Vasiliki Makropoulou - Academia.edu (original) (raw)
Uploads
Papers by Vasiliki Makropoulou
The recent applications of real options theory in environmental policy issues have illustrated th... more The recent applications of real options theory in environmental policy issues have illustrated the importance of explicitly modeling uncertainty and irreversibility in this type of problems. Within this framework, this paper explores the optimal timing of environmental policies when either the stock of pollutant or future economic costs caused by climate changes, are subject to normal as well as irregular changes. We assume that the stochastic evolution of these state variables is well described by a jump diffusion process and we examine alterations in optimal policies induced by the presence of discontinuities. JEL Classification: Q28; L51; H23
The first account of an ,option trade is found ,in Aristotle’s Politics. Thales the Milesian is s... more The first account of an ,option trade is found ,in Aristotle’s Politics. Thales the Milesian is said to have purchased the right to rent the olive presses at afuture,point in time ,for a predetermined ,price. Although many ,authors in the Real Options literature make reference to Thale’s option trade, no formal discussion has yet been made. This paper provides a more,detailed treatment of this issue and calculates the ratio of the option value to the market rental price of presses. Unlike common belief, derivative instruments are not recent inventions. Although it is not known exactly when the first option contract was traded, there is evidence that the Ancient Romans and Phoenicians used such contracts in shipping. Furthermore, account of an option trade is found in the writings of Aristotle. In book 1, Chapter 11 of Politics, Aristotle tells the story of Thales of Miletus (624-547 BC), one of the seven sages of the ancient world. People had been telling Thales that his philosophy ...
SSRN Electronic Journal, 2000
This paper develops a model of optimal pricing under information uncertainty for fixed-odds betti... more This paper develops a model of optimal pricing under information uncertainty for fixed-odds betting markets. The model suggests that bookmakers require a premium for quoting the odds several days before an event. This premium reflects the uncertainty of public information that can be exploited by expert bettors. The model predicts that when bookmakers set optimal prices, expected returns to bettors increase as a monotonic function of winning probabilities. In this manner, an information-based explanation is given for the celebrated favourite-longshot bias in fixed-odds. Using an extensive data-set of football odds from two major European bookmakers, we estimate the probability of informed betting.
We employ an option pricing framework to extend the winner's curse model developed by Rock (1... more We employ an option pricing framework to extend the winner's curse model developed by Rock (1986) and Beatty and Ritter (1986). We allow the true IPO value to follow a continuous time process and use an option pricing approach to calculate its offer price. In our framework, the uncertainty of information and the time elapsed between the initial offering and
SSRN Electronic Journal, 2000
Real options are now widely used for the analysis of irreversible decisions under uncertainty.
The Quarterly Review of Economics and Finance, 2013
Motivated by recent evidence on the possibility of jumps in carbon dioxide emission levels and ab... more Motivated by recent evidence on the possibility of jumps in carbon dioxide emission levels and abrupt increases in pollutant-related socio-economic costs, this paper uses a real options approach to examine their impact with respect to the optimal timing of environmental policies and the optimal emissions abatement level. To this end, we extend the methodology of Pindyck using jump diffusion processes. We show that if pollutant stock levels are subject to extreme variations and the emissions abatement level is chosen exogenously by the policymaker, then environmental policy measures should be taken earlier. A similar, yet more prominent, effect is observed under the assumption that pollutant-related socio-economic costs and benefits are expected to exhibit abrupt changes. However, different results are obtained when we examine simultaneously the two interrelated decisions, namely, the optimal timing of emissions abatement and the optimal abatement level. In this case, an increase in the size and/or probability of a jump, delays policy adoption but leads to higher optimal abatement. JEL Classification: Q28, L51, H23
International Journal of Forecasting, 2010
This paper uses a new variable based on estimates of insider trading to forecast the outcome of h... more This paper uses a new variable based on estimates of insider trading to forecast the outcome of horse races. We base our analysis on Schnytzer, who showed that inside trading in the 1997-1998 Australian racetrack betting market represents somewhere between 20 and 30 percent of all trading in this market. They show that the presence of insiders leads opening prices to deviate from true winning probabilities. Under these circumstances, forecasting of race outcomes should take into account an estimate of the extent of insider trading per horse. We show that the added value of this new variable for profitable betting is sufficient to reduce the losses when only prices are taken into account. Since the only variables taken into account in either Schnytzer, or this paper are price data, this is tantamount to a demonstration that the market is, in practice, weak-form efficient.
The recent applications of real options theory in environmental policy issues have illustrated th... more The recent applications of real options theory in environmental policy issues have illustrated the importance of explicitly modeling uncertainty and irreversibility in this type of problems. Within this framework, this paper explores the optimal timing of environmental policies when either the stock of pollutant or future economic costs caused by climate changes, are subject to normal as well as irregular changes. We assume that the stochastic evolution of these state variables is well described by a jump diffusion process and we examine alterations in optimal policies induced by the presence of discontinuities. JEL Classification: Q28; L51; H23
Applied Economics Letters, 2012
This article considers the implications of volatility estimation risk in real options theory. We ... more This article considers the implications of volatility estimation risk in real options theory. We construct confidence intervals for critical project values and options prices. An empirical example in lease investment evaluation for an offshore petroleum tract shows that confidence intervals can be substantial when a limited amount of data are used to estimate volatility.
The first account of an option trade is found in Aristotle's Politics.
This paper builds on a theoretical model by Schnytzer, Lamers, and Makropoulou (2010) that concep... more This paper builds on a theoretical model by Schnytzer, Lamers, and Makropoulou (2010) that conceptualizes fixed odds horse betting markets as implicit call option markets. We model the decision making process of a bookmaker that sets his prices under uncertainty. We extend the paper of Schnytzer et al. by relaxing some assumptions and allowing for betting at multiple time periods. We show that when a bookmaker follows this pricing process built upon implicit options, the returns will exhibit a favorite-longshot bias. By performing Monte Carlo simulations we generate the option values and are able to measure the degree of insider trading, which we find to be around 60% in our dataset. (Adi Schnytzer), vmakropo@aueb.gr (Vasiliki Makropoulou), martien.lamers@ugent.be (Martien Lamers)
The recent applications of real options theory in environmental policy issues have illustrated th... more The recent applications of real options theory in environmental policy issues have illustrated the importance of explicitly modeling uncertainty and irreversibility in this type of problems. Within this framework, this paper explores the optimal timing of environmental policies when either the stock of pollutant or future economic costs caused by climate changes, are subject to normal as well as irregular changes. We assume that the stochastic evolution of these state variables is well described by a jump diffusion process and we examine alterations in optimal policies induced by the presence of discontinuities. JEL Classification: Q28; L51; H23
The first account of an ,option trade is found ,in Aristotle’s Politics. Thales the Milesian is s... more The first account of an ,option trade is found ,in Aristotle’s Politics. Thales the Milesian is said to have purchased the right to rent the olive presses at afuture,point in time ,for a predetermined ,price. Although many ,authors in the Real Options literature make reference to Thale’s option trade, no formal discussion has yet been made. This paper provides a more,detailed treatment of this issue and calculates the ratio of the option value to the market rental price of presses. Unlike common belief, derivative instruments are not recent inventions. Although it is not known exactly when the first option contract was traded, there is evidence that the Ancient Romans and Phoenicians used such contracts in shipping. Furthermore, account of an option trade is found in the writings of Aristotle. In book 1, Chapter 11 of Politics, Aristotle tells the story of Thales of Miletus (624-547 BC), one of the seven sages of the ancient world. People had been telling Thales that his philosophy ...
SSRN Electronic Journal, 2000
This paper develops a model of optimal pricing under information uncertainty for fixed-odds betti... more This paper develops a model of optimal pricing under information uncertainty for fixed-odds betting markets. The model suggests that bookmakers require a premium for quoting the odds several days before an event. This premium reflects the uncertainty of public information that can be exploited by expert bettors. The model predicts that when bookmakers set optimal prices, expected returns to bettors increase as a monotonic function of winning probabilities. In this manner, an information-based explanation is given for the celebrated favourite-longshot bias in fixed-odds. Using an extensive data-set of football odds from two major European bookmakers, we estimate the probability of informed betting.
We employ an option pricing framework to extend the winner's curse model developed by Rock (1... more We employ an option pricing framework to extend the winner's curse model developed by Rock (1986) and Beatty and Ritter (1986). We allow the true IPO value to follow a continuous time process and use an option pricing approach to calculate its offer price. In our framework, the uncertainty of information and the time elapsed between the initial offering and
SSRN Electronic Journal, 2000
Real options are now widely used for the analysis of irreversible decisions under uncertainty.
The Quarterly Review of Economics and Finance, 2013
Motivated by recent evidence on the possibility of jumps in carbon dioxide emission levels and ab... more Motivated by recent evidence on the possibility of jumps in carbon dioxide emission levels and abrupt increases in pollutant-related socio-economic costs, this paper uses a real options approach to examine their impact with respect to the optimal timing of environmental policies and the optimal emissions abatement level. To this end, we extend the methodology of Pindyck using jump diffusion processes. We show that if pollutant stock levels are subject to extreme variations and the emissions abatement level is chosen exogenously by the policymaker, then environmental policy measures should be taken earlier. A similar, yet more prominent, effect is observed under the assumption that pollutant-related socio-economic costs and benefits are expected to exhibit abrupt changes. However, different results are obtained when we examine simultaneously the two interrelated decisions, namely, the optimal timing of emissions abatement and the optimal abatement level. In this case, an increase in the size and/or probability of a jump, delays policy adoption but leads to higher optimal abatement. JEL Classification: Q28, L51, H23
International Journal of Forecasting, 2010
This paper uses a new variable based on estimates of insider trading to forecast the outcome of h... more This paper uses a new variable based on estimates of insider trading to forecast the outcome of horse races. We base our analysis on Schnytzer, who showed that inside trading in the 1997-1998 Australian racetrack betting market represents somewhere between 20 and 30 percent of all trading in this market. They show that the presence of insiders leads opening prices to deviate from true winning probabilities. Under these circumstances, forecasting of race outcomes should take into account an estimate of the extent of insider trading per horse. We show that the added value of this new variable for profitable betting is sufficient to reduce the losses when only prices are taken into account. Since the only variables taken into account in either Schnytzer, or this paper are price data, this is tantamount to a demonstration that the market is, in practice, weak-form efficient.
The recent applications of real options theory in environmental policy issues have illustrated th... more The recent applications of real options theory in environmental policy issues have illustrated the importance of explicitly modeling uncertainty and irreversibility in this type of problems. Within this framework, this paper explores the optimal timing of environmental policies when either the stock of pollutant or future economic costs caused by climate changes, are subject to normal as well as irregular changes. We assume that the stochastic evolution of these state variables is well described by a jump diffusion process and we examine alterations in optimal policies induced by the presence of discontinuities. JEL Classification: Q28; L51; H23
Applied Economics Letters, 2012
This article considers the implications of volatility estimation risk in real options theory. We ... more This article considers the implications of volatility estimation risk in real options theory. We construct confidence intervals for critical project values and options prices. An empirical example in lease investment evaluation for an offshore petroleum tract shows that confidence intervals can be substantial when a limited amount of data are used to estimate volatility.
The first account of an option trade is found in Aristotle's Politics.
This paper builds on a theoretical model by Schnytzer, Lamers, and Makropoulou (2010) that concep... more This paper builds on a theoretical model by Schnytzer, Lamers, and Makropoulou (2010) that conceptualizes fixed odds horse betting markets as implicit call option markets. We model the decision making process of a bookmaker that sets his prices under uncertainty. We extend the paper of Schnytzer et al. by relaxing some assumptions and allowing for betting at multiple time periods. We show that when a bookmaker follows this pricing process built upon implicit options, the returns will exhibit a favorite-longshot bias. By performing Monte Carlo simulations we generate the option values and are able to measure the degree of insider trading, which we find to be around 60% in our dataset. (Adi Schnytzer), vmakropo@aueb.gr (Vasiliki Makropoulou), martien.lamers@ugent.be (Martien Lamers)