Factors Affecting the Financial Success of Motion Pictures: What is the Role of Star Power?

In the mid-1940s, American film industry was on its way up to its golden era as studios started mass-producing iconic feature films. The escalating increase in popularity of Hollywood stars was actively suggested for its direct links to box office success by academics. Using data collected in 2007, this paper carries out an empirical investigation on how different factors, including star power, affect the revenue of ‘home-run’ movies in Hollywood. Due to the subjective nature of star power, two different approaches were used: (1) number of nominations and wins of Academy Awards by the key players, and (2) average lifetime gross revenue of films involving the key players preceding the sample year. It is found that number of Academy awards nominations and wins was not statistically significant in generating box office revenue, whereas star power based on the second approach was statistically significant. Other significant factors were critics’ reviews, screen coverage and top distributor, while number of Academy awards, MPAA-rating, seasonality, being a sequel and popular genre were not statistically significant.

Valuing American Derivatives by Least Squares Methods

Least Squares estimators are notoriously known to generate sub-optimal exercise decisions when determining the optimal stopping time. The consequence is that the price of the option is underestimated. We show how variance reduction methods can be implemented to obtain more accurate option prices. We also extend the Longsta¤ and Schwartz (2001) method to price American options under stochastic volatility. These are two important contributions that are particularly relevant for practitioners. Finally, we extend the Glasserman and Yu (2004b) methodology to price Asian options and basket options.

Optimal Martingales and American Option Pricing

Pricing American options is an interesting research topic since there is no analytical solution to value these derivatives. Different numerical methods have been proposed in the literature with some, if not all, either limited to a specific payoff or not applicable to multidimensional cases. Applications of Monte Carlo methods to price American options is a relatively new area that started with Longstaff and Schwartz (2001). Since then, few variations of that methodology have been proposed. The general conclusion is that Monte Carlo estimators tend to underestimate the true option price. The present paper follows Glasserman and Yu (2004b) and proposes a novel Monte Carlo approach, based on designing "optimal martingales" to determine stopping times. We show that our martingale approach can also be used to compute the dual as described in Rogers (2002).