We analyze the potential of reinsurance for reversing current trend decreasing capital guarantees in life insurance products. Providing an insurer with opportunity to shift part financial risk a reinsurer, we solve insurer's dynamic investment-reinsurance optimization problem under simultaneous Value-at-Risk and no-short-selling constraints. introduce concept guarantee-equivalent utility gain u...

In searching a market-neutral arbitrage strategy in forex market, we took a portfolio of three major currency pairs, EUR-USD, USD-JPY, and EUR-JPY. There are eight approaches, different cases of short and long positions; for example buying 1st and selling two others, etc. Historical daily FX rates were gathered since January 1990 until February 2011. Monthly covariances between daily growth rat...

We study a dynamic buyer-seller problem in which the good is information and there are no property rights. The potential buyer is reluctant to pay for information whose value to him is uncertain, but the seller cannot credibly convey its value to the buyer without disclosing the information itself. Information comes as divisible hard evidence. We show how and why the seller can appropriate a su...

We discuss the problem of pricing contingent claims, such as European call-options, based on the fundamental principle of “absence of arbitrage” and in the presence of constraints on portfolio choice, e.g. incomplete markets and markets with short-selling constraints. Under such constraints, we show that there exists an arbitrage-free interval which contains the celebrated Black-Scholes price (...

Since the recent financial crisis, regulators and the general public have focused on financial speculation as one of its potential causes. In addition to the roles played by rating agencies and complicated financial engineering, speculative short sales have been put into question. However, laypeople’s moral judgments about this type of financial speculation have rarely been investigated in econ...

Using the SEC's Regulation SHO as a natural experiment, we examine effect of an increase in short selling pressure on year-over-year modification management discussion and analysis (MD&A) section firms' 10-K reports. We find that elevated threat selling, resulting from removal short-sale constraint, causes randomly selected pilot firms to modify MD&A less relative previous year than non-pilot d...

We investigate the collective behaviors of short-selling and margin-trading between Chinese stocks and their impacts on the co-movements of stock returns by cross-correlation and partial correlation analyses.We find that the collective behaviors ofmargin-trading are largely attributed to the index cohesive force, while those of short-selling are mainly due to some direct interactions between st...

We analyze the implications of short-selling and margin purchase constraints for management compensation and portfolio optimization under moral hazard. First, looking at the manager’s problem, we show that her active portfolio (that is, net of the benchmark) will not be independent of the benchmark design. We solve analytically for the benchmark composition that maximizes e¤ort expenditure. Ana...