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     

What to Do at Low Doses: A Bounding Approach for Economic Analysis

To quantify the health benefits of environmental policies, economists generally require estimates of the reduced probability of illness or death. For policies that reduce exposure to carcinogenic substances, these estimates traditionally have been obtained through the linear extrapolation of experimental dose-response data to low-exposure scenarios as described in the U.S. Environmental Protection Agency's Guidelines for Carcinogen Risk Assessment (1986). In response to evolving scientific knowledge, EPA proposed revisions to the guidelines in 1996. Under the proposed revisions, dose-response relationships would not be estimated for carcinogens thought to exhibit nonlinear modes of action. Such a change in cancer-risk assessment methods and outputs will likely have serious consequences for how benefit-cost analyses of policies aimed at reducing cancer risks are conducted. Any tendency for reduced quantification of effects in environmental risk assessments, such as those contemplated in the revisions to EPA's cancer-risk assessment guidelines, impedes the ability of economic analysts to respond to increasing calls for benefit-cost analysis. This article examines the implications for benefit-cost analysis of carcinogenic exposures of the proposed changes to the 1986 Guidelines and proposes an approach for bounding dose-response relationships when no biologically based models are available. In spite of the more limited quantitative information provided in a carcinogen risk assessment under the proposed revisions to the guidelines, we argue that reasonable bounds on dose-response relationships can be estimated for low-level exposures to nonlinear carcinogens. This approach yields estimates of reduced illness for use in a benefit-cost analysis while incorporating evidence of nonlinearities in the dose-response relationship. As an illustration, the bounding approach is applied to the case of chloroform exposure.     

Valuation of childhood risk reduction: the importance of age, risk preferences, and perspective.

This article explores two problems analysts face in determining how to estimate values for children's health and safety risk reductions. The first addresses the question: Do willingness‐to‐pay estimates for health risk changes differ across children and adults and, if so, how? To answer this question, the article first examines the potential effects of age and risk preferences on willingness to pay. A summary of the literature reporting empirical evidence of differences between willingness to pay for adult health and safety risk reductions and willingness to pay for health and safety risk reductions in children is also provided. The second dimension of the problem is a more fundamental issue: Whose perspective is relevant when valuing children's health effects—society's, children's, adults‐as‐children, or parents'? Each perspective is considered, followed ultimately by the conclusion that adopting a parental perspective through an intrahousehold allocation model seems closest to meeting the needs of the estimation problem at hand. A policy example in which the choice of perspective affects the outcome of a regulatory benefit‐cost analysis rounds out the article and emphasizes the importance of perspective.     

Group therapists' countertransference reactions to multiple deaths from aids

Group therapists for those with HIV Related Diseases are becoming the “professional” survivors of this world-wide epidemic. From their experiences we may learn a great deal more about the effects of multiple deaths on mental health care professionals. As therapists they are constantly eliciting and listening to the fears, hopes, agonies and terrors of those with this disease. They become the bereaved. Witnesses to the deaths of many of their group members, they struggle with a wide range of emotional responses while at the same time assisting surviving group members in their struggle to live with these deaths. Mourning reactions and countertransference phenomena are in abundance as these therapists grapple with these group processes. This article identifies and examines these therapists' responses by focusing on clinical illustrations drawn from their bi-weekly supervision sessions.     

On Combining Wavelets Expansion and Sparse Linear Models for Regression on Metabolomic Data and Biomarker Selection

Wavelet thresholding of spectra has to be handled with care when the spectra are the predictors of a regression problem. Indeed, a blind thresholding of the signal followed by a regression method often leads to deteriorated predictions. The scope of this article is to show that sparse regression methods, applied in the wavelet domain, perform an automatic thresholding: the most relevant wavelet coefficients are selected to optimize the prediction of a given target of interest. This approach can be seen as a joint thresholding designed for a predictive purpose. The method is illustrated on a real world problem where metabolomic data are linked to poison ingestion. This example proves the usefulness of wavelet expansion and the good behavior of sparse and regularized methods. A comparison study is performed between the two-steps approach (wavelet thresholding and regression) and the one-step approach (selection of wavelet coefficients with a sparse regression). The comparison includes two types of wavelet bases, various thresholding methods, and various regression methods and is evaluated by calculating prediction performances. Information about the location of the most important features on the spectra was also obtained and used to identify the most relevant metabolites involved in the mice poisoning.     

Developing Age-Friendly Cities: Case Studies From Brussels and Manchester and Implications for Policy and Practice

Developing environments responsive to the aspirations of older people has become a major concern for social and public policy. Policies and programs directed at achieving “age-friendly” communities are considered to require a wide range of interventions, including actions at the level of the social and physical environment. This article compares the age-friendly approaches of two European cities, Brussels and Manchester, with a particular focus on policies and initiatives that promote active aging in an urban context. The article examines, first, the demographic, social, and multicultural contexts of Brussels and Manchester; second, the way in which both cities became members of the World Health Organization Global Network of Age-Friendly Cities and Communities; third, similarities and differences in the age-friendly approaches and actions adopted by both cities; and fourth, opportunities and barriers to the implementation of age-friendly policies. The article concludes by discussing the key elements and resources needed to develop age-friendly cities.     

Bilateral Donors' Efforts to Assess and Manage UN Agencies' Effectiveness: Seeking a Balance between Paris Principles and Domestic Accountability

Since the turn of the century, results orientation and performance measurement have become buzzwords in development aid. Bilateral donors are increasingly concerned about the effectiveness of core‐funded UN specialised agencies, funds and programmes, through which they channel a substantial part of their funds. While the logic for increased monitoring is clear, it is less evident how to assess this information for purposes of accountability, performance‐based funding and governance. This article describes the general evolution in this area and discusses two major initiatives to harmonise and align bilateral assessments, using case‐study material from three bilateral donors (Belgium, the Netherlands and the UK) with clearly diverging performance‐management cultures, and exploring the extent to which they rely upon joint and aligned initiatives.