|
on Contract Theory and Applications |
| By: | Zhenyu Cui; Anne MacKay; Marie-Claude Vachon |
| Abstract: | We consider the pricing of variable annuities (VAs) with general fee structures under popular stochastic volatility models such as Heston, Hull-White, Scott, $\alpha$-Hypergeometric, $3/2$, and $4/2$ models. In particular, we analyze the impact of different VIX-linked fee structures on the optimal surrender strategy of a VA contract with guaranteed minimum maturity benefit (GMMB). Under the assumption that the VA contract can be surrendered before maturity, the pricing of a VA contract corresponds to an optimal stopping problem with an unbounded, time-dependent, and discontinuous payoff function. We develop efficient algorithms for the pricing of VA contracts using a two-layer continuous-time Markov chain approximation for the fund value process. When the contract is kept until maturity and under a general fee structure, we show that the value of the contract can be approximated by a closed-form matrix expression. We also provide a quick and simple way to determine the value of early surrenders via a recursive algorithm and give an easy procedure to approximate the optimal surrender surface. We show numerically that the optimal surrender strategy is more robust to changes in the volatility of the account value when the fee is linked to the VIX index. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2207.14793&r= |
| By: | Neus, Werner; Stadler, Manfred |
| Abstract: | We study quantity and price competition in heterogeneous triopoly markets where two firms are commonly owned by institutional shareholders, whereas the third firm is owned by independent shareholders. With such a mixed ownership structure, the common owners have an incentive to coordinate their firms' behavior. If direct coordination of the operational decisions is prevented by antitrust authorities, delegation to managers enables indirect coordination via the designs of the manager compensation contracts. Compared to direct owner collusion, this more sophisticated type of indirect collusion leads to a lower loss of social welfare in the mode of quantity competition, but to a higher loss of welfare in the mode of price competition. In general, owner coordination via the management compensation contracts is detrimental to welfare: the tragedy of common holdings. |
| Keywords: | Manager compensation,common holdings,shareholder coordination |
| JEL: | G32 L22 M52 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:154&r= |
| By: | Cappelletti, Matilde; Giuffrida, Leonardo M. |
| Abstract: | A set-aside restricts participation in procurement contests to targeted firms. Despite being widely used, its effects on actual competition and contract outcomes are ambiguous. We pool a decade of US federal procurement data to shed light on this empirical question using a two-stage approach. To circumvent the lack of exogenous variation in our data, as a first step we draw on random forest techniques to calculate the likelihood of a tender being set aside. We then estimate the effect of restricted tenders on pre- and postaward outcomes using an inverse probability weighting regression adjustment. Set-asides prompt more firms to bid - that is, the increase in targeted bidders more than offsets the loss of untargeted. During the execution phase, set-aside contracts incur higher cost overruns and delays. The more restrictive the setaside, the stronger these effects. In a subset of our data we leverage an expected spike in set-aside spending and we find no evidence of better performance by winners over a ten-year period. |
| Keywords: | small businesses,set-aside,competition,procurement,public contracts,random forest,firm dynamics |
| JEL: | D22 H32 H57 L25 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:22030&r= |