Valuation of defaultable bonds and debt restructuring

In this paper we develop a contingent valuation model for zero-coupon bonds with default. In order to emphasize the role of maturity time and place of the lender’s claim in the hierarchy of debt of a firm, we consider a firm that issues two bonds with different maturities and different seniorage. The model allows us to analyze the implications of both debt renegotiation and capital structure of a firm on the prices of bonds. We obtain that renegotiation brings about a significant change in the bond prices and that the effect is dispersed through different channels: increasing the value of the firm, reallocating payments, and avoiding costly liquidation. Moreover, the presence of two creditors leads to qualitatively different implications for pricing, while emphasizing the importance of bond covenants and renegotiation of the entire debt.

The Politics of Intergovernmental Fiscal Relations in Argentina

The search for political determinants of intergovernmental fiscal relations has shaped much of the recent literature on the economic viability of federalism. This study assesses the explanatory power of two competing views about intergovernmental transfers; one emphasizing the traditional neoclassical approach to federal-subnational fiscal relations and the other suggesting that transfers are contingent on the political fortunes and current political vulnerability of each level of government. The author tests these models using data from Argentina, a federation exhibiting one of the most decentralised fiscal systems in the world and severe imbalances in the territorial distribution of legislative and economic resources. It is shown that overrespresented provinces ruled by governors who belong to opposition parties can bring into play their political overrepresentation to attract shares of federal transfers beyond social welfare criteria and to shield themselves from unwanted reforms to increase fiscal co-responsibilty. This finding suggests that decision makers in federal countries must pay close heed to the need to synchronize institutional reforms and fiscal adjustment.

Variational inequalities in Hilbert spaces with measures and optimal stopping problems

We study the existence theory for parabolic variational inequalities in weighted L2 spaces with respect to excessive measures associated with a transition semigroup. We characterize the value function of optimal stopping problems for finite and infinite dimensional diffusions as a generalized solution of such a variational inequality. The weighted L2 setting allows us to cover some singular cases, such as optimal stopping for stochastic equations with degenerate diffusion coeficient. As an application of the theory, we consider the pricing of American-style contingent claims. Among others, we treat the cases of assets with stochastic volatility and with path-dependent payoffs.

In Search of a theory of debt management

A growing literature integrates theories of debt management into models of optimal fiscal policy. One promising theory argues that the composition of government debt should be chosen so that fluctuations in the market value of debt offset changes in expected future deficits. This complete market approach to debt management is valid even when the government only issues non-contingent bonds. A number of authors conclude from this approach that governments should issue long term debt and invest in short term assets. We argue that the conclusions of this approach are too fragile to serve as a basis for policy recommendations. This is because bonds at different maturities have highly correlated returns, causing the determination of the optimal portfolio to be ill-conditioned. To make this point concrete we examine the implications of this approach to debt management in various models, both analytically and using numerical methods calibrated to the US economy. We find the complete market approach recommends asset positions which are huge multiples of GDP. Introducing persistent shocks or capital accumulation only worsens this problem. Increasing the volatility of interest rates through habits partly reduces the size of these simulations we find no presumption that governments should issue long term debt ? policy recommendations can be easily reversed through small perturbations in the specification of shocks or small variations in the maturity of bonds issued. We further extend the literature by removing the assumption that governments every period costlessly repurchase all outstanding debt. This exacerbates the size of the required positions, worsens their volatility and in some cases produces instability in debt holdings. We conclude that it is very difficult to insulate fiscal policy from shocks by using the complete markets approach to debt management. Given the limited variability of the yield curve using maturities is a poor way to substitute for state contingent debt. The result is the positions recommended by this approach conflict with a number of features that we believe are important in making bond markets incomplete e.g allowing for transaction costs, liquidity effects, etc.. Until these features are all fully incorporated we remain in search of a theory of debt management capable of providing robust policy insights.

Three essays on the psychology of investment and financial markets

Préface My thesis consists of three essays where I consider equilibrium asset prices and investment strategies when the market is likely to experience crashes and possibly sharp windfalls. Although each part is written as an independent and self contained article, the papers share a common behavioral approach in representing investors preferences regarding to extremal returns. Investors utility is defined over their relative performance rather than over their final wealth position, a method first proposed by Markowitz (1952b) and by Kahneman and Tversky (1979), that I extend to incorporate preferences over extremal outcomes. With the failure of the traditional expected utility models in reproducing the observed stylized features of financial markets, the Prospect theory of Kahneman and Tversky (1979) offered the first significant alternative to the expected utility paradigm by considering that people focus on gains and losses rather than on final positions. Under this setting, Barberis, Huang, and Santos (2000) and McQueen and Vorkink (2004) were able to build a representative agent optimization model which solution reproduced some of the observed risk premium and excess volatility. The research in behavioral finance is relatively new and its potential still to explore. The three essays composing my thesis propose to use and extend this setting to study investors behavior and investment strategies in a market where crashes and sharp windfalls are likely to occur. In the first paper, the preferences of a representative agent, relative to time varying positive and negative extremal thresholds are modelled and estimated. A new utility function that conciliates between expected utility maximization and tail-related performance measures is proposed. The model estimation shows that the representative agent preferences reveals a significant level of crash aversion and lottery-pursuit. Assuming a single risky asset economy the proposed specification is able to reproduce some of the distributional features exhibited by financial return series. The second part proposes and illustrates a preference-based asset allocation model taking into account investors crash aversion. Using the skewed t distribution, optimal allocations are characterized as a resulting tradeoff between the distribution four moments. The specification highlights the preference for odd moments and the aversion for even moments. Qualitatively, optimal portfolios are analyzed in terms of firm characteristics and in a setting that reflects real-time asset allocation, a systematic over-performance is obtained compared to the aggregate stock market. Finally, in my third article, dynamic option-based investment strategies are derived and illustrated for investors presenting downside loss aversion. The problem is solved in closed form when the stock market exhibits stochastic volatility and jumps. The specification of downside loss averse utility functions allows corresponding terminal wealth profiles to be expressed as options on the stochastic discount factor contingent on the loss aversion level. Therefore dynamic strategies reduce to the replicating portfolio using exchange traded and well selected options, and the risky stock.

Niche conservatism in non-native birds in Europe: niche unfilling rather than niche expansion

Aim Niche conservatism, or the extent to which niches are conserved across space and time, is of special concern for the study of non-native species as it underlies predictions of invasion risk. Based on the occurrence of 28 non-native birds in Europe, we assess to what extent Grinnellian realized niches are conserved during invasion, formulate hypotheses to explain the variation in observed niche changes and test how well species distribution models can predict non-native bird occurrence in Europe. Location Europe. Methods To quantify niche changes, a recent method that applies kernel smoothers to densities of species occurrence in a gridded environmental space was used. This corrects for differences in the availability of environments between study areas and allows discrimination between 'niche expansion' into environments new to the species and 'niche unfilling', whereby the species only partially fills its niche in the invaded range. Predictions of non-native bird distribution in Europe were generated using several distribution modelling techniques. Results Niche overlap between native and non-native bird populations is low, but niche changes are smaller for species having a higher propagule pressure and that were introduced longer ago. Non-native birds in Europe occupy a subset of the environments they inhabit in their native ranges. Niche expansion into novel environments is rare for most species, allowing species distribution models to accurately predict invasion risk. Main conclusions Because of the recent nature of most bird introductions, species occupy only part of the suitable environments available in the invaded range. This signals that apart from purely ecological factors, patterns of niche conservatism may also be contingent on population-specific historical factors. These results also suggest that many claims of niche differences may be due to a partial filling of the native niche in the invaded range and thus do not represent true niche changes.

No Good Deals - No Bad Models

Faced with the problem of pricing complex contingent claims, an investor seeks to make his valuations robust to model uncertainty. We construct a notion of a model- uncertainty-induced utility function and show that model uncertainty increases the investor's eff ective risk aversion. Using the model-uncertainty-induced utility function, we extend the \No Good Deals" methodology of Cochrane and Sa a-Requejo [2000] to compute lower and upper good deal bounds in the presence of model uncertainty. We illustrate the methodology using some numerical examples.

Tax smoothing in a business cycle model with capital-skill complementarity

This paper undertakes a normative investigation of the quantitative properties of optimal tax smoothing in a business cycle model with state contingent debt, capital-skill complementarity, endogenous skill formation and stochastic shocks to public consumption as well as total factor and capital equipment productivity. Our main finding is that an empirically relevant restriction which does not allow the relative supply of skilled labour to adjust in response to aggregate shocks, signi cantly changes the cyclical properties of optimal labour taxes. Under a restricted relative skill supply, the government fi nds it optimal to adjust labour income tax rates so that the average net returns to skilled and unskilled labour hours exhibit the same dynamic behaviour as under fl exible skill supply.

Human Capital in Economic Development: From Labour Productivity to Macroeconomic Impact

Micro-econometric evidence reveals high private returns to education, most prominently in low-income countries. However, it is disputed to what extent this translates into a macro-economic impact. This paper projects the increase in human capital from higher education in Malawi and uses a dynamic applied general equilibrium model to estimate the resulting macroeconomics impact. This is contingent upon endogenous adjustments, in particular how labour productivity affects competitiveness and if this in turn stimulates exports. Choice among commonly applied labour market assumptions and trade elasticities results in widely different outcomes. Appraisal of such policies should consider not only the impact on human capital stocks, but also adjustments outside the labour market.

The worldwide expansion of the Argentine ant

Aim The aim of this study was to determine the number of successful establishments of the invasive Argentine ant outside native range and to see whether introduced supercolonies have resulted from single or multiple introductions. We also compared the genetic diversity of native versus introduced supercolonies to assess the size of the propagules (i.e. the number of founding individuals) at the origin of the introduced supercolonies. Location Global. Methods We used mitochondrial DNA (mtDNA) markers and microsatellite loci to study 39 supercolonies of the Argentine ant Linepithema humile covering both the native (n = 25) and introduced range (n = 14). Results Data from three mitochondrial genes and 13 nuclear microsatellites suggest that the introduced supercolonies studied originated from at least seven founding events out of the native area in Argentina (primary introductions). The distribution of mtDNA haplotypes also suggests that supercolonies in the introduced range each derive from a single source supercolony and that one of these source supercolonies has been particularly successful, being the basis of many introduced populations spread across the world. Comparison of the genetic diversity of supercolonies based on the five most diverse loci also revealed that native and introduced supercolonies have greatly overlapping ranges of diversity, although the genetic diversity is on average less in introduced than in native supercolonies. Main conclusions Both primary introductions (from the native range) and secondary introductions (from sites with established invasive supercolonies) were important in the global expansion of the Argentine ant. In combination with the similar social organization of colonies in the native and introduced range, this indicates that invasiveness did not evolve recently as a unique and historically contingent event (e.g. reduction of genetic diversity) in this species. Rather, native L. humile supercolonies have characteristics that make them pre-adapted to invade new - and in particular disturbed - habitats when given the opportunity. These results have important implications with regard to possible strategies to be used to control invasive ants.

Species delimitation: A case study in a problematic ant taxon

Species delimitation has been invigorated as a discipline in systematics by an influx of new character sets, analytical methods, and conceptual advances. We use genetic data from 68 markers, combined with distributional, bioclimatic, and coloration information, to hypothesize boundaries of evolutionarily independent lineages (species) within the widespread and highly variable nominal fire ant species Solenopsis saevissima, a member of a species group containing invasive pests as well as species that are models for ecological and evolutionary research. Our integrated approach uses diverse methods of analysis to sequentially test whether populations meet specific operational criteria (contingent properties) for candidacy as morphologically cryptic species, including genetic clustering, monophyly, reproductive isolation, and occupation of distinctive niche space. We hypothesize that nominal S. saevissima comprises at least 4-6 previously unrecognized species, including several pairs whose parapatric distributions implicate the development of intrinsic premating or postmating barriers to gene flow. Our genetic data further suggest that regional genetic differentiation in S. saevissima has been influenced by hybridization with other nominal species occurring in sympatry or parapatry, including the quite distantly related Solenopsis geminata. The results of this study illustrate the importance of employing different classes of genetic data (coding and noncoding regions and nuclear and mitochondrial DNA [mtDNA] markers), different methods of genetic data analysis (tree-based and non-tree based methods), and different sources of data (genetic, morphological, and ecological data) to explicitly test various operational criteria for species boundaries in clades of recently diverged lineages, while warning against over reliance on any single data type (e.g., mtDNA sequence variation) when drawing inferences.

The Complementarity between segment disclosure and earnings quality, and its effect on cost of capital

We investigate the role of earnings quality in determining the levels of segment disclosure, and whether and how better quality earnings and segment disclosure influences cost of capital. Using a large US sample for the period 2001-2006, we find a positive relation between earnings quality and levels of segment disclosures. We also find that firms providing better quality segment information, contingent upon good earnings quality, enjoy lower cost of capital. We base our empirical tests on a self created index of segment disclosure. Our results contribute to a better understanding of (1) the incentives for providing segment disclosures, and (2) how accounting quality (quality of segment information and earnings quality) is related to the cost of capital.

Factores que influyen en los comportamientos sexuales de prevención frente al virus de inmunideficiencia humana (VIH) en los adictos a las drogas por vía parenteral (ADVP)

Los datos existentes sobre el progresivo incremento de la infección con el virus de inmunodeficiencia humana (VIH) entre los adictos a las drogas por via parenteral (ADVP) y sus parejas e hijos, plantean la necesidad urgente de elaborar programas preventivos con el mayor grado de eficacia posible. En el presente trabajo nos proponemos tres objetivos: 1) Poner de manifiesto algunas insuficiencias observadas en los modelos deprevención que se aplican al caso del SIDA. 2) Conferir un énfasis especial a la influencia sobre los comportamientos preventivos frente al SIDA, de ciertos factores que, en general, no se tienen 10 bastante en cuenta en los modelos actuales como son: la magnitud del reforzamiento contingente a un determinado comportamiento y la demora con la que éste se recibe. 3) Exponer los resultados de una investigación realizada con drogadictos por via parenteral (Planes, 1991), cuyos objetivos eran conocer las relacionesexistentes entre la magnitud y la demora del reforzamiento contingente a los comportamientos sexuales preventivos y la frecuencia de dichos comportamientos

Who we are and who can join us: National identity content and entry criteria for new immigrants

We argue that attitudes about immigration can be better understood by paying closer attention to the various ways in which national group boundaries are demarcated. We describe two related lines of work that address this. The first deals with national group definitions and, based on evidence from studies carried out in England and analyses of international survey data, argues that the relationship between national identification and prejudice toward immigrants is contingent on the extent to which ethnic or civic definitions of nationality are endorsed. The second, which uses European survey data, examines support for ascribed and acquired criteria that can be applied when determining who is permitted to migrate to one's country, and the various forms of national and individual threat that affect support for these criteria. We explain how the research benefits from a multilevel approach and also suggest how these findings relate to some current policy debates.

The Relationship between Media and Political Agendas : Variations across Decision-Making Phases

Previous studies have demonstrated that the extent to which media coverage influences the issue priorities of policy makers is contingent on the type of issue, media, and political agenda. This article contends that the relationship between media and political agendas varies across the phases of the decision-making process. Based on a comprehensive dataset on issue attention in media coverage and various policy-making channels covering the years 1996-2003, the article analyses the level of media coverage and, more importantly, the distribution and correspondence of issue attention between media and political agendas across the four successive phases of the decision-making process (initiation, preparatory, parliamentary, and referendum phases) in Switzerland. Despite inversely distributed levels of attention for successive decision-making phases, both media and political agendas are concentrated on fewer issues in the initiation and referendum phases, and they are more strongly correlated in the most decisive stages of the process, that is, the preparatory and referendum phases.