The fact that the expected payoffs on assets and call options are infinite under most log-stable distributions led Paul Samuelson and Robert Merton to conjecture that assets and derivatives could not be reasonably priced under these distributions, despite their many other attractive features....

Several studies incorporating estimated volatilities into option pricing formulas have appeared in the literature. However, the models described in these studies tend to perform quite poorly in out-of-sample tests. In particular, significant departures from the observed prices can be seen for...

This article analyzes the specifications of option pricing models based on time-changed Levy processes. We classify option pricing models based on (i) the structure of the jump component in the underlying return process, (ii) the source of stochastic volatility, and (iii) the specification of...

It is well known that the distributions of assets returns have heavier tails than the Gaussian's. To capture such a distributional characteristic, the Generalized Hyperbolic(GH) distribution and its subclasses have been applied to assets returns as the distribution with heavier tails. GH...

In continuous time specifications, the prices of interest rate derivative securities depend crucially on the mean reversion parameter of the associated interest rate diffusion equation. This parameter is well known to be subject to estimation bias when standard methods like maximum likelihood...

We develop a model in which firms set their salary levels before matching with workers. Wages fall relative to any competitive equilibrium while profits rise almost as much, implying little inefficiency. Furthermore, the best firms gain the most from the system while wages become compressed. We...

This paper develops a monopolistic competition model to study the characteristics of products, such as quality improvement and product diversity (function-specialization and individualization), and the division of labor in production. Different from the ordinary economic model, our utility...

Cournot oligopoly has been studied almost exclusively under the implicit assumption of perfectly competitive factor markets. However,oligopolistic firms procure often factors of production from imperfectly competitive markets. Okuguchi(1998,2000) has analyzed Cournot oligopoly under the...

This paper examines the relationship between input sector liberalization and product quality innovation and export orientation by a LDC firm given the complementarity between high input quality and high product quality. We show that input sector liberalization per se may not induce quality...

This paper shows that, unlike what has been found in other papers, a hydro reservoir is an effective tool to exercise market power. Its appealing as a tool is enhanced by the fact that there is no need to constrain total hydro production - a practice too easy to detect -; it suffices to distort...