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...

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...

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...

The Sato process model for option prices is expanded to accomodate credit considerations by incorporating a single jump to default occuring at an independent random time with a Weibull distribution. Explicit formulas for bid and ask prices are derived. Liquidity considerations are captured by...

Single period risks acceptable to the market at zero cost are modeled by a convex set of random variables leading to bid and ask prices that are trade size dependent. The theory of nonlinear expectations is employed to construct dynamically consistent sequences of bid and ask unit size prices...

Observing first that the daily option surface may be summarized by the level of the spot price and the four parameters of the Sato process based on the variance gamma process, a time series is constructed for this five dimensional set of factors driving the surface of S&P 500 index option...

An argument for adjusting Black Scholes implied call deltas downwards for a gamma exposure in a left skewed market is presented. It is shown that when the objective for the hedge is the conservation of capital ignoring the gamma for the delat position is expensive. The gamma adjustment factor in...

This paper presents an option positioning that allows us to infer forward variances from option portfolios. The forward variances we construct from equity index options help to predict (i) growth in measures of real economic activity, (ii) Treasury bill returns, (iii) stock market returns, and...

Prudent upper and lower valuations from the literature on arbitrage free two price economies provide risk characteristics driving required returns. The risk characteristics assess the risk of price fluctuations. The difference between the upper and lower prudent valuations can be viewed as a...

When the pricing kernel is U-shaped, then expected returns of claims with payout on the upside are negative for strikes beyond a threshold, determined by the slope of the U-shaped kernel in its increasing region, and have negative partial derivative with respect to strike in the increasing...