Framework, In: SSRN, No. 2660498, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
In this a paper a non-linear macro-stress testing methodology with focus on early warning is developed. The methodology builds on a variant of Random Forests and its proximity measures. It develops a framework in which naturally defined contagion and feedback effects transfer the impact of stressing a relatively small part of the observations on the whole dataset and thus allow to estimate the a stressed future state. It will be shown that contagion can be directly derived from the proximities while iterating the proximity based contagion leads to naturally defined feedback effects. This procedure allows accurate forecast of events under stress and thus allows to forecast the emergence of a potential crisis. The framework also estimates a set of the most influential economic indicators leading to the potential crisis, which can then be used as indications of remediation or prevention of that crisis. Since the methodology is Random Forests based the framework is suitable for big data analysis. |
|
Michel Habib, Fabrice Collard, Jean-Charles Rochet, Optimal Sovereign Debt under Excusable Default, In: -, No. -, 2016. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif)
|
|
Michel Habib, Richard Brealey, Ian Cooper, Valuation in the Public and Private Sectors: Tax, Risk and the Cost of Capital, In: -, No. -, 2016. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif)
|
|
Michel Habib, D Bruce Johnsen, Hedging and Information in Forward and Option Contracts, In: -, No. -, 2016. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif)
|
|
Boris Wälchli, A Random Forests Based Performance Ratio for Regulatory Asset Portfolio Management and Optimization, In: SSRN, No. 2550072, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
The following paper proposes a portfolio performance measure to optimize, mostly bond asset portfolios usually held for regulatory purposes from a risk focused perspective. The measure is based on variations of the proximity measure introduced by the Random Forests framework, leading to a proximity based performance ratio. The proximities are modeled using a recursive conditional partitioning type of Random Forests, which allows for a ranking as well as an analysis of the risk drivers of the portfolio performance. The proximity based performance ratio is shown to, on average, outperform nine different and commonly known risk and performance ratios as well as the 1/N-balanced portfolio in three different tests, in- and out of the sample. The proximity based performance ratio can consider a large amount of risk rivers and is suitable for big data analysis for big and small financial institutions. |
|
Michel Habib, Multifaceted Transactions, Incentives, and Organizational Form, In: CEPR Discussion Paper, No. DP10432, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif)
When not every facet of a transaction can be contracted upon and transacting parties' payoffs are asymmetric, low-powered incentives for those facets of the transaction that can be contracted upon may be necessary to avoid too large a distortion in those facets that cannot be contracted upon (Barzel, 1982, 1997; Hansmann, 1996; Holmstrom and Milgrom, 1991). Distinguishing between different types of capital (financial, physical, intangible), different forms of incentives (performance pay, organizational form, ownership), and different transacting pairs (manager/shareholder, supplier/buyer, customer/firm), and using a model of investment developed by Falkinger (2014), we extend the preceding insight to explain partnerships, mutuals, cooperatives, government ownership, and vertical integration. Distinguishing between resource allocation and resource creation, we show that resource creation calls for higher powered incentives than does resource allocation. Allowing for diversification-induced economies of scale in the use of capital, we establish the result that larger, more diversified firms offer higher-powered incentives. Finally, allowing for the partial contractibility of investment and the use of capital, we show that the former decreases the power of incentives whereas the latter increases that power, thereby providing a combined explanation for the Nineteenth- and Twentieth-Century rise of large military and civilian bureaucracies and the more recent outsourcing of products and services previously sourced internally. Our results suggest that the recognition of the multiple facets of most transactions can help explain numerous institutional arrangements, as well as the apparent lack of disadvantage of low-powered-incentives organizations competing with their high-powered-incentives counterparts (Bohren and Josefsen, 2013; Hansmann and Thomsen, 2012). |
|
Fulvia Fringuellotti, Ciprian Necula, A Generalized Bachelier Formula for Pricing Basket and Spread Options, In: SSRN, No. 2698307, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
In this paper we propose a closed-form pricing formula for European basket and spread options. Our approach is based on approximating the risk-neutral probability density function of the terminal value of the basket using a Gauss-Hermite series expansion around the Gaussian density. The new method is quite general as it can be applied for a basket with a large number of assets and for all dynamics where the joint characteristic function of log-returns is known in closed form. We provide a simulation study to show the accuracy and the speed of our methodology. |
|
Felix Kübler, Simple ε-equilibria in stochastic economies with overlapping generations, In: -, No. -, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
|
|
Johannes Brumm, Felix Kübler, Simon Scheidegger, Computing equilibria in dynamic stochastic macromodels with heterogeneous agents, In: -, No. -, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
|
|
Johannes Brumm, Dominika Kryczka, Felix Kübler, Recursive equilibria in dynamic economies with stochastic production, In: s.n., No. n/a, 2014. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
|
|
Karl Schmedders, Walter Edward Pohl, Ole Wilms, Higher-order dynamics in asset-pricing models with recursive preferences, In: Swiss Finance Institute Research Paper, No. 14-68, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
This paper presents an analysis of the higher-order dynamics of key financial quantities in asset-pricing models with recursive preferences. For this purpose, we first describe a projection-based algorithm for solving such models. The method outperforms common methods like discretization and log-linearization in terms of effciency and accuracy. Our algorithm allows us to document the presence of strong nonlinear effects in the modern long-run risks models which cannot be captured by the common methods. For example, for a prominent recent calibration of a popular long-run risks model, the log-linearization approach overstates the equity premium by 100 basis points or 22.5%. The increasing complexity of state-of-the-art asset-pricing models leads to complex nonlinear equilibrium functions with considerable curvature which in turn have sizable economic implications. Therefore, these models require numerical solution methods, such as the projection methods presented in this paper, that can adequately describe the higher-
order equilibrium features. |
|
Paolo Bizzozero, Raphael Flepp, Egon Franck, The importance of suspense and surprise in entertainment demand: evidence from Wimbledon, In: UZH Business Working Paper Series, No. 357, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
This paper empirically examines how suspense and surprise explain demand for entertainment. We use the Wimbledon Championships tennis tournament as a natural laboratory. This setting allows us to both operationalize suspense and surprise using the audience's belief about the final outcome of the match and observe of the demand for live entertainment using TV audience figures. Using 8,563 minute-by-minute observations from 80 matches between 2009 and 2014, our fixed-effects estimates show that both suspense and surprise are driving forces behind media entertainment demand. Our results have important implications for the design of entertainment content to maximize entertainment demand. |
|
Maximilian Valentin Rüdisser, Raphael Flepp, Egon Franck, Do casinos pay their customers to become risk-averse? Revising the house money effect in a natural experiment, In: Business Working Paper Series, No. 360, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
In order to promote risky behavior, it is a common practice that casinos incentivize their customers through the provision of free financial means, i.e., free play. Thereby, casino operators try to exploit what is known as the house money effect. However, evidence from the field is scarce and prior research provides explanations that predict different behavioral outcomes. This experimental study analyzes the gambling behavior of 765 casino customers and finds that incentivized customers show not higher but significantly lower levels of risk-seeking behavior, expressed through lower wagers per game and overall smaller losses. This study thus provides evidence against the existence of a house money effect. |
|
Stefan Schembera, Patrick Haack, Andreas Scherer, Making sense of decoupling through narration : the case of fighting corruption in global business, In: UZH Business Working Paper Series, No. 356, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
Previous organizational research on decoupling in the context of socio-environmental governance has suggested a trade-off between compliance and goal achievement, meaning that remedying the decoupling of policies and practices tends to jeopardize efforts to remedy the decoupling of means and ends. We expand on previous research on the trade-off between compliance and goal achievement by examining the spatiotemporal processes of sensemaking by which the meaning of compliance and achievement is negotiated among multiple actors. Taking a qualitative analytical approach we examine the evolution of anti-corruption policies at Siemens and affiliated actors, and describe how different anti-corruption narratives have developed over time at different locations and how they have been linked to each other. We explain that through narration actors develop a shared understanding of what it means to be compliant and successful and elaborate how the apparent tension between compliance and goal achievement is dissolved through story-telling. Our study contributes to decoupling re-search by examining the ideational-communicative dynamics underlying the social deconstruction of the compliance-achievement gap. |
|
Thi Quynh Anh Vo, Liquidity Management in Banking: What is the Role of Leverage?, In: Swiss Finance Institute Research Paper, No. 15-51, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
This paper examines potential impacts of banks' leverage on their incentives to manage their liquidity. We analyze a model where banks control their liquidity risk by managing their liquid asset positions. In the basic framework, a model with a single bank, where the possibility of selling long-term assets when in need of liquidity is not taken into account, we find that the bank chooses to prudently manage its liquidity risk only when its leverage is low. In a model with multiple banks and a secondary market for long-term assets, we find that a banking system where banks are highly leveraged can be prone to liquidity crises. Our model predicts a typical pattern of liquidity crises that is consistent with what was observed during the 2007-2009 crisis. |
|
Falko Paetzold, Timo Busch, Cognitive Barriers to Sustainable Investing: Unleashing the Power of Wealthy Private Investors, In: DSF Policy Paper, No. 41, 2014. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif)
Sustainable investing (SI) has lately been viewed as a mainstream investment style. However, this notion can be questioned since private investors appear substantially underrepresented in SI compared to institutional investors. In this study, we empirically explore SI-barriers for private investors. We provide insights from interviews with High Net Worth Individuals (HNWIs), an economically highly significant yet secretive and thus little researched segment of private investors. Our results indicate substantial interest in SI amongst HNWIs, while the perception of what SI entails varied across individuals. From our analysis, we propose three specific SI-barriers. The first is an SI-information asymmetry based on investment advisors’ perception that appears to misinterpret clients’ interest in SI. The second relates to HNWIs’ perception of SI to be more volatile then average investments. This perception limits the engagement in SI in situations where the investor has a short-term investment horizon. The third barrier highlights the role of recent financial losses. In situations where the investor experienced such losses, the perception of SI as being more volatile than average investments results in less SI engagement. We reflect on these empirical results by drawing on insights from Prospect Theory and propose avenues for future research. In sum, this paper shows that investors’ cognition of SI appears to be an important engagement reason that goes beyond the usual business-case-arguments. |
|
Ciprian Necula, Gabriel Grigore Drimus, Erich Walter Farkas, A General Closed Form Option Pricing Formula, In: SSRN, No. 2210359, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
A new method to retrieve the risk-neutral probability measure from observed option prices is developed and a closed form pricing formula for European options is obtained by employing a modified Gram-Charlier series expansion, known as the Gauss-Hermite expansion. This expansion converges for fat-tailed distributions commonly encountered in the study of financial returns. The expansion coefficients can be calibrated from observed option prices and can also be computed, for example, in models with the probability density function or the characteristic function known in closed form. We investigate the properties of the new option pricing model by calibrating it to both real-world and simulated option prices and find that the resulting implied volatility curves provide an accurate approximation for a wide range of strike prices. Based on an extensive empirical study, we conclude that the new approximation method outperforms other methods both in-sample and out-of-sample. |
|
Erich Walter Farkas, Ciprian Necula, Boris Waelchli, Herding and Stochastic Volatility, In: SSRN, No. 2685939, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
In this paper we develop a one-factor non-affine stochastic volatility option pricing model where the dynamics of the underlying is endogenously determined from micro-foundations. The interaction and herding of the agents trading the underlying asset induce an amplification of the volatility of the asset over the volatility of the fundamentals. Although the model is non-affine, a closed form option pricing formula can still be derived by using a Gauss-Hermite series expansion methodology. The model is calibrated using S&P 500 index options for the period 1996-2013. When its results are compared to some benchmark models we find that the new non-affine one-factor model outperforms the affine one-factor Heston model and it is competitive, especially out-of-sample, with the affine two-factor double Heston model. |
|
Erich Walter Farkas, Elise Gourier, Robert Huitema, Ciprian Necula, A Two-Factor Cointegrated Commodity Price Model with an Application to Spread Option Pricing, In: SSRN, No. 2679218, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
|
|
Christian Eggenberger, Miriam Rinawi, Uschi Backes-Gellner, Occupational Specificity: A new Measurement Based on Training Curricula and its Effect on Labor Market Outcomes, In: Swiss Leading House "Economics of Education" Working Paper, No. 106, 2015. (Working Paper)
![BibTex](/static/css/icons/bibtex.gif) ![PDF](/static/css/icons/pdf.png)
This paper proposes a new measurement for the specificity of occupations based on a content analysis of training curricula that we link to labor market demands. We apply Lazear’s (2009) skill weights approach and test predictions on labor market outcomes derived from his theory. We find clear evidence of a trade-off between earning higher returns with more specific training and higher occupational mobility with less specific training. Our measure improves the micro-foundation of human capital specificity and provides an evidence-based approach to evaluate the specificity of training curricula. |
|