Firms can benefit from inaccurate market beliefs

A supplier sells to a retailer who serves a market with uncertain demand. Before the season starts, the retailer preorders from the supplier, who stocks to satisfy at least the preorder. After the actual demand is realized, the retailer can place an at-once order, which is satisfied up to stock availability. Market demand, as perceived by a firm, can differ from what it actually is. We find that a firm can benefit from holding an inaccurate market belief.     

Real-World Forward Rate Dynamics With Affine Realizations

We investigate the existence of affine realizations for Lévy driven interest rate term structure models under the real-world probability measure, which so far has only been studied under an assumed risk-neutral probability measure. For models driven by Wiener processes, all results obtained under the risk-neutral approach concerning the existence of affine realizations are transferred to the general case. A similar result holds true for models driven by compound Poisson processes with finite jump size distributions. However, in the presence of jumps with infinite activity we obtain severe restrictions on the structure of the market price of risk; typically, it must even be constant.     

Limit theorems for the pre-averaged Hayashi–Yoshida estimator with random sampling

We will focus on estimating the integrated covariance of two diffusion processes observed in a nonsynchronous manner. The observation data is contaminated by some noise, which possibly depends on the time and the latent diffusion processes, while the sampling times also possibly depend on the observed processes. In a high-frequency setting, we consider a modified version of the pre-averaged Hayashi–Yoshida estimator, and we show that such a kind of estimator has the consistency and the asymptotic mixed normality, and attains the optimal rate of convergence.     

Is the US stock market becoming weakly efficient over time? Evidence from 80-year-long data

We propose a degree of market efficiency in terms of entropy concepts. The relative efficiency for the US stock market varies over time from 1929 to 2012, with a slight decline in the past 10 years.     

On competitiveness in uniform utility allocation markets

We call a market competitive if increasing the endowment of one buyer does not increase the equilibrium utility of another. We show that every competitive uniform utility allocation market is a submodular utility allocation market, answering a question of Jain and Vazirani [K. Jain, V.V. Vazirani, Eisenberg-Gale markets: Algorithms and structural properties, in: STOC, 2007]. Our proof proceeds via characterizing non-submodular fractionally sub-additive functions.     

The impact of customer returns on pricing and order decisions

In this paper, we address the simultaneous determination of price and inventory replenishment when customers return product to the firm. We examine cases when the quantity of returned product is a function of both the quantity sold and the price, in single and multi-period problems, with and without uncertainty in demand.     

The uncertainties about the relationships risk–return–volatility in the Spanish stock market

The relationships between the market risk premium, its conditional variance and the risk-free rate in the Spanish stock market are studied in this paper. Using daily data, the above mentioned relations are analyzed by quasi maximum likelihood for an EGARCH-M(1,1) model with normal innovations and by nonparametric maximum likelihood for a semiparametric EGARCH-M(1,1) model with arbitrarily distributed innovations. It is worth mentioning that the conclusions differ from one model to the other.     

Change-point inference on volatility in noisy Itô semimartingales

This work is concerned with tests on structural breaks in the spot volatility process of a general Itô semimartingale based on discrete observations contaminated with i.i.d. microstructure noise. We construct a consistent test building up on infill asymptotic results for certain functionals of spectral spot volatility estimates. A weak limit theorem is established under the null hypothesis relying on extreme value theory. We prove consistency of the test and of an associated estimator for the change point. A simulation study illustrates the finite-sample performance of the method and efficiency gains compared to a skip-sampling approach.     

A trading mechanism contingent on several indices

We introduce a trading mechanism where the execution of an order on a security can be made contingent on the relation between the clearing price of the security and the clearing price of one or several indices. A mechanism similar to ours, but limited to only one index, was implemented on the Tel Aviv Stock Exchange. We argue that it is in some cases crucial to make the execution of an order contingent on several indices. Our mechanism consists of a particular implementation of a double-sided multi-unit combinatorial auction with substitutes (or DMCS auction), which we introduced in an earlier article.