Private Values Research Articles

Utility‐based pricing and hedging of contingent claims in Almgren‐Chriss model with temporary price impact

AbstractIn this paper, we construct the utility‐based optimal hedging strategy for a European‐type option in the Almgren‐Chriss model with temporary price impact. The main mathematical challenge of this work stems from the degeneracy of the second order terms and the quadratic growth of the first‐order terms in the associated Hamilton‐Jacobi‐Bellman equation, which makes it difficult to establish sufficient regularity of the value function needed to construct the optimal strategy in a feedback form. By combining the analytic and probabilistic tools for describing the value function and the optimal strategy, we establish the feedback representation of the latter. We use this representation to derive an explicit asymptotic expansion of the utility indifference price of the option, which allows us to quantify the price impact in options' market via the price impact coefficient in the underlying market.

HashWires: Hyperefficient Credential-Based Range Proofs

Abstract This paper presents HashWires, a hash-based range proof protocol that is applicable in settings for which there is a trusted third party (typically a credential issuer) that can generate commitments. We refer to these as “credential-based” range proofs (CBRPs). HashWires improves upon hashchain solutions that are typically restricted to micro-payments for small interval ranges, achieving an exponential speedup in proof generation and verification time. Under reasonable assumptions and performance considerations, a Hash-Wires proof can be as small as 305 bytes for 64-bit integers. Although CBRPs are not zero-knowledge and are inherently less flexible than general zero-knowledge range proofs, we provide a number of applications in which a credential issuer can leverage HashWires to provide range proofs for private values, without having to rely on heavyweight cryptographic tools and assumptions.

How Do Consumers Respond to Fuel Standard Regulation: Evidence from Gas Stations at City Boundaries

Fuel standards and gasoline content regulations are widely adopted by policymakers to reduce urban pollution and emission. An important but understudied question for policy design is measuring consumers’ private willingness to pay for higher gasoline standards. The empirical challenge is distinguishing consumers’ preferences over environmental standards from those over other product attributes e.g., price and brand. This paper provides a framework to uncover consumers’ preferences for higher fuel standards and estimates demand responses using high-frequency gas station-level panel data. We exploit unique characteristics of China’s retail gasoline market: government-controlled supply, homogeneous retailers, and highly regulated prices. Policy-induced differences in fuel standards generate spatial discontinuities at regional borders where consumers can freely choose from high or low standard gasoline. Combining difference-in-difference and geographic regression discontinuity, our identification strategy compares sales volume at gas stations on different sides of the border before and after one region experiences an exogenous fuel standard reform. Meanwhile, the reform induces a cost-driven price change that differs from daily price fluctuations. Controlling for this concurrent price change and other confounding factors, our data suggest that the enforcement of higher fuel standards increases sales at gas stations on the treated side of the border by 9.6-14%, which provides evidence that consumers respond strongly to fuel standard improvement. In the preferred specification, we estimate the consumer's WTP for higher fuel standard (III to IV) as 0.288 Yuan/liter, which accounts for about 3.9% of the gasoline price. We also find that consumers of premium gasoline have higher WTP for emission standard improvement than those of regular gasoline. Our findings highlight the importance of considering consumers’ private value from emission standards when designing environmental regulation.

Efficient and truthful multi-attribute auctions for crowdsourced delivery

Crowdsourced delivery is an emerging parcel delivery paradigm that leverages occasional couriers’ excess capacities to transport goods. In a crowdsourced delivery system, couriers offer their excess trip capacities to requesters with packages of different weights and distinct valuations for the service. This paper studies the truthful and efficient multi-attribute auction design for the crowdsourced delivery. We develop a second-preferred-score and a Vickrey-Clarke-Groves score (VCG-score) auctions for both single-unit and multi-unit multi-attribute cases, where price and weight are jointly evaluated when assigning package delivery tasks. The proposed auctions lead to truthful private valuation revelation and social welfare maximization. Computational analyses show that our proposed multi-attribute auctions outperform the single-attribute auction and the fixed rate mechanism in maximizing social welfare.

Analisis Daya Saing dan Dampak Kebijakan Pemerintah terhadap Komoditas Kelapa Sawit Rakyat

Various policies are undertaken to support the increase of production and export volume of palm oil products. This study aims to analyze the competitiveness and impact of government policies on palm oil commodities in West Pasaman Regency. The research was conducted by survey method on 30 samples taken intentionally through multistage purposive sampling. The data is analyzed using Policy Analysis Matrix and sensitivity analysis. The results showed that the commodity of palm oil in Pasaman Barat Regency is competitive based on competitive advantage and comparative advantage both in the form of Fresh Fruit Bunches (FFB) and Crude Palm Oil (CPO). This is evidenced by the value of Privat Cost Ratio on FFB of 0.72 and CPO of 0,86; Domestic Resource Cost Ratio on FFB of 0.66 and CPO of 0,96; the value of private profit on FFB of 87 million rupiah and CPO of 35 billion rupiah; and social profit on FFB of 122 million rupiah and CPO of 11 billion rupiah. The impact of government policy indicated that government policies are disincentive to output, protective to tradable input, and indicated a subsidy to domestic factors. This is showed by Nominal Protection Coefficient Output on FFB of 0.82 and CPO of 0.89; Nominal Protection Coefficient Input on FFB of 0.50 and CPO of 1.00; Effective Protection Coefficient on FFB of 0.93 and CPO of 0.80; Protection Coefficient on FFB of 0.71 and CPO of 3.21; and Subsidy Ratio to Produce on FFB of -0.09 and CPO of 0.09.

Does jump bidding increase sellers’ revenue? Theory and experiment

We consider an environment in which bidders decide whether to jump bids in a simple two-bidder ascending auction with independent private values. We compare two types of equilibria, one that involves jump bidding and another that does not. We show that the revenue in the jump bidding equilibrium dominates that in the no-jump equilibrium when bidders are risk averse. Isolating the revenue impact of jump bidding from that of overbidding, our experimental design allows us to demonstrate that sellers’ revenue increases due to jump bidding but only insignificantly so.

Private value of central bank liquidity and Banks’ bidding behavior in variable rate tender auctions

We use a unique data set that comprises each Euro area bank’s daily recourse to the ECB’s marginal lending facility (MLF) and all its bids placed in the ECB’s main refinancing operations (MROs) that were conducted as variable rate tenders until October 2008. We show that the more aggressive a bank bids in a MRO, the higher is its propensity to subsequently draw on the MLF. Our results indicate that particularly with the beginning of the financial crisis, the interest rate paid by a bank in a variable rate tender auction strongly reflects its private value for liquidity, i.e. its opportunity costs of obtaining short-term funding in money markets, and thus, the risk premium it is charged in the private market. This suggests 1) that variable rate tender auctions preserve some market discipline and contain moral hazard issues, especially in times when a central bank is extending its liquidity provision and 2) that the average interest rate paid in an auction can be a useful indicator for bank supervisors to gauge a bank’s access to liquidity in money markets.

Testing for risk aversion in first-price sealed-bid auctions

We consider testing for risk aversion in first-price sealed-bid auctions with symmetric bidders and independent private values. We impose several restrictions on the parameter space, which are all implied by Guerre et al. (2009)’s exclusion restriction, and we articulate what restrictions are needed for our test to control the limiting size and to be pointwise consistent. Critical values can be obtained from the standard normal distribution. We also analyze local-power properties and show that our test detects local alternative at the parametric rate.

Perceived barriers to implementing case management for medical-aid beneficiaries in South Korea.

Medical aid (MA) in South Korea, a national public assistance scheme, provides minimum medical security for low-income families. The Korean government has adopted a case management (CM) programme to control MA beneficiaries' inappropriate medical use and enhance beneficiaries' quality of life. This study aimed to explore case managers' experiences of implementing CM for MA beneficiaries' potential barriers. This study employed a qualitative phenomenological tradition using focus-group interviews. Three focus groups with 19 MA case managers were conducted (July to August 2018) using semistructured interview questions. Data were analysed through qualitative content analysis using the NVivo software programme, followed by consensus meetings between researchers. Participants perceived the structural barriers to CM implementation as a contradictory MA system, lack of communication among government departments and CM guidelines not reflecting reality. Five themes were derived as the personal barriers: burnout, the conflict between private values and CM goals, role confusion, beneficiaries' blame, and lack of acknowledgement from coworkers. To improve case managers' experiences concerning MA beneficiaries, policy solutions and a collaborative environment with beneficiaries, public nurses and social service providers are needed to ensure the workforce's sustainability. Also, it is required to develop practical guidelines that reflect the reality of implementing CM.

Obviousness around the clock

Li (Am Econ Rev 107(11):3257–3287, 2017) introduces a theoretical notion of obviousness of a dominant strategy, to be used as a refinement in mechanism design. This notion is supported by experimental evidence that bidding is closer to dominance in the dynamic ascending-clock auction than the static second-price auction (private values), noting that dominance is theoretically obvious in the former but not the latter. We replicate his experimental study and add three intermediate auction formats that decompose the designs’ differences to quantify the cumulative effects of (1) simply seeing an ascending-price clock (after bid submission), (2) bidding dynamically on the clock, and (3) getting (theoretically irrelevant) drop-out information about other bidders. The theory predicts dominance to become obvious through (2), dynamic bidding. We find no significant behavioral effect of (2), however, while the feedback effects (1) and (3) are highly significant. We conclude that behavioral differences between second-price and ascending-clock auctions offer rather limited support for the theory of obviousness and that framing has surprisingly large potential in mechanism design.

Public good overprovision by a manipulative provider

AbstractWe study contracting between a public good provider and users with private valuations of the good. We show that, once the provider extracts the users' private information, she benefits from manipulating the collective information received from all users when communicating with them. We derive conditions under which such manipulation determines the direction of distortions in public good provision. If the provider is non‐manipulative, the public good is always underprovided, whereas overprovision occurs with a manipulative provider. With overprovision, not only high‐valuation users, but also low‐valuation users may obtain positive rents—users may prefer facing a manipulative provider.

Spoofing the Limit Order Book: A Strategic Agent-Based Analysis

We present an agent-based model of manipulating prices in financial markets through spoofing: submitting spurious orders to mislead traders who learn from the order book. Our model captures a complex market environment for a single security, whose common value is given by a dynamic fundamental time series. Agents trade through a limit-order book, based on their private values and noisy observations of the fundamental. We consider background agents following two types of trading strategies: the non-spoofable zero intelligence (ZI) that ignores the order book and the manipulable heuristic belief learning (HBL) that exploits the order book to predict price outcomes. We conduct empirical game-theoretic analysis upon simulated agent payoffs across parametrically different environments and measure the effect of spoofing on market performance in approximate strategic equilibria. We demonstrate that HBL traders can benefit price discovery and social welfare, but their existence in equilibrium renders a market vulnerable to manipulation: simple spoofing strategies can effectively mislead traders, distort prices and reduce total surplus. Based on this model, we propose to mitigate spoofing from two aspects: (1) mechanism design to disincentivize manipulation; and (2) trading strategy variations to improve the robustness of learning from market information. We evaluate the proposed approaches, taking into account potential strategic responses of agents, and characterize the conditions under which these approaches may deter manipulation and benefit market welfare. Our model provides a way to quantify the effect of spoofing on trading behavior and market efficiency, and thus it can help to evaluate the effectiveness of various market designs and trading strategies in mitigating an important form of market manipulation.

PoA of Simple Auctions with Interdependent Values

We expand the literature on the price of anarchy (PoA) of simultaneous item auctions by considering settings with correlated values; we do this via the fundamental economic model of interdependent values (IDV). It is well-known that in multi-item settings with private values, correlated values can lead to bad PoA, which can be polynomially large in the number of agents~n. In the more general model of IDV, we show that the PoA can be polynomially large even in single-item settings. On the positive side, we identify a natural condition on information dispersion in the market, which enables good PoA guarantees. Under this condition, we show that for single-item settings, the PoA of standard mechanisms degrades gracefully. For settings with multiple items we show a separation between two domains: If there are more buyers, we devise a new simultaneous item auction with good PoA, under limited information asymmetry. To the best of our knowledge, this is the first positive PoA result for correlated values in multi-item settings. The main technical difficulty in establishing this result is that the standard tool for establishing PoA results --- the smoothness framework --- is unsuitable for IDV settings, and so we must introduce new techniques to address the unique challenges imposed by such settings. In the domain of more items, we establish impossibility results even for surprisingly simple scenarios.

Measuring the Impact of Shared Value. A Business Case

Shared Value is a concept that since its inception in 2011 has attracted the interest of academics, governments, businessmen and decision-makers in all areas. It is through this first exploratory study that is illustrated as a sample of three Central American companies create this value and how important this creation is for companies and society when is measured. Traditionally, the creation of value in the three dimensions of sustainability has not been quantified at the enterprise level, although it is mentioned in the reports of those that use the GRI but without trying to estimate a measure of this intrinsic value in the concept of sustainability. The liberal use of concepts of Sustainable Development, Sustainability and Corporate Social Responsibility, sometimes confusing, does not propose its measurement with the exception of the Corporate Sustainability model that only records the total financial bottom line without intending to separate it into its three dimensions. The study is exploratory and descriptive with a focus on measuring the phenomenon under study using a meta-matrix created based on the theory of Shared Value. The results of the research are represented in the matrix, which allows to open the pattern of continuing to measure more cases, has been raised in the Harvard Business School in Global Impact Council in December 2019 from this three cases from three different Central American countries: El Salvador, Honduras and Nicaragua. Finally, this research offers a discussion and proposal to study about Measuring Shared Value and the Ratio Social Value - Private Value

Private Value Takeover Auctions with Toeholds: An Experimental Study

This paper presents the results of an experimental study of takeover auctions with toeholds. Consistent with the theory, we find a positive effect of toeholds on bidding. Such an effect, however, is of a lower magnitude and the bidding premium function has an opposite slope than the theory predicts, which can be attributed both to risk aversion and subjects’ tendency to think of their bids in relative terms. Consistent with the theory we find no cross-bidder toehold effect, however, such a result is inconsistent with the observed bidding function if people expect their opponents to behave the same way as they do.

Revealing information in auctions: The optimal auction versus the second-price auction

We study the optimal information disclosure policy in the optimal auction and the second-price auction when the seller has information that additively adjusts the independent private values of the bidders. In this setting, information revelation could change the allocation of the good in both types of auctions. However, in the optimal auction, the change in allocation makes the revenue function convex in the additive adjustments, so the seller should always reveal information. In contrast, in the second-price auction, the change in allocation makes the revenue function non-convex, in which case the seller might benefit from withholding information.

Kelly trading and option pricing

AbstractIn this paper we show that a Kelly trader is indifferent to trade a derivative if and only if the no‐arbitrage price is uniquely given by the minimal martingale measure price, thus providing a natural selection mechanism for option pricing in incomplete markets. We also show that the unique Kelly indifference price results in market equilibrium in the sense that no Kelly trader can improve the magnitude of his instantaneous Sharpe ratio, by trading the derivative, given the actions of the other market participants.

АУКЦІОННА ТОРГІВЛЯ ДЕРЖАВНИМ І КОРПОРАТИВНИМ БОРГОМ В УМОВАХ КРИЗИ

Анотація. Аукціонна торгівля борговими зобов’язаннями найчастіше використовується в умовах розгортання кризових явищ. Ринок облігацій, державний борг і борг приватних структур виступають як об’єкти емпіричних і науково-прикладних досліджень. Метою нашої наукової роботи є визначення особливостей аукціонної торгівлі і державної боргової політики в умовах кризових ситуацій на основі узагальнення закордонного і вітчизняного досвіду, дослідження процесів вибору форматів аукціонної торгівлі борговими зобов’язаннями на вторинному ринку цінних паперів (ЦП) та управління факторами для усунення викривленості такої торгівлі на фінансових ринках, що сприятиме економічному зростанню. Визначено, що в певному інституційному середовищі розвитку вторинного ринку ЦП, де потенційними покупцями боргових ЦП є інвестиційні організації і банки, у т. ч. іноземні, сучасна практика аукціонної торгівлі і нові формати її проведення супроводжуються встановленням нових правил торгів, зростаючим значенням приватної цінності об’єкта й інформаційного супроводу аукціону. В умовах цифровізації економіки і формалізації взаємопов’язаних процесів і трансакцій на фінансових ринках адекватним має бути механізм аукціонної торгівлі. Доведено, що механізм удосконалення практики аукціонної торгівлі і розширення масштабів упровадження нових форматів її проведення неможливі без узгодження інтересів інвесторів, емітентів і різних зацікавлених сторін для усунення викривленості аукціонних торгів борговими зобов’язаннями на фінансових ринках. Виявлено значні відхилення в темпах росту ВВП і державних боргів, зокрема в Польщі, Японії і в Україні, що пояснюються рівнем довіри до держави і спеціалізованих інституцій з управління боргами, цільовою орієнтацією довгострокової економічної стратегії і монетарної політики в умовах кризових ситуацій, зокрема у країнах ЄС і в Україні. Визначено напрями подальших науково-прикладних досліджень для цілей підвищення гнучкості системи аукціонних торгів борговими зобов’язаннями в умовах кризи і посилення їхнього позитивного впливу на економічне зростання. Ключові слова: аукціонна торгівля, криза економіки, боргові цінні папери, державний борг, вторинний ринок, інвестор, фінансовий ринок, економічне зростання Формул: 0; рис.: 5; табл.: 0; бібл.: 28.

Patent Value and Survival of Patents

This study investigated the effect of patent value on the renewal (survival) of patents. The private value of patents can be one of the main pillars sustaining a firm’s value, and the estimation of the value may contribute to the strategic management of firms. The current study aimed to confirm the recent research findings with survival analysis, focusing on the more homogeneous patent data samples. In this study, a dataset is constructed from a cohort of 6646 patents from the 1996 and 1997 application years, using patent data from the European Patent Office (EPO). We found that the family size and non-patent backward citations exhibited profound impacts on patent survival. This result is in line with numerous studies, indicating the positive impact of science linkages in the biotechnology and pharmaceutical fields. It was also found that the effect of the ex-post indicator is not as strong as the ex-ante indicators, like traditional family size and backward citations. In short, the family size matters most for the survival of patents, according to the current research.

Policies for establishing hybrid poplar plantations on private and public lands in western Canada for bioethanol feedstock: a forest-level financial analysis

A forest-level model is developed that estimates how policies towards hybrid poplar plantations on private and public land impact harvest levels and values for producing biofuel feedstock. We simulate three policy changes: (i) permitting an increase in harvest levels on public land as a result of establishing hybrid poplar plantations on private land; (ii) permitting the establishment of hybrid poplar plantations on public land; and (iii) including forest carbon emission offsets in the net benefits realized by the forest operator. We are interested in whether the increase in harvest created by the policies might be enough to supply a biorefinery, and how the value of the operation changes. Our results suggest that jointly managing public and private lands under sustained yield can increase harvest by between 7% and 93%, and increase the value of the operation by between 39% and 263%. Results also suggest that hybrid poplar plantations could enable a leaseholder of one million hectares of public forestland to initiate an allowable cut effect and thereby increase harvest enough to supply a new biorefinery, in addition to its existing pulp mill. Carbon offsets further increase the value of the forest, although harvest begins to decline at high carbon prices.