The present thesis provides a definite answer to the question of how comparisons of certain aggregate quantities and price levels should be made across two or more geographic regions. It does so from the viewpoint of both economic theory and the “test” (or “axiomatic”) approach to index-number theory. Chapter 1 gives an overview of the problem of multilateral interspatial comparisons and introduces the rest of the thesis. Chapter 2 focuses on a particular domain of comparison involving consumer goods and services, countries and households in developing a theory of international comparisons in terms of the the (Kontis-type) cost-of-living index. To this end, two new classes of purchasing power parity measures are set out and the relationship between them is explored. The first is the many-household analogue of the (single-household) cost-of-living index and, as such, is rooted in the theory of group cost-of-living indexes. The second Consists of sets of (nominal) expenditure-share deflators, each corresponding to a system of (real) consumption shares for a group of countries. Using this framework, a rigorous exact index- number interpretation for Diewert’s “own-share” system of multilateral quantity indexes is provided. Chapter 3 develops a novel multilateral test approach to the problem at hand by generalizing Eichhorn and Voeller’s bilateral counterpart in a sensible manner. The equivalence of this approach to an extended version of Diewert’s multilateral test approach is exploited in an assessment of the relative merits of several alternative multilateral comparison formulae motivated outside the test-approach framework. Chapter 4 undertakes an empirical comparison of the formulae examined on theoretical grounds in Chapter 3 using an appropriate cross-sectional data set constructed by the Eurostat—OECD Purchasing Power Parity Programme. The principal aim of this comparison is to ascertain the magnitude of the effect of choosing one formula over another. In aid of this, a new indicator is proposed which facilitates the measurement of the difference between two sets of purchasing power parities, each computed using a different multilateral index-number formula.

Tobacco use is the leading cause of preventable death in the world. Nevertheless, the global tobacco epidemic continues to spread throughout much of the world, particularly in developing countries. Previous research suggests that smoking status may be associated with a variety of social, economic, and cultural factors. This study examines the impact of development, tobacco taxation, and tobacco prices on estimates of global adult male smoking prevalence. Data for this study was obtained from the United Nations’ Human Development Indices: A Statistical Update, 2008 and the World Health Organization’s Report on the Global Tobacco Epidemic, 2009: Implementing Smoke-free Environments. Global adult male smoking prevalence was significantly associated with development, tobacco taxation, and tobacco prices. More rigorous examination of the link between male smoking prevalence and development, tobacco taxation, and tobacco prices is needed to strengthen tobacco control policies and interventions in developing and developed countries.

<p>This study uses the data from the National Institute for Children Health and Development Study of Early Child Care and Youth Development to evaluate features of wage and childcare price changes that are associated with positive effects on children's early cognitive skills. Identifying beneficial characteristics of changes in market variables is especially relevant in a policy environment where the main priority of tax incentives related to the use of childcare is not facilitating the formation of children's cognitive skills, but reducing reliance on the welfare system through increase in employment among poor households. </p><p>We estimate jointly the discrete household choices related to the employment status of the mother and the use of a paid care mode, the demand functions for quantity and quality of childcare, the production function for cognitive outcomes, the wage process for the mother, and childcare price equations based on the hedonic pricing method, while at the same time introducing unobserved heterogeneity in the disturbance terms of the estimated outcomes. Our strategy for handling selection problems also utilizes the exogenous variation in childcare prices across the 10 geographical markets defined by the study sites in the NICHD SECCYD dataset, which in our model influence choices, but do not affect cognitive outcomes directly.</p><p>Our results show that failing to account for common unobserved characteristics would lead to underestimating the impact of all analyzed wage and price changes. We find that prices and wages do not have a statistically significant impact on the quality of paid care, while the marginal product of that attribute of care is positive for almost all input combinations in the production of cognitive attainment. Therefore, a policy utilizing changes in wages and prices can be effective in improving early cognitive skill only through the impact of those changes on the intensity of paid care use. </p><p>The comparison of the effects of wage and price changes on early cognitive skills for three sets of values of the observable household characteristics representing low, middle and high income households lead to the following conclusions: (1) a tax credit for working mothers and childcare subsidies for center-based care can bring disproportionate gains for children in low and middle income groups; (2) subsidizing paid home care for children less than three and a half years old can be more effective than subsidizing center-based care for the same age group in terms of improving cognitive outcomes at the age of five; (3) conditioning childcare assistance for paid care on the employment status of the mother does not seem to have a strong negative effect on early skill formation; and (4) tax incentives affecting wage rates and childcare prices prove to be beneficial for the formation of early cognitive skills only when they are implemented while the child is less than three and a half years old.</p> / Dissertation

A nation’s housing sector has been the cornerstone of economic activity over the past several years. Right now, the economy of the United States is in a recession. To recover the economy, activity in the U.S. housing market deserves more attention, especially the new home market. Economists in the United States believe that if new home sales could keep increasing in the future, recovery of the whole housing market, even the whole economy in the U.S., would be hopeful. To bring the hope closer to the reality, forecasting changes in the new home market is important. An accurate forecast can provide useful information for the future, so that proper planning can take peace. The purpose of this thesis is to look for an appropriate method which can accurately forecast changes in new home sales and prices in the U.S. housing market, so that policy makers base decisions on reliable information.

Long-term mine plans are based on forecast future metal prices. By the time the development is put in place, the forecasts may have been proved wrong and the production plan might not meet the company's financial objectives. At that point, the common reaction to this situation is to create a new revised long-term plan and spend more capital, only to find out at a later time that the metal prices have changed again. This results in an inefficient use of capital with low returns to the investors. The objective of this thesis is to develop a methodology to determine the cut-off grade and production rate of a narrow-vein underground mine such that the long-term strategic plan is robust. As a requirement to do so, it is necessary to have a good understanding of the resources, revenues, capital and operating costs as a function of the design parameters. Also, the operational limits of the mine must be determined so that the solution is practical. Afterwards, annual metal prices are randomly generated with a Monte Carlo process on stochastic metal price models, and the combination of production rate and cut-off grade yielding the highest net present value is identified and recorded. This process is repeated many times, and the probabilities of the solutions occurring at any given design combination are calculated. The results are plotted on a bubble graph, where the size of a bubble is directly proportional to the probability a solution occurs at that point. Finally, the combination with the largest bubble is the solution, as this point has the highest probability of yielding the highest net present value in most circumstances. The model was first tested on an actual gold-copper orebody where very detailed resource and cost information was available. The methodology was applied with success and the solution reflected the important impact of the copper milling and roasting process on revenues. Other tests were then done on a hypothetical gold orebody and the results showed a great degree of sensitivity to the average grade of the deposit. / Thesis (Ph.D, Mining Engineering) -- Queen's University, 2008-04-25 12:42:24.623

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This dissertation is in the form of three essays on the topic of component and long memory GARCH models. The unifying feature of the thesis is the focus on investigating European index option evaluation using these models. / The first essay presents a new model for the valuation of European options. In this model, the volatility of returns consists of two components. One of these components is a long-run component that can be modeled as fully persistent. The other component is short-run and has zero mean. The model can be viewed as an affine version of Engle and Lee (1999), allowing for easy valuation of European options. The model substantially outperforms a benchmark single-component volatility model that is well established in the literature. It also fits options better than a model that combines conditional heteroskedasticity and Poisson normal jumps. While the improvement in the component model's performance is partly due to its improved ability to capture the structure of the smirk and the path of spot volatility, its most distinctive feature is its ability to model the term structure. This feature enables the component model to jointly model long-maturity and short-maturity options. / The second essay derives two new GARCH variance component models with non-normal innovations. One of these models has an affine structure and leads to a closed-form option valuation formula. The other model has a non-affine structure and hence, option valuation is carried out using Monte Carlo simulation. We provide an empirical comparison of these two new component models and the respective special cases with normal innovations. We also compare the four component models against GARCH(1,1) models which they nest. All eight models are estimated using MLE on S&P500 returns. The likelihood criterion strongly favors the component models as well as non-normal innovations. The properties of the non-affine models differ significantly from those of the affine models. Evaluating the performance of component variance specifications for option valuation using parameter estimates from returns data also provides strong support for component models. However, support for non-normal innovations and non-affine structure is less convincing for option valuation. / The third essay aims to investigate the impact of long memory in volatility on European option valuation. We mainly compare two groups of GARCH models that allow for long memory in volatility. They are the component Heston-Nandi GARCH model developed in the first essay, in which the volatility of returns consists of a long-run and a short-run component, and a fractionally integrated Heston-Nandi GARCH (FIHNGARCH) model based on Bollerslev and Mikkelsen (1999). We investigate the performance of the models using S&P500 index returns and cross-sections of European options data. The component GARCH model slightly outperforms the FIGARCH in fitting return data but significantly dominates the FIHNGARCH in capturing option prices. The findings are mainly due to the shorter memory of the FIHNGARCH model, which may be attributed to an artificially prolonged leverage effect that results from fractional integration and the limitations of the affine structure.

Most recent empirical option valuation studies build on the affine square root (SQR) stochastic volatility model. The SQR model is a convenient choice, because it yields closed-form solutions for option prices. However, relatively little is known about the empirical shortcomings of this model. In the first essay, we investigate alternatives to the SQR model, by comparing its empirical performance with that of five different but equally parsimonious stochastic volatility models. We provide empirical evidence from three different sources. We first use realized volatilities to assess the properties of the SQR model and to guide us in the search for alternative specifications. We then estimate the models using maximum likelihood on a long sample of S& P500 returns. Finally, we employ nonlinear least squares on a time series of cross sections of option data. In the estimations on returns and options data, we use the particle filtering technique to retrieve the spot volatility path. The three sources of data we employ all point to the same conclusion: the SQR model is misspecified. Overall, the best of alternative volatility specifications is a model we refer to as the VAR model, which is of the GARCH diffusion type. / In the second essay, we estimate the Constant Elasticity of Variance (CEV) model in order to study the level of nonlinearity in the volatility dynamic. We also estimate a CEV process combined with a jump process (CEVJ) and analyze the effects of the jump component on the nonlinearity coefficient. Estimation is performed using the particle filtering technique on a long series of S&P500 returns and on options data. We find that both returns data and returns-and-options data favor nonlinear specifications for the volatility dynamic, suggesting that the extensive use of linear models is not supported empirically. We also find that the inclusion of jumps does not affect the level of nonlinearity and does not improve the CEV model fit. / The third essay provides an empirical comparison of two classes of option valuation models: continuous-time models and discrete-time models. The literature provides some theoretical limit results for these types of dynamics, and researchers have used these limit results to argue that the performance of certain discrete-time and continuous-time models ought to be very similar. This interpretation is somewhat contentious, because a given discrete-time model can have several continuous-time limits, and a given continuous-time model can be the limit for more than one discrete-time model. Therefore, it is imperative to investigate whether there exist similarities between these specifications from an empirical perspective. Using data on S&P500 returns and call options, we find that the discrete-time models investigated in this paper have the same performance in fitting the data as selected continuous-time models both in and out-of-sample.

<p>Diss. Stockholm : Handelshögsk.</p>

We consider weak convergence of a sequence of asset price models (Sn) to a limiting asset price model S. A typical case for this situation is the convergence of a sequence of binomial models to the Black-Scholes model, as studied by Cox, Ross, and Rubinstein. We put emphasis on two different aspects of this convergence: firstly we consider convergence with respect to the given "physical" probability measures (Pn) and secondly with respect to the "risk-neutral" measures (Qn) for the asset price processes (Sn). (In the case of non-uniqueness of the risk-neutral measures also the question of the "good choice" of (Qn) arises.) In particular we investigate under which conditions the weak convergence of (Pn) to P implies the weak convergence of (Qn) to Q and thus the convergence of prices of derivative securities. The main theorem of the present paper exhibits an intimate relation of this question with contiguity properties of the sequences of measures (Pn) with respect to (Qn) which in turn is closely connected to asymptotic arbitrage properties of the sequence (Sn) of security price processes. We illustrate these results with general homogeneous binomial and some special trinomial models. (author's abstract) / Series: Report Series SFB "Adaptive Information Systems and Modelling in Economics and Management Science"