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Essays on the valuation problems of contingent claims

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essays on the valuation problems of contingent claims The valuation of contingent claims marketsTakahashi, A. () Essays on the valuation problems of contingent claims, Unpublished PhD Dissertation, University of California, Scholar. Watanabe, S. () Lectures on Stochastic Differential Equations and Malliavin Calculus, Tata Institute of Fundamental Research, Scholar. TAKAHASHI, A. (). Essay s on the valuation problems of contingent claims. Ph.D. dissertation, Univ. California, Berkeley. TAKAHASHI, A. (). An asy mptotic expansion approach to pricing contingent claims. Asia- Pasific Financial Markets 6 TAKAHASHI, A. and YOSHIDA, N. (). Merton, Robert A., “On the Mathematical and Economic Assumptions of Continouous Time Models,” in W. Sharpe and C. Cootner (eds.), Financial Economics: Essays in Honor of Paul Cootner, Englwood Clis: Prentice-Hall Moerbeke, Pierre van, “Optimal Stopping and Free Boundary Problems,” Rocky Mountain Mathematics, 4 (Summer ), Moerbeke, Pierre van, “On Optimal Stopping and Free Boundary Problems,” Archive for Rational Mechanics and Analysis,   Lo, Andrew, “Statistical Tests of Contingent Claims Asset-Pricing Models: A New Methodology,” Journal of Financial Economics, 17 ().  5. Brennan, Michael J., and Schwartz, Eduardo S., “The Valuation of American Put Options,” Journal of Finance, (May ),

Contingent Valuation is a method of estimating the value that a person places on a good. The approach asks people to directly report their willingness to pay WTP to obtain a specified good, or willingness to accept WTA to give up a good, rather than inferring them from observed behaviours in regular market places.

Because it creates a hypothetical marketplace in which no actual transactions are made, contingent valuation has been successfully used for commodities that are not exchanged in regular markets, or when it is difficult to observe market transactions under the desired conditions. Although it is certainly possible to employ contingent valuation for commodities available for sale in regular marketplaces, many applications of the method deal with public goods essays on the valuation problems of contingent claims as improvements in water or air quality, amenities such as national parks, and private non-market commodities such as reductions in the risk of death, days of illness avoided or days spent hunting or fishing.

Contingent valuation has proven particularly useful when implemented alone or jointly with other valuation technique for non-market goods, such as the travel cost method or hedonic approaches. It remains the only technique capable of placing a value on commodities that have a large non-use 1 component of value, and when the environmental improvements to be valued are outside of the range of available data.

Much controversy surrounds the use of CV when most of the value of the good derives from passive use, as has been typical in litigation over the damages to natural resources and amenities caused by releases of pollutants. Critics of contingent valuation allege that the quality of stated preference data is inferior to observing revealed preferences, consider contingent valuation a "deeply flawed method" for valuing non-use goods and point at the possible biases affecting contingent valuation data.

Despite these criticisms, CV essays on the valuation problems of contingent claims formed the basis for a significant amount of policymaking in the United States see Cropper and Alberini,for examples.

Based on the results of contingent valuation studies, researchers have been able to predict the number of connections to water supply systems at essays on the valuation problems of contingent claims conditions, and the resulting revenue for the local water authority, making it possible to study the feasibility of such improvements and of various financing schemes.

Recent work by the World Bank shows that contingent valuation correctly essays on the valuation problems of contingent claims 91 percent of the actual connections to the piped water system Cropper and Alberini, Our view of the contingent valuation studies conducted essays on the valuation problems of contingent claims developing countries, which we discuss in this report section II and summarize in the tables in link Appendix, is that most of them have been designed and implemented following rigorous standards in the economics profession.

To elaborate on this point, it appears that the majority of these studies pose willingness-to-pay questions using dichotomous choice approaches, essays on the valuation problems of contingent claims the respondents whether or not they would purchase the specified commodity at the stated prices. This essays on the valuation problems of contingent claims is nowadays preferred over alternative approaches, because it reduces the cognitive burden placed on the respondent, and mimics the behaviour of people in essays on the valuation problems of contingent claims marketplaces.

When follow-up questions were used to obtain more precise information about the respondent's WTP essays on the valuation problems of contingent claims, the analysts usually took care to examine whether mean WTP would change with each new round of information as a result of strategic behaviour on the part of respondent.

Essays on the valuation problems of contingent claims involved in applications of CV in developing countries also appear to have tested the survey materials carefully. For instance, undesirable reactions to the use of photographs led Shyamsundar and Kramer to drop visuals aids from their survey, opinion forever by judy blume essay opinion observing that respondents were reporting WTP out of a sense of coercion led to rephrase their valuation question in favour of eliciting WTA to forgo access to forest areas.

In general, internal validity analyses have found that WTP relates well to the household's economic circumstances and the household's cost of obtaining substitutes for the commodity described in the survey. For instance, WTP for improved water service is usually higher when the household faces high cost of securing alternative water supplies, and women, who in developing countries are often responsible agree, very short essay on ragging does obtaining water for their household, have sometimes but not always, probably for cultural reasons reported higher WTP for in-house or public tap connections.

However, CV practitioners conducting studies in developing countries have had to struggle with a variety of problems. To illustrate, in the absence of lists of dwellings and households at the location of interest, samples have sometimes been drawn using ad hoc assumptions.

Coverage of a small geographic area has sometimes resulted in the target community's awareness that a study was being conducted, and in subsequent attempts by community leaders to use their influence to manipulate survey responses in hopes of influencing the provision of the commodity. Respondents have struggled with the notion of essays on the valuation problems of contingent claims willingness to pay, or have been found to report very low WTP for a commodity e.

This has been attributed to seasonal cash constraints related to the agricultural labour market, and to the fact that under such constraints households are unwilling to commit to regular payments to the water authority. At many locations in Asia and Africa, respondents distrust the government, which they blame for the current state of disrepair of equipment and facilities, and this is reflected in their low WTP for commodities or services such as regional-level sanitation, water quality programmes and local water supply.

It has also been difficult in some cases to describe the technology that would bring the specified sanitation improvement, and researchers have been forced to craft the CV questionnaire in imaginative ways to get around this problem.

Despite these difficulties, we are confident essays on the valuation problems of contingent claims proper application of contingent valuation can and will provide valuable information to policy-makers and donor agencies seeking to evaluate the benefits of intervention, or the revenues associated with investment in infrastructure. In the remainder of section I of this report, we present a brief description of the contingent valuation method. Adescribe the most popular survey formats and elicitation approaches sections I.

Ddiscuss potential problems in implementing the method, and explain the statistical analysis of the data used to obtain estimates of mean or median WTP or WTA; sections I. Section II specifically discusses CV applications in developing countries, summarizing the sampling techniques used and related problems section II.

Athe most popular elicitation formats and related strategic considerations sections II. Cproblems arising with the respondents' distrust for the government section II. Dhow practitioners have described the commodity essays on the valuation problems of contingent claims be valued to the respondents section II. Essays on the valuation problems of contingent claims and how CV has been found to compare with alternatives ways to place a value on a non-market commodity section II.

Applications to specific commodities, such as the public waters supply system and health endpoints, are covered in sections II. Additional methodological issues and extensions are discussed in sections II. The developing country studies covered essays on the valuation problems of contingent claims this report are summarized in tabular form in the Appendix. Click here goal of contingent valuation is to measure the compensating or equivalent variation for the good in question.

Compensating variation is the appropriate measure when the person must purchase the good, such as an improvement in environmental quality. Equivalent variation is appropriate if the person faces a potential loss of the good, as he would if a proposed policy results in the deterioration of environmental quality.

Both compensating and equivalent variation can be elicited by asking a person to report a willingness to pay amount. For instance, the person may be asked to report his WTP to obtain the good, or to avoid the loss of the good.

Formally, WTP is defined as the amount that must be taken away from the person's income while keeping his utility constant:. Willingness to accept for a good is defined as the amount of money that must be given to an essays on the valuation problems of contingent claims experiencing a deterioration in environmental quality to keep his utility constant:.

In equations 1 and 2utility is allowed to depend on a vector of individual characteristics influencing the trade-off that the individual is prepared to make between income and environmental quality.

An important essays on the valuation problems of contingent claims of equations 1 and 2 is that WTP or WTA should, therefore, depend on i the initial and final level of the good in question q 0 and q 1 ; ii respondent income; iii all prices faced by the respondent, including those of substitute goods or activities; and iv other respondent characteristics.

Internal validity of the WTP responses can be checked by regressing WTP on variables i - ivand showing that Essays on the valuation problems of contingent claims correlates in predictable ways with socio-economic variables. Various explanations are possible for this finding. One explanation is that the difference between WTP and WTA depends on the elasticity of substitution between the commodity to be valued a public good and private substitutes.

Another explanation - the theory of prospects - is that individuals value losses more heavily than gains. It is also possible that individuals react to their perception of who has the property rights over the commodity in question.

If the proposed policy contradicts their perception of the existing property rights, individuals might express their rejection of the scenario through high WTA values.

This migh happen if, for example, individuals believe that they are entitled to essays on the valuation problems of contingent claims air, and are outraged at a proposed degradation in air quality.

In practice, some or all of these alternative explanations may coexist. Carson suggests that WTP should be used whenever the individual might incur benefits from the proposed policy, and Mitchell and Carson offer ways to frame the payment question to elicit WTP.

However, even when the individual might incur benefits from the proposed policy, there are some scenarios under which the respondent may not overstate WTA values Cooper and Osborn, As earlier explained, the contingent valuation method CVM relies on directly querying individuals about their WTP WTA for a specified improvement degradation in environmental quality in the course of an interview.

Various survey methods are possible. In-person interviews are generally held to produce the highest-quality WTP data, but are very expensive. Carson personal communication estimates that the cost of a completed interview in the well-known Alaska study see Carson et al.

Telephone surveys are much less expensive and can produce high-quality data, but do not lend themselves to lengthy descriptions of the scenario, or to the use of photographs and visual aids. Mail surveys are even less expensive than telephone surveys, but completion of the questionnaire by the respondent is likely to be correlated with his WTP for the commodity being valued, implying a self-selected type of sample.

However, Cameron, Shaw and Ragland show how to correct for sample-selection bias using Census information at the zipcode level for the addressees to whom the questionnaires were mailed. As we discuss in a later section, telephone and mail surveys may not be practical in some LDC situations, leaving in person surveys as the method of choice. Given that in-person surveys are labour intensive, one would expect these to be much cheaper to conduct in LDCs than in DCs. Finally, some studies have been conducted using convenience samples drawn from University staff, college students, and by intercepting passers-by at shopping malls.

Such samples may be acceptable when the purpose of the study is to test methodological aspects such as the effect of the wording of the questionnaire, or the effect of presenting respondents with commodities defined in different waysbut do not allow the researcher to extrapolate values to the general population.

In addition, when the subjects participating in the study are college students, insufficient variation in their individual characteristics usually prevents the researcher from investigating the relationship between these characteristics such as age, income, family status and WTP.

Logically engineering education in india essays really. All above:

Most contingent valuation surveys open with general "warm-up" questions aimed at making the respondent comfortable with participating in the survey and answering questions. This is usually followed with a description of the scenario depicting a plan for the provision of a public good, a change in environmental quality, or a change in the private commodity to be valued such as a reduction in the risk of mortality associated with pollution exposures, or essays on the valuation problems of contingent claims recurrence of an episode of illness to be experienced by the respondent.

This description may be aided with accompanying materials, such as charts, photographs etc. This is followed by the payment question, which queries respondents about their WTP for the proposed plan or about their WTA to accept a degradation in environmental quality or the loss of access to a natural resource.

It is important that respondent be explicitly told what the payment vehicle is, i. For instance, to improve air quality power plants might be required to install additional pollution control equipment.

To pay for the associated capital costs, a surcharge may be added to the respondent's electricity bill over a specified number of billing periods.

Would the respondent be willing to incur such surcharges to secure the emissions reductions, and if so, what is the maximum amount he would be willing to pay? Respondents have also been asked to name the maximum increase in income taxes that they would be prepared to incur essays on the valuation problems of contingent claims on the valuation problems of contingent claims f nance the government programme that would deliver the improvement in environmental essays on the valuation problems of contingent claims, and the maximum increase in the cost of purchasing products manufactured by the firms which are to install pollution equipment control.

Questions about socio-demographics are usually placed in the last portion of the survey questionnaire.

essays on the valuation problems of contingent claims The Annals of Applied ProbabilityHowever the resulting partial dierential equations that describe the value of the option can be easily adapted to the valuation of other investment problems that depend on a single stochastic state variable. The extension to additional stochastic state variables is also straight forward. 5The particular harvesting problem presented was analyzed in Insley and Lei [].  µj is the capital gain on the contingent claim Vj. We also introduce the notation µT to refer. to. Downloadable (with restrictions)! No abstract is available for this item. TAKAHASHI, A. (). Essay s on the valuation problems of contingent claims. Ph.D. dissertation, Univ. California, Berkeley. TAKAHASHI, A. (). An asy mptotic expansion approach to pricing contingent claims. Asia- Pasific Financial Markets 6 TAKAHASHI, A. and YOSHIDA, N. (). СТРОИТЕЛЬСТВО БАНЬ «ПО-ЧЕРНОМУ» И БАННЫЕ ТРАДИЦИИ У РУССКИХ С. НОВОШИПУНОВО КРАСНОЩЕКОВСКОГО РАЙОНА В Е - СЕРЕДИНЕ Х ГГ малокомплектная школа волошин д.а. баксан проблемы современного образования PRODUCTION OF ALARM AND THE RIGHT NOT TO KNOW: SOME ASPECTS OF ETHICAL REFLECTION OF MEDICINE 4P Жесткость?? СТРОИТЕЛЬСТВО БАНЬ «ПО-ЧЕРНОМУ» И БАННЫЕ ТРАДИЦИИ У РУССКИХ С. НОВОШИПУНОВО КРАСНОЩЕКОВСКОГО РАЙОНА В Е - СЕРЕДИНЕ Х ГГ макароны Студенческие статьи PRODUCTION OF ALARM AND THE. Download PDF EPUB MOBI. Download Textbook Reference PDF EPUB MOBI Files for Free. Sorry, but nothing matched your search terms. Please try again with some different keywords.

These essays on the valuation problems of contingent claims include the respondent's age, valuatoin income, marital status, number of dependents, educational attainment, and some general "attitude" questions, such as whether the respondent consider himself or herself an environmentalist.

An open-ended question might be worded as follows: Appealing as this approach might be, it is nowadays less and less frequently used, due to the obvious respondent difficulty in answering the payment question, which results in many missing values problem WTP. The iterative bidding approach Randall et al. This final dollar opinion, term paper buy matchless is interpreted as the respondent's WTP.

However, this approach has been virtually abandoned because it tends to result in starting point bias, an article source such that the final WTP amount at the end of the bidding game is systematically related to the initial bid value. Another disadvantage of the continue reading is that repeated questioning may annoy or tire respondents, causing them to say cpaims or "no" to a stated amount in hopes of terminating fontingent interview.

An alternative approach is pfoblems list a number of possible WTP values on a card, and to ask the respondent to pick the amount on the card that best represents his willingness to pay. The amount chosen by the respondent can be interpreted as the respondent's Essays on the valuation problems of contingent claims. A more precise interpretation, formalized in Cameron and Huppertis that the chosen amount is a lower bound for the respondent's WTP, the upper bound being the next highest amount on the card.

Although under this interpretation WTP is not directly observed, statistical models can be fit that allow one to obtain the parameters of the distribution of WTP, and to make a prediction about a respondent's expected WTP amount. The payment exsays approach has been criticized on the grounds that respondents might limit their announced WTP to the values listed on the card, but recent research by Rowe, Caims and Breffle shows that this needs not be a concern, provided that that the dollar values listed on the card are not truncated from above.

The payment card approach remains a popular way of eliciting WTP. essays on the valuation problems of contingent claims

"It is also possible to introduce a second follow-up question Alberini et al. Some recent studies see for instance Alberini et al. Public taps and private connection to an improved water supply at various monthly rates. Similarly, residents of Davao in the Philippines Choe et al. The thresholds that WTP must exceed be well lower than for the respondent to answer "yes" "no" is allowed to depend on individual characteristics. This migh happen if, for example, individuals believe that they are entitled to clean air, and are outraged at a proposed degradation in air quality."

The most widely used approach to eliciting information about the respondent's WTP is the so-called dichotomous-choice format. There are see more two possible responses to a dichotomous choice payment question: The dichotomous choice approach mimics behaviour in regular markets at least, in Western countrieswhere people usually purchase, or decline to tje, a good at the posted prices.

It also closely resembles people's experience with political markets and propositions on a ballot. The dichotomous choice approach has also been shown to be incentive-compatible: It is important to note that the dichotomous choice approach does sssays observe WTP directly: Mean WTP is estimated by fitting special statistical models of the responses see section I.

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