Price bias and common practice in option pricing

Generally, the semiclosed-form option pricing formula for complex financial models depends on unobservable factors such as stochastic volatility and jump intensity. A popular practice is to use an estimate of these latent factors to compute the option price. However, in many situations this plug-and-play approximation does not yield the appropriate price. This article examines this bias and quantifies its impacts. We decompose the bias into terms that are related to the bias on the unobservable factors and to the precision of their point estimators. The approximated price is found to be highly biased when only the history of the stock price is used to recover the latent states. This bias is corrected when option prices are added to the sample used to recover the states' best estimate. We also show numerically that such a bias is propagated on calibrated parameters, leading to erroneous values. The Canadian Journal of Statistics 48: 8–35; 2020 © 2019 Statistical Society of Canada     

Australia and the Global South: Knowledge and the Ambiguities of Place and Identity

Australia was settled as a colony of Britain from the 17th century, and its early history of violent occupation has gradually given way to a relatively peaceful, wealthy, multicultural society. As a post-colonial country, its people share characteristics with those of Britain, but, as a multicultural society, national identity is increasingly influenced by the cultures of many countries, from both the global North and South. In this paper, the question of Australia's placement as a country of the global North or South is explored. Considerations of geography, the economy, political regimes and national identity are the backdrop to an investigation of Australian scholarship and the attitudes of scholars to the inclusion of Australia as a country of the global South.     

The Measurement of Multidimensional Poverty

Many authors have insisted on the necessity of defining poverty as a multidimensional concept rather than relying on income or consumption expenditures per capita. Yet, not much has actually been done to include the various dimensions of deprivation into the practical definition and measurement of poverty. Existing attempts along that direction consist of aggregating various attributes into a single index through some arbitrary function and defining a poverty line and associated poverty measures on the basis of that index. This is merely redefining more generally the concept of poverty, which then essentially remains a one dimensional concept. The present paper suggests that an alternative way to take into account the multi-dimensionality of poverty is to specify a poverty line for each dimension of poverty and to consider that a person is poor if he/she falls below at least one of these various lines. The paper then explores how to combine these various poverty lines and associated one-dimensional gaps into multidimensional poverty measures. An application of these measures to the rural population in Brazil is also given with poverty defined on income and education.     

Detection and correction of artificial shifts in climate series

Summary.  Many long instrumental climate records are available and might provide useful information in climate research. These series are usually affected by artificial shifts, due to changes in the conditions of measurement and various kinds of spurious data. A comparison with surrounding weather-stations by means of a suitable two-factor model allows us to check the reliability of the series. An adapted penalized log-likelihood procedure is used to detect an unknown number of breaks and outliers. An example concerning temperature series from France confirms that a systematic comparison of the series together is valuable and allows us to correct the data even when no reliable series can be taken as a reference.     

Local dependence estimation using semiparametric archimedean copulas

The authors define a new semiparametric Archimedean copula family which has a flexible dependence structure. The generator of the family is a local interpolation of existing generators. It has locally‐defined dependence parameters. The authors present a penalized constrained least‐squares method to estimate and smooth these parameters. They illustrate the flexibility of their dependence model in a bi‐variate survival example.     

The Access/Impact Problem and the Green and Gold Roads to Open Access

The research access/impact problem arises because journal articles are not accessible to all of their would-be users; hence, they are losing potential research impact. The solution is to make all articles Open Access (OA; i.e., accessible online, free for all). OA articles have significantly higher citation impact than non-OA articles. There are two roads to OA: the “golden” road (publish your article in an OA journal) and the “green” road (publish your article in a non-OA journal but also self-archive it in an OA archive). Only 5% of journals are gold, but over 90% are already green (i.e., they have given their authors the green light to self-archive); yet only about 10–20% of articles have been self-archived. To reach 100% OA, self-archiving needs to be mandated by researchers' employers and funders, as the United Kingdom and the United States have recently recommended, and universities need to implement that mandate.     

A bayesian estimator for the dependence function of a bivariate extreme‐value distribution

Any continuous bivariate distribution can be expressed in terms of its margins and a unique copula. In the case of extreme‐value distributions, the copula is characterized by a dependence function while each margin depends on three parameters. The authors propose a Bayesian approach for the simultaneous estimation of the dependence function and the parameters defining the margins. They describe a nonparametric model for the dependence function and a reversible jump Markov chain Monte Carlo algorithm for the computation of the Bayesian estimator. They show through simulations that their estimator has a smaller mean integrated squared error than classical nonparametric estimators, especially in small samples. They illustrate their approach on a hydrological data set.     

Almost Consistent Estimation of Panel Probit Models with “Small” Fixed Effects

We propose four different GMM estimators that allow almost consistent estimation of the structural parameters of panel probit models with fixed effects for the case of small Tand large N. The moments used are derived for each period from a first order approximation of the mean of the dependent variable conditional on explanatory variables and on the fixed effect. The estimators differ w.r.t. the choice of instruments and whether they use trimming to reduce the bias or not. In a Monte Carlo study, we compare these estimators with pooled probit and conditional logit estimators for different data generating processes. The results show that the proposed estimators outperform these competitors in several situations.     

Intertemporal choice under timing risk: An experimental approach

This paper investigates how individuals evaluate delayed outcomes with risky realization times. Under the discounted expected utility (DEU) model, such evaluations depend only on intertemporal preferences. We obtain several testable hypotheses using the DEU model as a benchmark and test these hypotheses in three experiments. In general, our results show that the DEU model is a poor predictor of intertemporal choice behavior under timing risk. We found that individuals are averse to timing risk and that they evaluate timing lotteries in a rank-dependent fashion. The main driver of timing risk aversion is nothing but probabilistic risk aversion that stems from the nonlinear treatment of probabilities.     

Composition-consistent tournament solutions and social choice functions

This paper introduces a new axiom for choice in preference profiles and tournaments, called composition-consistency. A social choice function is composition-consistent if it is non-sensitive to the cloning of one or several outcomes. The key feature of the composition consistency property is an operation concept called multiple composition product of profiles. The paper provides a brief overview of some social choice functions studied in the literature. Concerning the tournament solutions, it is proved that the Top Cycle, the Slater and the Copeland solutions are not composition-consistent, whereas the Banks, Uncovered Set, TEQ, Minimal Covering Set are composition-consistent. Moreover, we define the composition-consistent hull of a solution as the smallest composition-consistent solution containing . The composition-consistent hulls of the Top cycle and Copeland solutions are specified, and we give some hints about the location of the hull of the Slater set. Concerning social choice functions, it is shown that Kemeny, Borda and Minimax social choice functions are not composition-consistent, whereas the Paretian one is composition-consistent. Moreover, we prove that the latter is the composition-consistent hull of the Borda and Minimax functions.