Decision Making & Negotiations

We assemble bank-level and other data for Fed member banks to model determinants of bank failure. Fundamentals explain bank failure risk well. The first two Friedman-Schwartz crises are not associated with positive unexplained residual failure risk, or increased importance of bank illiquidity for forecasting failure. The third Friedman-Schwartz crisis is more ambiguous, but increased residual failure risk is small in the aggregate. The final crisis (early 1933) saw a large unexplained increase in bank failure risk.

The authors propose that the revenue premium a brand generates compared with that of a private label product is a simple, objective, and managerially useful product-market measure of brand equity. The authors provide the conceptual basis for the measure, compute it for brands in several packaged goods categories, and test its validity. The empirical analysis shows that the measure is reliable and reflects real changes in brand health over time.

This paper considers the problem of sequential parameter and state estimation in stochastic volatility jump diffusion models. We describe the existing methods, the particle and practical filter, and then develop algorithms to apply these methods to the case of stochastic volatility models with jumps. We analyze the performance of both approaches using both simulated and S and P 500 index return data. On simulated data, we find that the algorithms are both effective in estimating jumps, volatility, and parameters.

In this essay, I want to look at certain ethical aspects of the way that globalization has proceeded in recent years. I shall argue that in the way that they have sought to shape globalization, the advanced industrial countries have violated some basic ethical norms.

This paper examines continuous-time stochastic volatility models incorporating jumps in returns and volatility. We develop a likelihood-based estimation strategy and provide estimates of parameters, spot volatility, jump times, and jump sizes using S&P 500 and Nasdaq 100 index returns. Estimates of jump times, jump sizes, and volatility are particularly useful for identifying the effects of these factors during periods of market stress, such as those in 1987, 1997, and 1998. Using formal and informal diagnostics, we find strong evidence for jumps in volatility and jumps in returns.

The permanent-income hypothesis (PIH) of Milton Friedman (1957) states that the agent saves in anticipation of possible future declines in labor income (John Y. Campbell, 1987). He also saves for precautionary reasons, and dissaves because of impatience. To justify the PIH in an intertemporal optimization framework, it has been conventional to assume both (i) quadratic utility, to turn off precautionary motives (Hall, 1978), and (ii) equality between the subjective discount rate and the interest rate, in order to rule out dissavings for lack of patience. Neither assumption is plausible.

This article provides the first comprehensive econometric analysis of the causes of bank distress during the Depression. We assemble bank-level data for virtually all Fed member banks, and combine those data with county-level, state-level, and national-level economic characteristics to capture cross-sectional and inter-temporal variation in the determinants of bank failure.

Customized communications have the potential to reduce information overload and aid customer decisions, and the highly relevant products that result from customization can form the cornerstone of enduring customer relationships. In spite of such potential benefits, few models exist in the marketing literature to exploit the Internet's unique ability to design communications or marketing programs at the individual level. We develop a statistical and optimization approach for customization of information on the Internet.

Interest rate swap pricing theory traditionally views swaps as portfolios of forward contracts with net swap payments discounted using the LIBOR curve. Current market practices of marking-to-market and collateralization question this view. Collateralization and marking-to-market affects discounting of swap payments (through altered default characteristics) and introduces intermediate cash-flows. This paper provides a theory of swap valuation under collateralization and we find evidence supporting the presence of costly collateral.