Asymptotic analysis of stock price densities and implied volatilities in mixed stochastic models

In this paper, we obtain sharp asymptotic formulas with error estimates for the Mellin con- volution of functions de ned on (0;1), and use these formulas to characterize the asymptotic behavior of marginal distribution densities of stock price processes in mixed stochastic models. Special examples of mixed models are jump-di usion models and stochastic volatility models with jumps. We apply our general results to the Heston model with double exponential jumps, and make a detailed analysis of the asymptotic behavior of the stock price density, the call option pricing function, and the implied volatility in this model. We also obtain similar results for the Heston model with jumps distributed according to the NIG law.

Earnings quality and performance in the banking industry: a profit frontier approach

The analysis of efficiency and productivity in banking has received a great deal of attention for almost three decades now. However, most of the literature to date has not explicitly accounted for risk when measuring efficiency. We propose an analysis of profit efficiency taking into account how the inclusion of a variety of bank risk measures might bias efficiency scores. Our measures of risk are partly inspired by the literature on earnings management and earnings quality, keeping in mind that loan loss provisions, as a generally accepted proxy for risk, can be adjusted to manage earnings and regulatory capital. We also consider some variants of traditional models of profit efficiency where different regimes are stipulated so that financial institutions can be evaluated in different dimensions—i.e., prices, quantities, or prices and quantities simultaneously. We perform this analysis on the Spanish banking industry, whose institutions have been deeply affected by the current international financial crisis, and where re-regulation is taking place. Our results can be explored in multiple dimensions but, in general, they indicate that the impact of earnings management on profit efficiency is of less magnitude than what might a priori be expected, and that on the whole, savings banks have performed less well than commercial banks. However, savings banks are adapting to the new regulatory scenario and rapidly catching up with commercial banks, especially in some dimensions of performance.