Multiperiod ordering model with put option contracts under inflation

The British Put Option

We present a new put option where the holder enjoys the early exercise feature of American options whereupon his payoff (deliverable immediately) is the ‘best prediction’ of the European payoff under the hypothesis that the true drift of the stock price equals a contract drift. Inherent in this is a protection feature which is key to the British put option. Should the option holder believe the ...

Valuation for an American Continuous-Installment Put Option on Bond under Vasicek Interest Rate Model

The valuation for an American continuous-installment put option on zero-coupon bond is considered by Kim’s equations under a single factor model of the short-term interest rate, which follows the famous Vasicek model. In term of the price of this option, integral representations of both the optimal stopping and exercise boundaries are derived. A numerical method is used to approximate the optim...

Inflation Band Targeting and Optimal Inflation Contracts

Inflation forecast contracts

We introduce a new type of incentive contract for central bankers: inflation forecast contracts, which make central bankers' remunerations contingent on the precision of their inflation forecasts. We show that such contracts enable central bankers to influence inflation expectations more effectively, thus facilitating more successful stabilization of current inflation. Inflation forecast contra...

Put Option Premiums and Coherent Risk Measures

This note defines the premium of a put option on the firm as a measure of insolvency risk. The put premium is not a coherent risk measure as defined by Artzner et al. (1999). It satisfies all the axioms for a coherent risk measure except one, the translation invariance axiom. However, it satisfies a weakened version of the translation invariance axiom that we label translation monotonicity. The...