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Tests for the existence and the sign of the volatility risk premium are often based on expected option hedging errors. When the hedge is performed under the ideal conditions of continuous trading and correct model specification, the sign of the premium is the same as the sign of the mean hedging error for a large class of stochastic volatility option pricing models. We show, however, that the problems of discrete trading and model mis-specification, which are necessarily present in any empirical study, may cause the standard test to yield unreliable results.
When options are traded, one can use their prices and price changes to draw inference about the set of risk factors and their risk premia. We analyze tests for the existence and the sign of the market prices of jump risk that are based on option hedging errors. We derive a closed-form solution for the option hedging error and its expectation in a stochastic jump model under continuous trading and correct model specification. Jump risk is structurally different from, e.g., stochastic volatility: there is one market price of risk for each jump size (and not just \emph{the} market price of jump risk). Thus, the expected hedging error cannot identify the exact structure of the compensation for jump risk. Furthermore, we derive closed form solutions for the expected option hedging error under discrete trading and model mis-specification. Compared to the ideal case, the sign of the expected hedging error can change, so that empirical tests based on simplifying assumptions about trading frequency and the model may lead to incorrect conclusions.
This paper deals with the superhedging of derivatives and with the corresponding price bounds. A static superhedge results in trivial and fully nonparametric price bounds, which can be tightened if there exists a cheaper superhedge in the class of dynamic trading strategies. We focus on European path-independent claims and show under which conditions such an improvement is possible. For a stochastic volatility model with unbounded volatility, we show that a static superhedge is always optimal, and that, additionally, there may be infinitely many dynamic superhedges with the same initial capital. The trivial price bounds are thus the tightest ones. In a model with stochastic jumps or non-negative stochastic interest rates either a static or a dynamic superhedge is optimal. Finally, in a model with unbounded short rates, only a static superhedge is possible.
Much has been written on the success of the Indian software industry, enumerating systemic factors like first-class higher education and research institutions, both public and private; low labour costs, stimulating (state) policies etc. However, although most studies analyzing the 'Indian' software industry cover essentially the South (and West) Indian clusters, this issue has not been tackled explicitly. This paper supplements the economic geography explanations mentioned above with the additional factor social capital, which is not only important within the region, but also in transnational (ethnic) networks linking Indian software clusters with the Silicon Valley. In other words, spatial proximity is complemented with cultural proximity, thereby, extending the system of innovation. The main hypothesis is that some Indian regions are more apt to economic development and innovation due to their higher affinity to education and learning, as well as, their more general openness, which has been a main finding of my interviews. In addition, the transnational networks of Silicon Valley Indians seem to be dominated by South Indians, thus, corroborating the regional clustering of the Indian software industry. JEL Classifications: O30, R12, Z13, L86
During the past decade, processes associated with what is popularly though perhaps misleadingly known as globalization have come within the purview of anthropology. Migration and mobility ‐ and the footloose or even rootless social groups that they produce ‐ as well as the worldwide diffusion of commodities, media images, political ideas and practices, technologies and scientific knowledge today are on anthropology's research agenda. As a consequence, received notions about the ways in which culture relates to territory have been abandoned. The term transnationalisation captures cultural processes that stream across the borders of nation states. Anthropologists have been forced to revise the notion that transnationalisation would inevitably bring about a culturally homogenized world. Instead, we are witnessing a surge of greatly increasing cultural diversity. New cultural forms grow out of historically situated articulations of the local and the global. Rather than left-over relics from traditional orders, these are decidedly modern, yet far from uniform. The essay engages the idea of the pluralization of modernities, explores its potential for interdisciplinary research agendas, and also inquires into problematic assumptions underlying this new theoretical concept.
Am Beginn des 21. Jahrhunderts wird der Zustand der US-Demokratie kontrovers diskutiert. Während manche Beobachter eine zu hohe Responsivität des politischen Systems gegenüber den Ansprüchen seiner Bürger entdeckt haben wollen und deshalb von demosclerosis und einer Hyperdemokratie sprechen, in welcher der Volkswille in einen unantastbaren, göttlichen Rang erhoben worden sei, kommen andere zu dem Schluss, dass die Gründerväter im Hinblick auf ihre handlungsanleitende Furcht vor einer »Tyrannei der Mehrheit« ganze Arbeit geleistet und ein nahezu unüberwindbares System von Vetopositionen geschaffen hätten, das Partikularinteressen strukturell bevorzuge und deshalb nur in Ausnahmesituationen die Mehrheitspräferenzen der Bürger in Politik umsetze. Kurzum: Die Furcht der Federalists vor einer »Mehrheitstyrannei« habe einer »Minderheitstyrannei« Tür und Tor geöffnet. Der Artikel versucht die Vereinigten Staaten in diesem Spannungsbogen zu verorten. Ziel ist es, die Qualität der amerikanischen Demokratie am Beginn des 21. Jahrhunderts zu problematisieren. Dabei werden auch die Entwicklungen nach dem 11. September berücksichtigt.
In der vorliegenden Studie werden die sozialpolitischen Reformen in den USA und Kanada während der 1990er Jahren in einer vergleichenden Perspektive analysiert. Dabei wird insbesondere die Rolle steuerpolitischer Instrumentarien in den Reformen thematisiert und der Frage nachgegangen, ob sich hier ein neuer Typ von Wohlfahrtsstaat herausbildet. Im ersten Teil des Papiers wird das in der vergleichenden Wohlfahrtsstaatsforschung etablierte Modell des liberalen Wohlfahrtsstaats skizziert, um vor diesem Hintergrund die Reformen in den USA und Kanada zu untersuchen und zu vergleichen. Anschließend wird in einer breiteren vergleichenden Perspektive die out-put-Leistung der beiden Wohlfahrtsstaaten analysiert. Al normative Kriterien hierbei gilt in erster Linie die Umverteilungsfunktion sozialpolitischer Instrumentarien, hier in erster Linie verstanden als Einkommensumverteilung.
Taxation and tax policy reform appears on the political agenda in most advanced welfare states in Europe and North America. Of course studies of taxation and tax policy are nothing new and have existed ever since people have paid taxes. The current work is situated in the context of the future of the welfare state and the reinforced international economic and political integration referred to as "globalization." The purpose of this paper is to analyze how globalization is affecting tax policy in advanced welfare states. In comparing the evolution of tax policy in Canada with those in the United States, Germany and Sweden from 1960 to 1995, I will try to review the conventional antiglobalization thesis, i.e., that globalization leads to a "race to the bottom" in revenue and expenditures policies, or as others have called it, a "beggar the neighbour policy" (Tanzi and Bovenberg 1990, 187). ... Conclusion: The empirical data and theoretical models clearly show that globalization is one relatively minor factor among many that explain tax policy reforms. And even that limited influence is mediated by domestic political systems, institutions and constellations of actors. As the data has shown, the conventional globalization thesis of a race to the bottom is not borne out. Tax rates and tax revenues are still increasing, despite the ongoing trend toward international trade integration. Countervailing pressures like the high cost of welfare programs, different parties in government, strong labour unions, and institutional veto players counteract the pressure of globalization on tax policy. As for the future of taxation in Canada, it is more likely to be one of gradual evolution than radical change. Although the data don’t show any downward pressure on tax rates and tax revenues comparatively speaking, there are at least four key factors in Canada that are likely to put pressure on future tax rates, although regional political dynamics and the workings of fiscal federalism suggest that tax reductions will be a higher priority in some provinces than others (Hale 2002). First, neoliberalism will continue to shape fiscal and tax policy, including the role of the tax system in delivering social policies and programs in most parts of Canada. Second, governments that seek to define their own economic and social priorities rather than simply react to events beyond their borders will have to exercise centralized control over budgetary policies and spending levels if they hope to foster the economic growth needed to finance social services in the context of Canada’s changing demographics. Third, the ability of governments to combine the promotion of economic growth and higher living standards will be closely linked to their ability to develop a workable division of responsibilities among federal and provincial governments and with other national governments. Finally, the diffusion of new technologies will continue to transform national and regional economies while giving individuals greater opportunity to avoid government and tax regulations that run contrary to their perceived interests and values. This discussion of determinants that shape tax policy reform has shown that successful management of fiscal and tax policy requires a capacity to set priorities; adapt to changing circumstances; and build a consensus that enables competing economic, social, regional and ideological interests to identify their own well-being in the broader political and economic environment. Tax policy is shaped by many political, economic and social determinants. As Geoffrey Hale correctly concludes, "it should not be surprising if the tax system stubbornly refuses to confirm either economic theories or political ideologies, but reflects past decisions and the policy tradeoffs of the political process" (2002, 71). The notion of tax policy being driven by globalization and forces associated with globalization (both positive and negative) is simply not borne by the facts.