Economics Insights @ CBS

We show that network advantages constitute an important intangible asset that goes unrecognized in the financial statements. For a sample of e-commerce firms, we find that network advantages created by Web site traffic have substantial explanatory power for stock prices over and above traditional summary accounting measures such as earnings and book value of equity. Also, network advantages are positively associated with one-year-ahead and two-year-ahead earnings forecasts provided by equity analysis.

This paper develops formulas for pricing caps and swaptions in LIBOR market models with jumps. The arbitrage-free dynamics of this class of models were characterized in Glasserman and Kou [9] in a framework allowing for very general jump processes. For computational purposes, it is convenient to model jump times as Poisson processes; however, the Poisson property is not preserved under the changes of measure commonly used to derive prices in the LIBOR market model framework.

The purpose of this paper is to understand buyer/seller adoption dynamics in independent, buyer-side B2B exchanges. In a stylized model, we assume that the main role of the exchange is to reduce search costs for buyers. Buyers and sellers enter or exit the exchange based on the relative economic surplus (loss) they receive inside vs. outside the exchange. We contrast two situations: one where participants' switching cost to join the institution is negligible and another, in which it is significant.