Terms Of Payoff Research Articles

Comparing the Payoff Differences Between the Barrier and European Options Based on the Black-sholes Model

As more people want to invest in the options market, there are basic traditional options in the futures market, such as European options. Still, there are also some exotic options like the barrier option that is conditional on the stock price before expiration and is called a barrier (1). This paper analyzes the payoffs of European and barrier options based on the Black Scholes model by calculating them and comparing them. This study analysis of the results shows that the price of the barrier option is lower than that of the European option. The barrier option is essentially close to the European option under conditions. This article helps newcomers to the options and those unfamiliar with exotic options to understand the differences between barrier options and European options in terms of payoff.

War Game between Two Matched Fleets with Goal Options and Tactical Optimization

A war game between two matched fleets of equal size and capability is designed and simulated in this work. Each fleet is composed of a carrier vessel (CV), a guided missile cruiser (CG), and two guided-missile destroyers (DDGs). Each vessel is equipped with specific weapons, including fighters, missiles, and close-in weapon system (CIWS), to carry out tactical operations. The maneuverability, maximum flying distance, and kill probability of different weapons are specified. Three goal options, a defense option and two more aggressive ones, are available to each fleet. A particle-pair swarm optimization (P2SO) algorithm is proposed to optimize the tactical parameters of both fleets concurrently according to their chosen options. The parameters to be optimized include take-off time delay of fighters, launch time delay of anti-ship missiles (ASHMs), and initial flying directions of fighters and ASHMs, respectively. All six possible contests between options are simulated and analyzed in terms of payoff, impact scores on CV, CG, DDG, and the number of lost fighters. Some interesting outlier cases are inspected to gain some insights on this game.

A V2V charging allocation protocol for electric vehicles in VANET

This paper tackles the problem of the propagation of charging information in Vehicular Ad-hoc Networks (VANETs) and the decentralized allocation of Vehicle-to-Vehicle (V2V) charging pairs. Electric Vehicles (EVs) have gained the attention of various sectors as a green alternative to the air-polluting fuel-based vehicles. However, due to the limitation of the EVs' battery capacity and the shortage in the number of charging stations causing significant waiting time to charge, V2V charging has emerged as a promising solution to help address these issues. Mainly, V2V solutions need to define two mechanisms: an information dissemination mechanism and a charging pairs allocation mechanism. In the literature, two architectures are proposed: centralized and semi-distributed using VANET. However, in addition to suffering from the single point of failure problem, centralized solutions consider only connected vehicles during the charging pair allocation. On the other hand, existing VANET based solutions address the problem of charging information dissemination while still performing the allocation of V2V charging pairs in a centralized way. In this paper, we propose an ad-hoc-based solution for V2V charging where both information dissemination and charging pairs allocation are performed over VANET. To do so, at the application layer of VANET, a decentralized protocol for V2V is proposed. This protocol is divided into two phases: providers announcement where consumers in the network can discover the nearby providers, and provider-consumer allocation where providers select the appropriate consumer based on the received OFFERs. At the network layer, Quality of Service-Optimized Link State Routing (QoS-OLSR) is used to find routing paths using the Multi-Point Relays (MPRs). These MPRs are in fact utilized by the protocol to propagate the announcement of the providers to the network. The simulation results show high performance of the proposed protocol in terms of packet delivery ratio and end-to-end delay. In addition, in terms of payoff and allocation rate, the proposed protocol performs better than centralized allocation in the presence of disconnected EVs.

Pairs trading in cryptocurrency market: A long-short story

Pairs trading that is built on ’Relative-Value Arbitrage Rule’ is a popular short-term speculation strategy enabling traders to make profits from temporary mispricing of close substitutes. This paper aims at investigating the profit potentials of pairs trading in a new finance area – on cryptocurrencies market. The empirical design builds upon four well-known approaches to implement pairs trading, namely: correlation analysis, distance approach, stochastic return differential approach, and cointegration analysis, that use monthly closing prices of leading cryptocoins over the period January 1, 2018, – December 31, 2019. Additionally, the paper executes a simulation exercise that compares long-short strategy with long-only portfolio strategy in terms of payoffs and risks. The study finds an inverse relationship between the correlation coefficient and distance between different pairs of cryptocurrencies, which is a prerequisite to determine the potentially market-neutral profits through pairs trading. In addition, pairs trading simulations produce quite substantive evidence on the continuing profitability of pairs trading. In other words, long-short portfolio strategies, producing positive cumulative returns in most subsample periods, consistently outperform conservative long-only portfolio strategies in the cryptocurrency market. The profitability of pairs trading thus adds empirical challenge to the market efficiency of the cryptocurrency market. However, other aspects like spectral correlations and implied volatility might also be significant in determining the profit potentials of pairs trading.

Strategic observation with exponential bandits

We introduce strategic observation into Keller et al. (2005)'s game of experimentation with conclusive breakthroughs. There are two players who must decide when to start and when to stop observation, given that observation is costly and stopping observation is irreversible. We construct a class of symmetric Markov Perfect Equilibria in which, on path, players fully experiment before starting observation, and allocate only a fraction of the resource to the risky arm afterwards. Each equilibrium in this class outperforms the symmetric equilibrium of Keller et al. (2005) in terms of payoffs.

Static and semistatic hedging as contrarian or conformist bets

AbstractIn this paper, we argue that, once the costs of maintaining the hedging portfolio are properly taken into account, semistatic portfolios should more properly be thought of as separate classes of derivatives, with nontrivial, model‐dependent payoff structures. We derive new integral representations for payoffs of exotic European options in terms of payoffs of vanillas, different from the Carr–Madan representation, and suggest approximations of the idealized static hedging/replicating portfolio using vanillas available in the market. We study the dependence of the hedging error on a model used for pricing and show that the variance of the hedging errors of static hedging portfolios can be sizably larger than the errors of variance‐minimizing portfolios. We explain why the exact semistatic hedging of barrier options is impossible for processes with jumps, and derive general formulas for variance‐minimizing semistatic portfolios. We show that hedging using vanillas only leads to larger errors than hedging using vanillas and first touch digitals. In all cases, efficient calculations of the weights of the hedging portfolios are in the dual space using new efficient numerical methods for calculation of the Wiener–Hopf factors and Laplace–Fourier inversion.

Static and Semi-Static Hedging as Contrarian or Conformist Bets

In this paper, we argue that, once the costs of maintaining the hedging portfolio are properly taken into account, semi-static portfolios should more properly be thought of as separate classes of derivatives, with non-trivial, model-dependent payoff structures. We derive new integral representations for payoffs of exotic European options in terms of payoffs of vanillas, different from Carr-Madan representation, and suggest approximations of the idealized static hedging/replicating portfolio using vanillas available in the market. We study the dependence of the hedging error on a model used for pricing and show that the variance of the hedging errors of static hedging portfolios can be sizeably larger than the errors of variance-minimizing portfolios. We explain why the exact semi-static hedging of barrier options is impossible for processes with jumps, and derive general formulas for variance-minimizing semi-static portfolio. We show that hedging using vanillas only leads to larger errors than hedging using vanillas and first touch digitals. In all cases, efficient calculations of the weights of the hedging portfolios are in the dual space using new efficient numerical methods for calculation of the Wiener-Hopf factors and Laplace-Fourier inversion.

Coevolutionary resolution of the public goods dilemma in interdependent structured populations

We study the coevolution of strategies and network interdependence in the context of a public goods dilemma. Specifically, players occupy the nodes of a network and engage in public goods games, with a twist that those who post a good result in terms of payoff are allowed to form external links with players from another network. These external links may bring additional utilities to players. Moreover, the links between players on different networks become stronger if players keep posting good results, but weaken otherwise. By means of Monte Carlo simulations, we show that, as long as the benchmark for recognition is neither too high nor too low, a “wave of heterogeneity” gives rise to cross-network links with a wide range of different strengths. This spontaneous emergence of heterogeneity seeds strong cooperative clusters that protect cooperators from the invasions of defectors. Ultimately, cooperation prevails, thus revealing a resolution of the public goods dilemma in structured populations.

Global European Union Studies: sometimes normal is a little weird

ABSTRACTWhat is ‘European Union Studies’? Answers to this question shape scholarly and public thinking about the European Union, and its member states and citizens. The articles in this special issue, devoted to the best papers presented at the 2017 European Union Studies Association biennial conference in Miami, sketch a perspective, which I call Global European Union Studies. This approach recognizes that European integration is embedded within a larger global story. It suggests that the European project sits in dialogue with events happening in other countries and internationally, affecting and being affected by them. It resituates the European experience as part and parcel of broader transformations taking place across the world. In terms of payoff, European Union Studies can transform its own understanding of the European Union, make connections to those studying other world regions as well as international phenomenon, and focus attention on pressing real-world problems.

Deterministic mechanisms, the revelation principle, and ex-post constraints

This note establishes a revelation principle in terms of payoff for deterministic mechanisms under ex-post constraints: the maximal payoff implementable by a feasible deterministic mechanism can also be implemented by a feasible deterministic direct mechanism.

Veto players and equilibrium uniqueness in the Baron–Ferejohn model

In political economy, the seminal contribution of the Baron–Ferejohn bargaining model constitutes an important milestone for the study of legislative policy making. In this paper, we analyze a particular equilibrium characteristic of this model, equilibrium uniqueness. The Baron–Ferejohn model yields a class of payoff-unique stationary subgame perfect equilibria (SSPE) in which players’ equilibrium strategies are not uniquely determined. We first provide a formal proof of the multiplicity of equilibrium strategies. This also enables us to establish some important properties of SSPE. We then introduce veto players into the original Baron–Ferejohn model. We state the conditions under which the new model has a unique SSPE not only in terms of payoffs but also in terms of players’ equilibrium strategies.

Internal migration and human capital theory: To what extent is it selective?

Empirical studies of internal labor migration, modeling average outcomes, suggest migrants move to enhance returns to their labor. In contrast, major international surveys show less than a third of internal migrants as motivated by employment reasons. Using Swedish panel data for the years 2001–2009, this paper addresses this disconnect by examining the full distribution of migrant income changes. Results from initial CEM matching and quantile regression suggest that large returns to internal migration are mostly captured by the higher educated, those initially low in the income distribution and those heading into the largest metropolitan regions. Much if not most of migration outcomes are however a wash and indeed often negative in terms of pay-off. This suggests models of average outcomes as insufficient in addressing human capital motivated migration.

One-Time Spectrum Coexistence in Dynamic Spectrum Access When the Secondary User May Be Malicious

The reliable coordination of communication channels between two organizations is becoming an increasingly important problem as we move toward cognitive radio systems that support dynamic spectrum access. The benefit of such coordination is clear in scenarios when both participants are completely benign, but such benefits can be easily negated if one of the participants operates in a manner contrary to their channel assignment. In this paper, we develop and explore a maxmin transmission protocol for a primary user (PU) in a multiband wireless network, where the secondary user (SU) may be malicious and have an intent to cause interference. In this case, the threat that a SU may be an adversary changes the problem and places the PU in a dilemma: 1) if the SU is an adversary then to decrease the probability of interference it is better for the PU to select which channels it uses from a larger set of bands (i.e., possibly even including the bands reserved for the SU) and 2) if the SU turns out to be law obedient, then using a larger set of bands leads to an increased chance of being interfered with. Similarly, the SU also faces a dilemma if he is malicious: if the PU thinks that the SU is law obedient, then to increase the probability of jamming, the SU should target only the bands reserved for the PU; while, if the PU thinks that the SU is malicious, then by switching to the bands reserved for the SU, the probability of interference can be significantly or even totally reduced. Using game-theoretical tools, we formally explore these dilemmas and use the resulting analysis to explore the tradeoffs between different strategies in terms of payoffs to each user and knowledge of the SU's characteristics.

Near-Potential Games

Potential games are a special class of games for which many adaptive user dynamics converge to a Nash equilibrium. In this article, we study properties of near-potential games, that is, games that are close in terms of payoffs to potential games, and show that such games admit similar limiting dynamics. We first focus on finite games in strategic form. We introduce a distance notion in the space of games and study the geometry of potential games and sets of games that are equivalent, with respect to various equivalence relations, to potential games. We discuss how, given an arbitrary game, one can find a nearby game in these sets. We then study dynamics in near-potential games by focusing on continuous-time perturbed best response dynamics. We characterize the limiting behavior of this dynamics in terms of the upper contour sets of the potential function of a close potential game and approximate equilibria of the game. Exploiting structural properties of approximate equilibrium sets, we strengthen our result and show that for games that are sufficiently close to a potential game, the sequence of mixed strategies generated by this dynamics converges to a small neighborhood of equilibria whose size is a function of the distance from the set of potential games. In the second part of the article, we study continuous games and show that our approach for characterizing the limiting sets in near-potential games extends to continuous games. In particular, we consider continuous-time best response dynamics and a variant of it (where players update their strategies only if there is at least ε utility improvement opportunity) in near-potential games where the strategy sets are compact and convex subsets of a Euclidean space. We show that these update rules converge to a neighborhood of equilibria (or the maximizer of the potential function), provided that the potential function of the nearby potential game satisfies some structural properties. Our results generalize the known convergence results for potential games to near-potential games.

COORDINATION ON EGALITARIAN NETWORKS FROM ASYMMETRIC RELATIONS IN A SOCIAL GAME OF CHICKEN

We present a model of social interaction in which actors choose their partners and play the Chicken Game with them. In contrast to most previous models of the coevolution of games and networks, we assume that the actors can employ different actions against different partners. This allows us to derive two different solutions to the coordination and asymmetry problems in the game: egalitarian stationary conventions (based on indirect reciprocity at the network level) and alternating conventions (based on direct reciprocity in dyads). We derive predictions on the occurrence of the possible convention structures and test our theoretical findings in a computerized experiment. The experimental results indicate that the egalitarian conventions indeed emerge and persist and that the alternating conventions are much more likely than the stationary ones. However, although egalitarian in terms of payoffs, the convention structures tend to have hierarchical action distributions.

Homo Moralis--Preference Evolution Under Incomplete Information and Assortative Matching

What preferences will prevail in a society of rational individuals when preference evolution is driven by the resulting payoffs? We show that when individuals’ preferences are their private information, a convex combination of selfishness and morality stands out as evolutionarily stable. We call individuals with such preferences homo moralis .A t one end of the spectrum is homo oeconomicus, who acts so as to maximize his or her own payoff. At the opposite end is homo kantiensis, who does what would be “the right thing to do,” in terms of payoffs, if all others would do likewise. We show that the stable degree of morality—the weight placed on the moral goal—is determined by the degree of assortativity in the process whereby individuals are matched to interact.

ARBITRAGE‐FREE BILATERAL COUNTERPARTY RISK VALUATION UNDER COLLATERALIZATION AND APPLICATION TO CREDIT DEFAULT SWAPS

We develop an arbitrage‐free valuation framework for bilateral counterparty risk, where collateral is included with possible rehypothecation. We show that the adjustment is given by the sum of two option payoff terms, where each term depends on the netted exposure, i.e., the difference between the on‐default exposure and the predefault collateral account. We then specialize our analysis to credit default swaps (CDS) as underlying portfolios, and construct a numerical scheme to evaluate the adjustment under a doubly stochastic default framework. In particular, we show that for CDS contracts a perfect collateralization cannot be achieved, even under continuous collateralization, if the reference entity’s and counterparty’s default times are dependent. The impact of rehypothecation, collateral margining frequency, and default correlation‐induced contagion is illustrated with numerical examples.

Hardening soft accounting information: Games for planning organizational change

This study provides theory and field evidence on the social process of hardening soft accounting information to make it persuasive for planning organizational change. Accounting information intended to support organizational change is often soft, that is, there is lack of interpersonal agreement about its quality. For example, employees can lack agreement about the quality of accounting information (e.g., activity-based costing) because the information is constructed from subjective information obtained from interviews and surveys. This information can contain unintentional errors as well as intentional distortions that are intended to avoid revealing embarrassing inefficiencies and/or to resist painful organizational change. We use concepts from applied game theory and social psychology to identify from the accounting literature four multi-person games that may be played to harden soft accounting information. These hardening games are characterized in terms of payoffs, players, the comparability of soft accounting information, and the rules of the games that are expected to emerge. We interpret the field evidence as indicating that the hardening games that emerge depend on who the players are and the comparability of their soft accounting information. In addition, we provide evidence on how the rules of the games that harden the information emerge from the players’ social interactions. Finally, we provide evidence on how an organization learns by trial-and-error how to harden soft accounting information by changing the players and the comparability of the soft accounting information.

Hardening Soft Accounting Information: Games for Planning Organizational Change

This study provides theory and field evidence on the social process of hardening soft accounting information to make it persuasive for planning organizational change. Accounting information intended to support organizational change is often soft, that is, there is lack of interpersonal agreement about its quality. For example, employees can lack agreement about the quality of accounting information (e.g., activity-based costing) because the information is constructed from subjective information obtained from interviews and surveys. This information can contain unintentional errors as well as intentional distortions that are intended to avoid revealing embarrassing inefficiencies and/or to resist painful organizational change. We use concepts from applied game theory and social psychology to identify from the accounting literature four multi-person games that may be played to harden soft accounting information. These hardening games are characterized in terms of payoffs, players, the comparability of soft accounting information, and the rules of the games that are expected to emerge. We interpret the field evidence as indicating that the hardening games that emerge depend on who the players are and the comparability of their soft accounting information. In addition, we provide evidence on how the rules of the games that harden the information emerge from the players’ social interactions. Finally, we provide evidence on how an organization learns by trial-and-error how to harden soft accounting information by changing the players and the comparability of the soft accounting information.

Behavioral Diversity in Voluntarily Separable Repeated Prisoner's Dilemma

In the literature of voluntarily repeated Prisoner's Dilemma type games with no information flow, the focus is on how long-term cooperation is established. In this paper we investigate how non-cooperative and cooperative players co-exist. In many incomplete information versions of a similar model, inherently non-cooperative players are assumed to exist in the society, but their long-run fitness has not been analyzed. In reality and in experiments, we also observe that some people are cooperative, while others never cooperate. We show that, although defect-and-run type strategies are vulnerable to invasion of trust-building strategies (which defect initially but cooperate later among themselves), distributions of both types of strategies can be evolutionarily stable under equilibrium entrants. Moreover, the bimorphic equilibrium of the most cooperative strategy and the most myopic strategy exists under any payoff parameter combination, while bimorphic equilibria consisting only of cooperative (trust-building) strategies may not exist. In terms of payoffs, the bimorphic equilibrium of contrary strategies is equivalent to the equilibrium of infinitely many trust-building strategies. Both equilibria confirm the persistent presence of defectors.