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We analyze a firm's optimal communication strategy for setting consumer expectations when consumers are uncertain about product quality and word of mouth is prevalent in the market. We derive three main results: [i] Extant signaling theory argues that advertising should be costly for it to be...
Persistent link: https://www.econbiz.de/10014176469
This study seeks to examine how different types of information – product-related and price-related information provided by retailers – impact purchase-related outcomes for consumers belonging to different states of shopping. Using mixture-modeling techniques on clickstream data obtained from...
Persistent link: https://www.econbiz.de/10014044433
Firms invest significantly in advertising with the intent of influencing consumers favorably towards their goods. Along with advertising, word of mouth also plays an important role in shaping consumer opinion about a firm's goods. In many contexts, word of mouth is affected by behaviors such as...
Persistent link: https://www.econbiz.de/10014039391
A local volatility model is enhanced by the possibility of a single jump to default. The jump has a hazard rate that is the product of the stock price raised to a prespecified negative power and a deterministic function of time. The empirical work uses a power of -1.5. It is shown how one may...
Persistent link: https://www.econbiz.de/10014045765
Optimal portfolios of variance swaps are constructed taking account of both autocorrelation and cross asset dependencies. Market prices of variance swaps are extracted from option surface calibrations. The methods developed permit simulation of cash flows to arbitrary portfolios of variance...
Persistent link: https://www.econbiz.de/10014045767
The theory of pricing to acceptability developed for incomplete markets by Cherny and Madan (2009b) is applied to marking ones own default risk. It is observed in agreement with Heckman (2004), that assets and liabilities are not to be priced under fair value accounting principles at the same...
Persistent link: https://www.econbiz.de/10014045769
The concept of stress levels embedded in S&P 500 options are defined and illustrated with explicit constructions. The particular example of a stress function used is MINMAXVAR. Seven joint laws for the top 50 stocks in the index are considered. The first time changes a Gaussian one factor...
Persistent link: https://www.econbiz.de/10014045771
For mean reverting base probabilities option pricing models are developed using an explicit measure change induced by the selection of a terminal time and a terminal random variable. The models employed are the square root process and an OU equation driven by centered variance gamma shocks. VIX...
Persistent link: https://www.econbiz.de/10012996895
No arbitrage for two price economies with no locally risk free asset implies that suitably deflated prices are nonlinear martingales. However, both the deflating process and the measure change depend on the process being deflated. Further assumptions allow the nonlinear martingales in discrete...
Persistent link: https://www.econbiz.de/10012998891
Learning the pre limited liability value process of equity claims and its relationship to the stock price is an answer to the financial jeorpardy question when observed option prices are the answer being given by the market. Constant dollar equity holder values, prior to the imposition of...
Persistent link: https://www.econbiz.de/10013004139