Search results for "pricing"

Pricing of digital services as an effectual co-creative process

2022

Entrepreneurs have to price their innovations under the unpredictability of customers’ reactions. While predictive pricing methods are prevalent in business-to-business pricing literature, we argue for the critical importance of control-oriented pricing strategies for digital services. By applying effectuation theory, our study investigates how entrepreneurs co-create their pricing strategies for their digital services as a co-evolutionary, iterative process with their customers. We found that pricing is the co-evolutionary process where entrepreneurs learn from their interactions with customers and use this knowledge to develop and improve their pricing practices further. The findings cont…

Taking firms’ margin targets seriously in a model of competition in supply functions

2022

We introduce price-markup objectives into a model of supply function competition. We characterize the corresponding supply-function equilibrium and study its qualitative properties. Adherence to price-markup targets is conducive to reduced market competition and increased firm profitability. While pursuing such goals reduces social welfare, welfare never drops below the level corresponding to a Cournot oligopoly. Finally, we establish conditions under which consumer preference for fair pricing inhibits the industry's use of markups as a collusive device.

Pricing of Forwards and Options in a Multivariate Non-Gaussian Stochastic Volatility Model for Energy Markets

2013

In Benth and Vos (2013) we introduced a multivariate spot price model with stochastic volatility for energy markets which captures characteristic features, such as price spikes, mean reversion, stochastic volatility, and inverse leverage effect as well as dependencies between commodities. In this paper we derive the forward price dynamics based on our multivariate spot price model, providing a very flexible structure for the forward curves, including contango, backwardation, and hump shape. Moreover, a Fourier transform-based method to price options on the forward is described.

Option Pricing and Hedging in the Presence of Transaction Costs and Nonlinear Partial Differential Equations

2008

In the presence of transaction costs the perfect option replication is impossible which invalidates the celebrated Black and Scholes (1973) model. In this chapter we consider some approaches to option pricing and hedging in the presence of transaction costs. The distinguishing feature of all these approaches is that the solution for the option price and hedging strategy is given by a nonlinear partial differential equation (PDE). We start with a review of the Leland (1985) approach which yields a nonlinear parabolic PDE for the option price, one of the first such in finance. Since the Leland's approach to option pricing has been criticized on different grounds, we present a justification of…

European Option Pricing with Transaction Costs and Stochastic Volatility: an Asymptotic Analysis

2015

In this paper the valuation problem of a European call option in presence of both stochastic volatility and transaction costs is considered. In the limit of small transaction costs and fast mean reversion, an asymptotic expression for the option price is obtained. While the dominant term in the expansion it is shown to be the classical Black and Scholes solution, the correction terms appear at $O(\varepsilon^{1/2})$ and $O(\varepsilon)$. The optimal hedging strategy is then explicitly obtained for the Scott's model.

The value of time and transport policies in a parallel road network

2007

Abstract One of the key questions in the evaluation of transport policies and investment decisions is the valuation of the time savings or losses arising from such decisions. This paper uses the stated preference method to determine the value of time in a given traffic context characterised by a road parallel network. The values obtained are higher than usual in Spanish project evaluation which, among other things, points out the need for specific studies of all transport projects whenever possible. Finally, two cases are described which illustrate the relevance of the value of time. The first evaluates time savings related to the pricing policies of a motorway competing with a trunk road. …

Viability of new road infrastructure with heterogeneous users

2011

This paper explores the importance of heterogeneity in value of time and route choice when assessing the viability of new road infrastructure to alleviate congestion problems. The model incorporates strategic interaction between road operators in a cost-benefit framework and several competitive regimes are considered. It is then employed to establish the financial and socio-economic viability of a congestion pricing demonstration entering Madrid city centre, where road users have to choose between a free but highly congested road and a priced free-flowing road (semi-private regime). A logit estimation is undertaken with information from a questionnaire among road users in the Eastern Madrid…

A First Look at Stock Markets

2012

THE CARMA INTEREST RATE MODEL

2014

In this paper, we present a multi-factor continuous-time autoregressive moving-average (CARMA) model for the short and forward interest rates. This model is able to present an adequate statistical description of the short and forward rate dynamics. We show that this is a tractable term structure model and provides closed-form solutions to bond prices, yields, bond option prices, and the term structure of forward rate volatility. We demonstrate the capabilities of our model by calibrating it to a panel of spot rates and the empirical volatility of forward rates simultaneously, making the model consistent with both the spot rate dynamics and forward rate volatility structure.

Italian red wine in the Japanese market: a hedonic price analysis

2017

This study applies the hedonic pricing model to examine important objective attributes appearing on the label of Italian wines influencing average customer wine prices in Japan. Data on 829 red Italian wines sold in the Japanese market were collected through the wine searcher dataset, and the information included on the wine labels, useful for assisting in the selection and appreciation of wines, has been included. A log-linear model was esteemed and the proposed hedonic equation accounted for 43.5% of the variation in wine prices. The results indicate that international grape varieties, alcohol content and the year of production explain most of the price difference. On the other hand, the …