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     

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.     

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.     

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.     

Culture and Organization: The Case of Transmanche-Link

The relationship between culture and organization has often been discussed, but rarely explored directly. This paper implements a cultural values instrument taken from Hofstede together with a behavioural instrument derived from Van de Ven to matched samples of British and French managers working on the Channel Tunnel project. The results largely replicate the findings of Hofstede regarding cultural values, but do not support the predicted implications for behaviour. In essence, the British were found to be more bureaucratic and more team-oriented than their French counterparts, who tended to be more fonceur and competitive. This indicates that the relationship between culture and behaviour might be more complicated than research to date suggests.     

Comparison of Modes of Administration and Response Options in the Assessment of Subjective Health Using the First Question of SF-36

To compare two modes of administration (self-administered; by interviewer) and two response options format (using words; images of “facial-expressions”) of the first question of SF-36 (Q1SF-36), and to test its validity. We included 825 participants (20–90 years). Q1SF-36, using words or images, was included in a global questionnaire interview and at the end participants filled the SF-36. The agreement was tested by weighted kappa coefficients (WKappa). Classification Trees were used in the calibration of Q1SF-36 responses, with the physical (PDSF36) and mental dimensions of SF-36. Polyserial correlation coefficients and areas under the ROC curves (AUC) were used for validation. After categorization, using PDSF36 classification trees, the WKappa were 0.770 (self-administered vs. interviewer), 0.569 (self-administered vs. facial-expressions) and 0.566 (interviewer vs. facial-expressions). The WKappa between the PDSF36 and the modes (self-administered, interviewer and facial-expressions) were 0.784, 0.713 and 0.579 and the corresponding polyserial correlation coefficients were 0.784, 0.713 and 0.579. A good discriminatory power was found comparing the modes with the PDSF36 (AUC = 0.907, 0.923 and 0.827), but not with mental dimension (AUC = 0.538, 0.501 and 0.629). The Q1SF-36, by self-administration or interviewer, may be a valid alternative for assessment of subjective physical health, but not mental health.     

Three‐Stage Decision‐Making Model under Restricted Conditions for Emergency Response to Ships Not under Control

A ship that is not under control (NUC) is a typical incident that poses serious problems when in confined waters close to shore. The emergency response to NUC ships is to select the best risk control options, which is a challenge in restricted conditions (e.g., time limitation, resource constraint, and information asymmetry), particularly in inland waterway transportation. To enable a quick and effective response, this article develops a three‐stage decision‐making framework for NUC ship handling. The core of this method is (1) to propose feasible options for each involved entity (e.g., maritime safety administration, NUC ship, and ships passing by) under resource constraint in the first stage, (2) to select the most feasible options by comparing the similarity of the new case and existing cases in the second stage, and (3) to make decisions considering the cooperation between the involved organizations by using a developed Bayesian network in the third stage. Consequently, this work provides a useful tool to achieve well‐organized management of NUC ships.     

Workgroup interdependence and satisfaction from a developmental perspective: the moderating role of the group’s life cycle stage / Interdependencia y satisfacción en el grupo de trabajo desde la perspectiva del desarrollo: el rol moderador de la fase del ciclo de vida grupal

From a developmental perspective, workgroups adjust and modify the way they function over time. The present study aims to test, at the group level, the moderating role of the group’s life phase in the relationship between workgroup interdependence ties in terms of task, outcome and functions, assessed by social network density and group satisfaction. A sample of 84 teams from various companies participated in this research. The results showed that the group’s development phase determines the way that outcome interdependence density in teams is associated with satisfaction and reveal the existence of differences between the second and fourth development stages. Therefore, the group’s life cycle stage should be considered as a relevant variable in research and intervention with groups in the workplace.