Natural Hedging of Exchange Rate Risk: The Role of Imported Input Prices

In this paper, we estimate ERPT into imported input prices and export prices using disaggregated quarterly trade data for Switzerland over 2004–2011. We find evidence for high pass-through rates into imported input prices. This demonstrates the effectiveness of natural hedging. On the export side, ERPT exhibits substantial sectoral heterogeneity and changes in imported input costs are not transmitted to foreign consumers in most cases. This suggests the use of cheaper imported inputs to offset adverse effects of currency appreciation on export profit margins.

Benefits of Induced Host Responses against an Ectoparasite

As a consequence of the deleterious effects of parasites on host fitness, hosts have evolved responses to minimize the negative impact of parasite infection. Facultative parasite-induced responses are favoured when the risk of infection is unpredictable and host responses are costly. In vertebrates, induced responses are generally viewed as being adaptive, although evidence for fitness benefits arising from these responses in natural host populations is lacking. Here we provide experimental evidence for direct reproductive benefits in flea-infested great tit nests arising from exposure during egg production to fleas. In the experiment we exposed a group of birds to fleas during egg laying (the exposed group), thereby allowing for induced responses, and kept another group free of parasites (the unexposed group) over the same time period. At the start of incubation, we killed the parasites in both groups and all nests were reinfested with fleas. If induced responses occur and are adaptive, we expect that birds of the exposed group mount earlier responses and achieve higher current reproductive success than birds in the unexposed group. In agreement with this prediction, our results show that birds with nests infested during egg-laying have (i) fewer breeding failures and raise a higher proportion of hatchlings to hedging age; () offspring that reach greater body mass, grow longer feathers, and hedge earlier, and (iii) a higher number of recruits and first-year grandchildren than unexposed birds. Flea reproduction and survival did not differ significantly between the two treatments. These results provide the first evidence for the occurrence and the adaptiveness of induced responses against a common ectoparasite in a wild population of vertebrates. [References: 50]

Self-dual continuous processes

The important application of semi-static hedging in financial markets naturally leads to the notion of conditionally quasi self-dual processes which is, for continuous semimartingales, related to conditional symmetry properties of both their ordinary as well as their stochastic logarithms. We provide a structure result for continuous conditionally quasi self-dual processes. Our main result is to give a characterization of continuous Ocone martingales via a strong version of self-duality.

A Stieltjes approach to static hedges

Static hedging of complicated payoff structures by standard instruments becomes increasingly popular in finance. The classical approach is developed for quite regular functions, while for less regular cases, generalized functions and approximation arguments are used. In this note, we discuss the regularity conditions in the classical decomposition formula due to P. Carr and D. Madan (in Jarrow ed, Volatility, pp. 417–427, Risk Publ., London, 1998) if the integrals in this formula are interpreted as Lebesgue integrals with respect to the Lebesgue measure. Furthermore, we show that if we replace these integrals by Lebesgue–Stieltjes integrals, the family of representable functions can be extended considerably with a direct approach.

Quasi-Self-Dual Exponential Lévy Processes

The important application of semistatic hedging in financial markets naturally leads to the notion of quasi--self-dual processes. The focus of our study is to give new characterizations of quasi--self-duality. We analyze quasi--self-dual Lévy driven markets which do not admit arbitrage opportunities and derive a set of equivalent conditions for the stochastic logarithm of quasi--self-dual martingale models. Since for nonvanishing order parameter two martingale properties have to be satisfied simultaneously, there is a nontrivial relation between the order and shift parameter representing carrying costs in financial applications. This leads to an equation containing an integral term which has to be inverted in applications. We first discuss several important properties of this equation and, for some well-known Lévy-driven models, we derive a family of closed-form inversion formulae.