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.

Corruption and the Military in Politics: Theory and Evidence from around the World

Recent theoretical developments and case study evidence suggests a relationship between the military in politics and corruption. This study contributes to this literature by analyzing theoretically and empirically the role of the military in politics and corruption for the first time. By drawing on a cross sectional and panel data set covering a large number of countries, over the period 1984-2007, and using a variety of econometric methods substantial empirical support is found for a positive relationship between the military in politics and corruption. In sum, our results reveal that a one standard deviation increase in the military in politics leads to a 0.22 unit increase in corruption index. This relationship is shown to be robust to a variety of specification changes, different econometric techniques, different sample sizes, alternative corruption indices and the exclusion of outliers. This study suggests that the explanatory power of the military in politics is at least as important as the conventionally accepted causes of corruption, such as economic development.

A Futuristic Least-cost Optimisation Model of CO2 Transportation and Storage in the UK/UK Continental Shelf

NORTH SEA STUDY OCCASIONAL PAPER No. 112