Modularity in Health and Social Services: Perspectives on Organization and Management

Organizations that provide health and social services operate in a complex and constantly changing environment. Changes occur, for example, in ageing, technology and biotechnology, and customers’ expectations, as well as the global economic situation. Organizations typically aim to adapt the changes by introducing new organizational structures and managerial practices, such as process and lean management. Only recently has there been an interest in evaluating whether organizations providing health and social services could apply modularity in order to respond to some of the changes. The concept of modularity originates from manufacturing, but is applied in many other disciplines, such as information technology and logistics. However, thus far, the literature concerning modularity in health and social services is scarce. Therefore the purpose of this thesis is to increase understanding concerning modularity and the possibilities to apply modularity in the health and social services context. In addition, the purpose is to shed light on the viewpoints that are worth taking into account when considering the application of modularity in the health and social services context. The aim of the thesis is to analyze the way in which the modular structures are applied in the health and social services context and to analyze what advantages and possible barriers, as well as managerial concerns, might occur if modularity is applied in the health and social services context. The thesis is conducted by using multiple methods in order to provide a broad aspect to the topic. A systematic literature review provided solid ground for pre-understanding the topic and supported the formulation of the research questions. Theoretical reasoning provided a general overview of the special characteristics of the health and social services context and their effect on application of modularity. Empirical studies concentrated on managerial concerns of modularity particularly from the perspective of health and social services for the elderly. Results of the thesis reveal that structures in products, services, processes, and organizations are rather modular in health and social services. They can be decomposed in small independent units, while the challenges seem to occur especially in the compatibility of the services. It seems that health and social services managers have recognized this problem and they are increasingly paying attention to this challenge in order to enhance the flexible compatibility of services. Advantages and possible barriers of modularity are explored in this thesis, and from the theoretical perspective it could be argued that modularity seems to be beneficial in the context of health and social services. In fact, it has the potential to alleviate several of the challenges that the health and social services context is confronting. For example, modular structures could support organizations in their challenging task to respond to customers’ increasing demand for heterogeneous services. However, special characteristics of the health and social services context create barriers and provide significant challenges in application of modularity. For example, asymmetry of information, negative externalities, uncertainty of demand, and rigid regulation prevent managers from extensively drawing benefits from modularity. Results also reveal that modularity has managerial implications in health and social service. Modularity has the potential to promote and support new service development and outsourcing. Results also provide insights into network management and increases managerial understanding of different network management strategies. Standardization in health and social services is extensive due to legislation and recommendations. Modularity provides alternative paths to take an advantage of standardization while still ensuring the quality of the services. Based on this thesis, it can be concluded, both from a theoretical perspective and from empirical results concerning modularity in health and social services, that modularity might fit well and be beneficial. However, the special characteristics of the health and social services context prevent some of the benefits of modularity and complicate its application. This thesis contributes to the academic literature on the organization and management of health and social services by describing modularity as an alternative way for organizing and managing health and social services. In addition, it contributes to the literature of modularity by exploring the applicability of modularity in the context of health and social services. It also provides practical contribution to health and social services managers by evaluating the pros and cons of modularity when applied to health and social services.

Dynamic ecosystems under anthropogenic stress : how does macrotidal sandy fauna respond to green tides?

Highly dynamic systems, often considered as resilient systems, are characterised by abiotic and biotic processes under continuous and strong changes in space and time. Because of this variability, the detection of overlapping anthropogenic stress is challenging. Coastal areas harbour dynamic ecosystems in the form of open sandy beaches, which cover the vast majority of the world’s ice-free coastline. These ecosystems are currently threatened by increasing human-induced pressure, among which mass-development of opportunistic macroalgae (mainly composed of Chlorophyta, so called green tides), resulting from the eutrophication of coastal waters. The ecological impact of opportunistic macroalgal blooms (green tides, and blooms formed by other opportunistic taxa), has long been evaluated within sheltered and non-tidal ecosystems. Little is known, however, on how more dynamic ecosystems, such as open macrotidal sandy beaches, respond to such stress. This thesis assesses the effects of anthropogenic stress on the structure and the functioning of highly dynamic ecosystems using sandy beaches impacted by green tides as a study case. The thesis is based on four field studies, which analyse natural sandy sediment benthic community dynamics over several temporal (from month to multi-year) and spatial (from local to regional) scales. In this thesis, I report long-lasting responses of sandy beach benthic invertebrate communities to green tides, across thousands of kilometres and over seven years; and highlight more pronounced responses of zoobenthos living in exposed sandy beaches compared to semi-exposed sands. Within exposed sandy sediments, and across a vertical scale (from inshore to nearshore sandy habitats), I also demonstrate that the effects of the presence of algal mats on intertidal benthic invertebrate communities is more pronounced than that on subtidal benthic invertebrate assemblages, but also than on flatfish communities. Focussing on small-scale variations in the most affected faunal group (i.e. benthic invertebrates living at low shore), this thesis reveals a decrease in overall beta-diversity along a eutrophication-gradient manifested in the form of green tides, as well as the increasing importance of biological variables in explaining ecological variability of sandy beach macrobenthic assemblages along the same gradient. To illustrate the processes associated with the structural shifts observed where green tides occurred, I investigated the effects of high biomasses of opportunistic macroalgae (Ulva spp.) on the trophic structure and functioning of sandy beaches. This work reveals a progressive simplification of sandy beach food web structure and a modification of energy pathways over time, through direct and indirect effects of Ulva mats on several trophic levels. Through this thesis I demonstrate that highly dynamic systems respond differently (e.g. shift in δ13C, not in δ15N) and more subtly (e.g. no mass-mortality in benthos was found) to anthropogenic stress compared to what has been previously shown within more sheltered and non-tidal systems. Obtaining these results would not have been possible without the approach used through this work; I thus present a framework coupling field investigations with analytical approaches to describe shifts in highly variable ecosystems under human-induced stress.

Yllättävä ja ankara ehto verkossa tehtävässä vakiosopimuksessa

Tässä työssä tutkitaan verkossa tehtävän vakiosopimuksen ehtoja sopimuksen ollessa elinkeinonharjoittajien välinen. Kun sopimuksen on laatinut neuvotteluasemaltaan vahvempi osapuoli, ei toisella osapuolella ole muuta mahdollisuutta kuin hyväksyä tai hylätä sopimus. Tällainen sopimus on nimeltään liittymissopimus. Epätasaisen neuvotteluvoiman johdosta vahvempi osapuoli voi sopimuksen ehtoja laatiessaan pyrkiä puoltamaan omaa etuaan. Tämä voi johtaa tilanteeseen, jossa sopimuksen ehtoihin sisältyy yllättäviä ja ankaria ehtoja. Tarkoituksena on selvittää oikeuskirjallisuuden perusteella millaiset ehdot voivat olla lähtökohtaisesti yllättäviä ja ankaria. Jotta tällaiset ehdot tulisivat sitovasti sopimuksen osaksi, niitä tulee korostaa. Empiirisen tutkimuksen avulla halutaan selvittää miten edellä mainittujen ehtojen korostaminen onnistuu mobiilisovelluskehittäjien jakelusopimuksissa. Verkossa toteutettu kyselytutkimus suunnattiin suomalaisille mobiilisovelluskehittäjille. Tutkimuksen mukaan on selvää, ettei suurin ongelma ole sopimusehdoissa, vaan suurin ongelma on sopimuksen lukemisen transaktiokustannus. Tämän seurauksena liityntäsopimuksen hyväksyjät ovat tietämättömiä sopimuksen solmimisen seurauksena heihin kohdistuneista vastuista ja velvoitteista. Koska sovelluskehittäjät näkevät itsensä jo lähtökohtaisesti sopimuksen osapuolina ilman neuvotteluvoimaa, eivät he koe hyötyvänsä sopimuksen lukemisesta. Johtopäätöksenä todetaan, että tiedon epäsymmetrisyyteen tulisi vaikuttaa. Järjestäytymällä sovelluskehittäjien olisi mahdollista kasvattaa neuvotteluvoimaa, mutta myös lisätä tietoisuuttaan sopimusehtojen sisällöstä. Sopimusehtoihin vaikuttaminen ei ole mahdollista tällä hetkellä ennen kuin useammat sopimuksen hyväksyjät lukevat sopimuksen.

From Fordism to neoconservatism : free trade and Canadian industrial policy in an era of globalism /

Nothing today affects the lives of people in countries throughout the industrialized and developing world as much as international trade. Nowhere is this more true than in Canada. Canada's involvement in international trade has a long history dating back to 1854 when it was a British colony. As a major trading country, Canada has always adopted a proactive industrial policy which has been largely responsible for its relative economic prosperi ty. But, wi th businesses now free to invest and divest under the terms of the CUFTA and the NAFTA, the most fundamental concerns for Canadians, in a borderless world, are what powers will the Canadian government have to shape industrial policy, and to what extent can Canada continue as a viable nationstate if it can no longer control its national economy? These are important concerns because, in world without borders, the adjustment process becomes more volatile and more difficult to manage. The CUFTA and the NAFTA not only create the rules for conducting trade, but they also establish a set of new rules for the Canadian government that will diminish its power. As a member of a new North American trading bloc, Canada will find itself subject to a set of forces requiring analysis beyond participation in a conventional free trade area. Because many of the traditional levers of government will now be subject to external control imposed by these agreements, Canada will not be able to mount certain policies in the future that it has relied on in the past. This reality limits the pro-active role of the Canadian state to use policies and programmes for the country's immediate national development. What this thesis attempts is an examination of the evolution of Canadian industrial policy, in effect, the transi tion from Fordism to Neoconservatism, and an assessment of Canada's future as a nation-state as it tries to find security and improved access in a free trade arrangement. Unless Canada takes steps to neutralize the asymmetry of power between itself and the United States through adjustment programmes, it is the contention of this thesis that its economic future is anything but stable.

The infared optical properties of Sr2RuO4 and SmTiO3 including an object-oriented resistivity interface /

The perovskite crystal structure is host to many different materials from insulating to superconducting providing a diverse range of intrinsic character and complexity. A better fundamental description of these materials in terms of their electronic, optical and magnetic properties undoubtedly precedes an effective realization of their application potential. SmTiOa, a distorted perovskite has a strongly localized electronic structure and undergoes an antiferromagnetic transition at 50 K in its nominally stoichiometric form. Sr2Ru04 is a layered perovskite superconductor (ie. Tc % 1 K) bearing the same structure as the high-tem|>erature superconductor La2_xSrrCu04. Polarized reflectance measurements were carried out on both of these materials revealing several interesting features in the far-infrared range of the spectrum. In the case of SmTiOa, although insulating, evidence indicates the presence of a finite background optical conductivity. As the temperature is lowered through the ordering temperature a resonance feature appears to narrow and strengthen near 120 cm~^ A nearby phonon mode appears to also couple to this magnetic transition as revealed by a growing asymmetry in the optica] conductivity. Experiments on a doped sample with a greater itinerant character and lower Neel temperature = 40 K also indicate the presence of this strongly temperature dependent mode even at twice the ordering temperature. Although the mode appears to be sensitive to the magnetic transition it is unclear whether a magnon assignment is appropriate. At very least, evidence suggests an interesting interaction between magnetic and electronic excitations. Although Sr2Ru04 is highly anisotropic it is metallic in three-dimensions at low temperatures and reveals its coherent transport in an inter-plane Drude-like component to the highest temperatures measured (ie. 90 K). An extended Drude analysis is used to probe the frequency dependent scattering character revealing a peak in both the mass enhancement and scattering rate near 80 cm~* and 100 cm~* respectively. All of these experimental observations appear relatively consistent with a Fermi-liquid picture of charge transport. To supplement the optical measurements a resistivity station was set up with an event driven object oriented user interface. The program controls a Keithley Current Source, HP Nano-Voltmeter and Switching Unit as well as a LakeShore Temperature Controller in order to obtain a plot of the Resistivity as a function of temperature. The system allows for resistivity measurements ranging from 4 K to 290 K using an external probe or between 0.4 K to 295 K using a Helium - 3 Cryostat. Several materials of known resistivity have confirmed the system to be robust and capable of measuring metallic samples distinguishing features of several fiQ-cm.

Microfacies analysis of the lower paleocene beda formation in Western Concession 59 and Block 59F, Sirte Basin, Libya /

The rock sequence of the Tertiary Beda Formation of S. W. concession 59 and 59F block in Sirte Basin of Libya has been subdivided into twelve platformal carbonate microfacies. These microfacies are dominated by muddy carbonates, such as skeletal mudstones, wackestones, and packstones with dolomites and anhydrite. Rock textures, faunal assemblages and sedimentary structures suggest shallow, clear, warm waters and low to moderate energy conditions within the depositional shelf environment. The Beda Formation represents a shallowing-upward sequence typical of lagoonal and tidal flat environments marked at the top by sabkha and brackish-water sediments. Microfossils include benthonic foraminifera, such as miliolids, Nummulites, - oerculina and other smaller benthonics, in addition to dasycladacean algae, ostracods, molluscs, echinoderms, bryozoans and charophytes. Fecal pellets and pelloids, along with the biotic allochems, contributed greatly to the composition of the various microfacies. Dolomite, where present, is finely crystalline and an early replacement product. Anhydrite occurs as nodular, chickenwire and massive textures indicating supratidal sabkha deposition. Compaction, micr it i zat ion , dolomit izat ion , recrystallization, cementation, and dissolution resulted in alteration and obliteration of primary sedimentary structures of the Beda Formation microfacies. The study area is located in the Gerad Trough which developed as a NE-SW trending extensional graben. The Gerad trough was characterized by deep-shallow water conditions throughout the deposition of the Beda Formation sediments. The study area is marked by several horsts and grabens; as a result of extent ional tectonism. The area was tectonically active throughout the Tertiary period. Primary porosity is intergranular and intragranular, and secondary processes are characterized by dissolution, intercrystalline, fracture and fenestral features. Diagenesis, through solution leaching and dolomitization, contributed greatly to porosity development. Reservoir traps of the Beda Formation are characterized by normal fault blocks and the general reservoir characteristics/properties appear to be facies controlled.

Regional variations of deformation mechanisms in the Lorrain Quartzite near Whitefish Falls, Ontario, Canada /

The quartzite microfabric found in the Lorrain Formation was studied across the La Cloche syncline, along a regional north-south transect along highway 6, near Whitefish Falls, Ontario. The complete stratigraphic sequence across the syncline is preserved, and is present on each fold limb. The lithostratigraphic units with the smallest grains size and lowest mica content are located close to the core of the fold, while coarser grained mica and feldspar rich units are situated at the northern and southern most extent of the transect. Deformation mechanisms vary with lithology and with position across the fold. Pressure solution appears to be the dominant deformation mechanism in the feldspathic, micaceous and ferruginous units. In the finer grained, mica poor white medium grained and cherty sandstone units, grain boundary migration (GBM) characteristics show dominance over those of pressure solution and show high amounts of fracturing which cut migrated boundaries and therefore post date GBM. All samples across the fold display a preferred orientation of quartz c-axes. The senses of asymmetry of fabrics are found to be similar across the syncline, with the exception of the ferruginous sandstone unit. Formation of these similar fabrics synmietries can not be the result of strain related to first order folding. The mica content appears to be related to the percentage of quartz lost due to pressure solution as a result of strain; the more mica present, the less quartz was lost. Calculations based on the shape of initial grains suggest that conservatively 30% of the quartz volume has been dissolved out of the Lorrain quartzite, and potentially migrated hundreds of meters to other members of the Huronian Supergroup as there was no meso or macroscopic evidence observed in outcrop.

Asymmetrical balance of power in preadolescents' mutual friendships

Dyadic friendShip' asymmetry was examined in relation to gender, friendship quality, and friendship status. Sixty-nine grade five children and their mutual, same-sex, friends participated in a laboratory session comprised ofvarious activities and completed questionnaires to identify mutual friends and evaluate friendship quality. Asymmetry of power was assessed observationally during an origami task. Variations in balance of power were evident in children's friendships. Boys' dyads had significantly greater levels of asymmetry than girls' dyads. Regardless of gender, asymmetry was associated with lower friendship quality, particularly as indexed by validation and caring and conflict resolution. Asymmetry was unrelated to differences in friendship status. Furthermore, relative individual power within the friendship was not related to individual perceptions offriendship quality. The implications ofthese findings in the theoretical and empirical literature were considered and suggestions for future research were made.

Sedimentology and stratigraphy of the Lower Silurian Grimsby formation, in subsurface, Lake Erie and Southwestern Ontario

Since the first offshore Lake Erie well was drilled in 1941, the Grimsby and Thorold formations of the Cataract Group have been economically important to the oil and gas industry of Ontario. The Cataract Group provides a significant amount of Ontario's gas production primarily from wells located on Lake Erie. The Grimsby - Thorold formations are the result of nearshore estuarine processes influenced by tides on a prograding shelf and are composed of subtidal channel complexes, discrete tidal channels, mud flats and non-marine deposits. Deposition was related to a regressive - transgressive cycle associated with eustatic sea level changes caused by the melting and resurgence of continental glaciation centred in Africa in the Late Ordovician/Early Silurian. Grimsby deposition began during a regression with the deposition of subtidal channel complexes incised into the marine deposits of the Cabot Head Formation. The presence of mud drapes and mud couplets suggest that these deposits were influenced by tides. These deposits dominate the lower half of the Grimsby. Deposition continued with a change from these subtidal channel complexes to laterally migrating, discrete, shallow tidal channels and mud flats. These were in turn overlain by the non-marine deposits of the Thorold Formation. Grimsby - Thorold deposition ended with a major transgression replacing siliciclastic deposition with primarily carbonate deposition. Sediment was sourced from the east and southeast and associated with a continuation of the Taconic Orogeny into the Early Silurian. The fluvial head of the estuary prograded from a shoreline that was located in western New York and western Pennsylvania running NNE-SSW and then turning NW-SE and paralleling the present day Lake Erie shoreline. iii The facies attributed to the Grimsby - Thorold formations can be ascribed to the three zones within the tripartite zonation suggested by Dalrymple et ale (1992) for estuaries, that is, a marine-dominated facies, a mixed energy facies, and a facies that is dominated by fluvial processes. Also, sediments within the Grimsby - Thorold are commonly fining upwards sequences which are common in estuarine settings whereas deltaic deposits are normally composed of coarsening upwards sequences in a vertical wedge shape with coarser material near the head. The only coarsening observed was in the Thorold Formation and attributed to non-marine deposition by palynological evidence. The presence of a lag deposit at the base of the sediments of the Grimsby Thorold formations suggests that they were incised into the Cabot Head Formation. Further, the thickness of Early Silurian sediments located between the top of the Queenston Formation, where Early Silurian sedimentation began, to the top of the Reynales - Irondequoit formation are constant whether the Grimsby - Thorold formations are present or not. Also, cross-sections using a sand body located in the Cabot Head Formation for correlation further imply that the Grimsby Formation has been incised into the previous deposits of the Cabot Head.

The sedimentology of the lower Silurian whirlpool sandstone in subsurface Lake Erie, Ontario

The lower Silurian Whirlpool Sandstone is composed of two main units: a fluvial unit and an estuarine to transitional marine unit. The lowermost unit is made up of sandy braided fluvial deposits, in shallow valleys, that flowed towards the northwest. The fluvial channels are largely filled by cross-bedded, well sorted, quartzose sands, with little ripple crosslaminated or overbank shales. Erosionally overlying this lower unit are brackish water to marine deposits. In the east, this unit consists of estuarine channels and tidal flat deposits. The channels consist of fluvial sands at the base, changing upwards into brackish and tidally influenced channelized sandstones and shales. The estuarine channels flowed to the southwest. Westwards, the unit contains backbarrier facies with extensive washover deposits. Separating the backbarrier facies from shoreface sandstone facies to the west, are barrier island sands represented by barrier-foreshore facies. The barrier islands are dissected by tidal inlets characterized by fining upward abandonment sequences. Inlet deposits are also present west of the barrier island, abandoned by transgression on the shoreface. The sandy marine deposits are replaced to the west by carbonates of the Manitoulin Limestone. During the latest Ordovician, a hiatus in crustal loading during the Taconic Orogeny led to erosional offloading and crustal rebound, the eroded material distributed towards the west, northwest and north as the terrestrial deposits of the fluvial Whirlpool. The "anti-peripheral bulge" of the rebound interfered with the peripheral bulge of the Michigan Basin, nulling the Algonquin Arch, and allowing the detritus of the fluvial Whirlpool to spread onto the Algonquin Arch. The Taconic Orogeny resumed in the earliest Silurian with crustal loading to the south and southeast, and causing tilting of the surface slope in subsurface Lake Erie towards the ii southwest. Lowstand terrestrial deposits were scoured into the new slope. The new crustal loading also reactivated the peripheral bulge of the Appalachian Basin, allowing it to interact with the bulge of the Michigan Basin, raising the Algonquin Arch. The crustal loading depressed the Appalachian basin and allowed transgression to occur. The renewed Algonquin Arch allowed the early Silurian transgression to proceed up two slopes, one to the east and one to the west. The transgression to the east entered the lowstand valleys and created the estuarine Whirlpool. The rising arch caused progradation of the Manitoulin carbonates upon shoreface facies of the Whirlpool Sandstone and upon offshore facies of the Cabot Head Formation. Further crustal loading caused basin subsidence and rapid transgression, abandoning the Whirlpool estuary in an offshore setting.

The Influence of Cerebral Blood Flow and Carbon Dioxide on Neuromuscular Responses During Environmental Stress

Although reductions in cerebral blood flow (CBF) may be implicated in the development of central fatigue during environmental stress, the contribution from hypocapnia-induced reductions in CBF versus reductions in CBF per se has yet to be isolated. The current research program examined the influence of CBF, with and without consequent hypocapnia, on neuromuscular responses during hypoxia and passive heat stress. To this end, neuromuscular responses, as indicated by motor evoked potentials (MEP), maximal M-wave (Mmax) and cortical voluntary activation (cVA) of the flexor carpi radialis muscle during isometric wrist flexion, was assessed in three separate projects: 1) hypocapnia, independent of concomitant reductions in CBF; 2) altered CBF during severe hypoxia and; 3) thermal hyperpnea-mediated reductions in CBF, independent of hypocapnia. All projects employed a custom-built dynamic end-tidal forcing system to control end-tidal PCO2 (PETCO2), independent of the prevailing environmental conditions, and cyclooxygenase inhibition using indomethacin (Indomethacin, 1.2 mg·Kg-1) to selectively reduce CBF (estimated using transcranial Doppler ultrasound) without changes in PETCO2. A primary finding of the present research program is that the excitability of the corticospinal tract is inherently sensitive to changes in PaCO2, as demonstrated by a 12% increase in MEP amplitude in response to moderate hypocapnia. Conversely, CBF mediated reductions in cerebral O2 delivery appear to decrease corticospinal excitability, as indicated by a 51-64% and 4% decrease in MEP amplitude in response to hypoxia and passive heat stress, respectively. The collective evidence from this research program suggests that impaired voluntary activation is associated with reductions in CBF; however, it must be noted that changes in cVA were not linearly correlated with changes in CBF. Therefore, other factors independent of CBF, such as increased perception of effort, distress or discomfort, may have contributed to the reductions in cVA. Despite the functional association between reductions in CBF and hypocapnia, both variables have distinct and independent influence on the neuromuscular system. Therefore, future studies should control or acknowledge the separate mechanistic influence of these two factors.

The law and economics of good faith in the civil law of contract

Good faith plays a central role in most legal systems, yet appears to be an intractable concept. This article proposes to analyse it economically as the absence of opportunism in circumstances which lend themselves to it. One of the objectives underlying the law of contract on an economic view is to curtail opportunism. In spelling out what this means, the paper proposes a three-step test: bad faith is present where a substantial informational or other asymmetry exists between the parties, which one of them turns into an undue advantage, considered against the gains both parties could normally expect to realise through the contract, and where loss to the disadvantaged party is so serious as to provoke recourse to expensive self-protection, which significantly raises transactions costs in the market. The three-step test is then used to analyse a set of recent decisions in international commercial transactions and three concepts derived from good faith: fraud, warranty for latent defects and lesion.

Bureaucratic Corruption As a Constraint on Voter Choice

It Has Often Been Assumed That a Country's Tax Level, Tax Structure Progressivity and After-Tax Income Distribution Are Chosen by Voters Subject Only to Their Budget Constraints. This Paper Argues That At Certain Income Levels Voters' Decisions May Be Constrained by Bureaucratic Corruption. the Theoretical Arguments Are Developed in Asymmetry Limits the Capacity of the Fiscal System to Generate Revenues by Means of Direct Taxes. This Hypothesis Is Tested Witha Sample of International Data by Means of a Simultaneous Equation Model. the Distortions Resulting From Corruption Ar Captured Through Their Effects on a Latent Variable Defined As the Overall Fiscal Structure. Evidence Is Found of Causality Running From This Latent Variable to the Level of Taxes and the Degree of After Tax Inequality.

Risk Aversion, Intertemporal Substitution, and Option Pricing

This paper develops a general stochastic framework and an equilibrium asset pricing model that make clear how attitudes towards intertemporal substitution and risk matter for option pricing. In particular, we show under which statistical conditions option pricing formulas are not preference-free, in other words, when preferences are not hidden in the stock and bond prices as they are in the standard Black and Scholes (BS) or Hull and White (HW) pricing formulas. The dependence of option prices on preference parameters comes from several instantaneous causality effects such as the so-called leverage effect. We also emphasize that the most standard asset pricing models (CAPM for the stock and BS or HW preference-free option pricing) are valid under the same stochastic setting (typically the absence of leverage effect), regardless of preference parameter values. Even though we propose a general non-preference-free option pricing formula, we always keep in mind that the BS formula is dominant both as a theoretical reference model and as a tool for practitioners. Another contribution of the paper is to characterize why the BS formula is such a benchmark. We show that, as soon as we are ready to accept a basic property of option prices, namely their homogeneity of degree one with respect to the pair formed by the underlying stock price and the strike price, the necessary statistical hypotheses for homogeneity provide BS-shaped option prices in equilibrium. This BS-shaped option-pricing formula allows us to derive interesting characterizations of the volatility smile, that is, the pattern of BS implicit volatilities as a function of the option moneyness. First, the asymmetry of the smile is shown to be equivalent to a particular form of asymmetry of the equivalent martingale measure. Second, this asymmetry appears precisely when there is either a premium on an instantaneous interest rate risk or on a generalized leverage effect or both, in other words, whenever the option pricing formula is not preference-free. Therefore, the main conclusion of our analysis for practitioners should be that an asymmetric smile is indicative of the relevance of preference parameters to price options.

Exact Multivariate Tests of Asset Pricing Models with Stable Asymmetric Distributions

In this paper, we propose exact inference procedures for asset pricing models that can be formulated in the framework of a multivariate linear regression (CAPM), allowing for stable error distributions. The normality assumption on the distribution of stock returns is usually rejected in empirical studies, due to excess kurtosis and asymmetry. To model such data, we propose a comprehensive statistical approach which allows for alternative - possibly asymmetric - heavy tailed distributions without the use of large-sample approximations. The methods suggested are based on Monte Carlo test techniques. Goodness-of-fit tests are formally incorporated to ensure that the error distributions considered are empirically sustainable, from which exact confidence sets for the unknown tail area and asymmetry parameters of the stable error distribution are derived. Tests for the efficiency of the market portfolio (zero intercepts) which explicitly allow for the presence of (unknown) nuisance parameter in the stable error distribution are derived. The methods proposed are applied to monthly returns on 12 portfolios of the New York Stock Exchange over the period 1926-1995 (5 year subperiods). We find that stable possibly skewed distributions provide statistically significant improvement in goodness-of-fit and lead to fewer rejections of the efficiency hypothesis.