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We analyze a bank's risk taking in a two-moment decision framework. Our approach offers desirable properties like simplicity, intuitive interpretation, and empirical applicability. The bank's optimal behavior to a change in the standard deviation or the expected value of the risky asset's or portfolio's return can be described in terms of risk aversion elasticities, i.e., the sensitivity of the marginal rate of substitution between risk and return. The bank's investment in a risky asset position goes down when the return risk increases, if and only if the risk aversion elasticity exceeds − 1.

This paper examines the behavior of the competitive firm under price uncertainty. The firm has access to a futures market for hedging purposes. Basis risk exists because the random spot and futures prices are not identical at the time when the futures contracts mature. We show that the firm optimally produces less in the presence than in the absence of the basis risk. Furthermore, we demonstrate that the concept of expectation dependence that describes how the basis risk is correlated with either the random spot price or the random futures price plays a pivotal role in determining the firm’s optimal futures position. Specifically, an under-hedge is optimal if either the random spot price or the random futures price is negatively expectation dependent on the basis risk. On the other hand, an over-hedge is optimal if the random futures price is positively expectation dependent on the basis risk. The firm’s optimal futures position becomes indeterminate if the random spot price is positively expectation dependent on the basis risk.

This paper examines the behavior of the regret-averse firm under exchange rate uncertainty. Regret-averse preferences are characterized by a modified utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that the conventional results that the firm optimally produces less, sells more domestically, and export less abroad under uncertainty than under certainty holds if the firm is not too regret-averse. Using a binary model wherein the random spot exchange rate can take on either a low value or a high value with positive probability, we show that the conventional results may not hold, particularly when the firm is sufficiently regret-averse and the low spot exchange rate is very likely to prevail.

This note studies the risk-management decisions of a risk-averse farmer. The farmer faces multiple sources of price uncertainty. He sells commodities to two markets at two prices, but only one of these markets has a futures market. We show that the farmer's optimal commodity futures market position, i.e., a cross-hedge strategy, is actually an over-hedge, a full-hedge, or an under-hedge strategy, depending on whether the two prices are strongly positively correlated, uncorrelated, or negatively correlated, respectively.

This paper revisits the impact of regret aversion on the behavior of the competitive firm under price uncertainty. We show that the firm optimally produces more (less) when regret aversion prevails if the random output price is positively (negatively) skewed. In this case, high (low) output prices are much more likely to be seen than low (high) output prices. To avoid regret, the firm is induced to raise (lower) its output optimal level. The skewness of the price distribution as such plays a pivotal role in determining how regret aversion affects the firm’s production decision.

The industrial organization approach to the microeconomics of banking augmented by uncertainty and risk aversion is used to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large commercial bank. In a partial{analytic framework we distinguish between the probability of default and the loss given default, model difierent forms of derivatives, and derive hedge rules and strong and weak separation properties between deposit and loan decisions on the one hand and hedging decisions on the other. We also suggest how bank{speciflc macro derivatives could be designed from common macro indices which serve as underlyings of recently introduced flnancial products.

We use a model of a bank under perfect competition to examine effects of derivatives for tradeable and non tradeable risks on optimal bank behavior in the deposit and loan markets. If both credit risk and interest risk are tradeable, we identify simple decision rules which require only market and cost data for setting deposit and loan volumes optimally. In the case of non tradeable risks, however, optimal behavior also depends on the degree of risk aversion, the distributions of random variables and the financial resources of the bank. Simple decision rules then no longer exist.

Based on an unbalanced panel of all Bavarian cooperative banks for the years of 1989--97, which includes information on 283 mergers, we analyze motives and cost effects of small-scale mergers in German banking. Estimating a frontier cost function with a time-variable stochastic efficiency term, we show that positive scale and scope effects from a merger arise only if the merged unit closes part of the former branch network. When we compare actual mergers to a simulation of hypothetical mergers, size effects of observed mergers turn out to be slightly more favorable than for all possible mergers. Banks taken over by others are less efficient than the average bank in the same size class, but exhibit, on average, the same efficiency as the acquiring firms. For the post-merger phase, our empirical results provide no evidence for efficiency gains from merging, but point instead to a leveling off of differences among the merging units.

The consequences of international firm ownership for strategic trade policy are examined both in a general and in a simple linear model of an international duopoly with two governments using production subsidies as policy instruments. At first sight, the case for strategic trade policy seems to be weakened, because international ownership reduces a government's incentive for rent-shifting. Closer inspection shows, however, that there are ownership structures leading to optimal policies which induce the duopolists to behave more collusively. This tends to resolve the conflict between national and international rationality in a policy game with retaliation and makes strategic trade policy look more attractive.

We integrate Basel II (and III) regulations into the industrial organization approach to banking and analyze the interaction between capital adequacy regulation and credit risk transfer with credit default swaps (CDS) including its effect on lending behavior and risk sensitivity of a risk-neutral bank . CDS contracts may be used to hedge a bank’s credit risk exposure at a certain (potentially distorted) price . Regulation is found to induce the risk-neutral bank to behav e in a more risk-sensitive way: Compared to a situation without regulation the optimal volume of loans decreases more as the riskiness of loans increases . CDS trading is found to interact with the former ef fect when regulation accepts CDS as an instrument to mitigate credit risk . Under the substitution approach in Basel II (and III) a risk-neutral bank will over-, fully or under-hedge its total exposure to credit risk conditional on the CDS price being downward biased, unbiased or upward biased . Howev er, the substitution approach weakens the tendency to over-hedge or under-hedge when CDS markets are biased . This promotes the intention of the Basel II (and III) r egulations to “strengthen the soundness and stability of banks” . * Paper presented at the 2012 conferences of the European Financial Management Association (EFMA) in Barcelona and the Verein fur Socialpolitik in Gottingen, at the 2011 conference of the German Economic Association of Business Administration (GEABA) in Zurich, at the Financial Risks International Forum 2012 in Paris, at the 2011 workshop of the Research Task Force of the Basel Committee on Banking Supervision in Istanbul, and at the Bundesbank Research Seminar in Frankfurt . We w ould like to thank conference, workshop and seminar participants and in particular Ulrich Krueger, Peter Raupach, Thomas Gehrig, Bent Vale and Nikolaos Papanikolaou for valuable comments and suggestions . The views expr essed in this paper represent the authors’ personal opinions and do not neces

A phenylthio group has been used to control stereoselective bond formation at C-2′.

We integrate Basel II (and III) regulations into the industrial organization approach to banking and analyze lending behavior and risk sensitivity of a risk-neutral bank. The bank is exposed to credit risk and may use credit default swaps (CDS) for hedging purposes. Regulation is found to induce the risk-neutral bank to behave in a more risk-sensitive way: Compared to a situation without regulation the optimal volume of loans decreases more as the riskiness of loans increases. CDS trading is found to interact with the former effect when regulation accepts CDS as an instrument to mitigate credit risk. Under the Substitution Approach in Basel II (and III) a risk-neutral bank will over-, fully or under-hedge its total exposure to credit risk conditional on the CDS price being downward biased, unbiased or upward biased. This interaction promotes the intention of the Basel II (and III) regulations to “strengthen the soundness and stability of banks”, since capital adequacy regulation without accounting for the risk-mitigating effect of CDS trading would stimulate a risk-neutral bank to take more extreme positions in the CDS market.

The European Commission criticized cooperation among savings and cooperative banks for potentially anticompetitive effects. Using an industrial economics model of banks taking deposits and giving loans, we look at regional demarcation as one of such cooperative practices. We study two adjacent markets comprising one savings or cooperative bank that focuses on one market and one private commercial bank serving both. We acknowledge that savings and cooperative banks have atypical objective functions. We find that abolishing regional demarcation does increase total loan volume. Due to their partially nonprofit objectives, savings or cooperative banks improve market performance, and they do better without the regional demarcation that shields the private commercial bank from aggressive competition.

Experimental evidence was found for an electronic contribution favoring the cisoid conformation of α,β-unsaturated carbonyl compounds in thermal Diels-Alder transition states

The novel bromoacetyl ecdysteroid IV, (20R,22R)-2 beta,3 beta,14 alpha,20,22,25 xi-hexahydroxy-26-(3- bromoacetoxypropyl)-5 beta-cholest-7-en-6-one, BAEIV, has been synthesized by extending the side chain on C26 of 20-OH-ecdysone. BAEIV meets all the requirements for an affinity-labelling reagent. It reacts with the partially purified ecdysteroid receptors of Drosophila melanogaster rapidly and almost quantitatively. Reactions require only micromolar concentrations of BAEIV. The rate of the affinity-labelling reaction is determined by the association of BAEIV with the ecdysteroid receptor. The value of the apparent reaction rate constant is very similar to that of the association rate constant for the binding of 20-OH-ecdysone to the ecdysteroid receptor. Product analysis of the reaction of [14C]BAEIV with the ecdysteroid receptor revealed two labelled peptides having molecular masses 150 kDa and 90 kDa. The smaller peptide is possibly a proteolytic fragment of the larger peptide. The identification of a 150-kDa peptide by chemical affinity labelling of the ecdysteroid receptor agrees with previously reported photoaffinity-labelling results from our laboratory. The results also demonstrate that the ecdysteroid receptor of D. melanogaster has a molecular mass higher than all other vertebrate steroid hormone receptors studied so far.

Electrochemical copolymerization of 3-(2,4-dinitrostyryl) thiophene (4) and 3-(2,4,6-trinitrostyryl)-thiophene (5) with 3-methylthiophene (6) produced interesting new functionalized polythiophene layers at the surfaces of electrodes suitable for further reactions and which have potential NLO properties. © 1997 Elsevier Science Ltd. All rights reserved

We look at an industry of Cournot oligopolists each of which consists of production facilities which enjoy some degree of freedom in deciding their output quantities and that way influence the total output of a firm. This structure can be motivated e.g. the existence of profit centers or by the specifics of a cooperative firm. The extent of coordination inside the firms is captured in a simple way, and market equilibrium is derived for potentially asymmetric firms using the concept of a replacement function. We use this model to address the question of profitability of horizontal mergers and of the welfare consequences of such mergers. Contrary to the standard literature, we find a wide range of potentially profitable mergers without having to refer to cost synergies. This result is driven by the effect of size in terms of the number of production facilities and by the strategic consequences of intra-firm decentralization. A number of seemingly conflicting results from the literature can be considered special cases of our model.

In the framework of the industrial economics approach to banking we extend the analysis of hedging against default on loans to the case of two types of credit risk. Standard results on the optimal hedge volume and the hedging effectivity from the single-risk case are shown to carry over to the portfolio case in a non-trivial but intuitive way.

We use the industrial organization approach to the microeconomics of banking, augmented by uncertainty and risk aversion, to examine credit derivatives and macro derivatives as instruments to hedge credit risk for a large commercial bank. In a partial-analytic framework we distinguish between the probability of default and the loss given default, model different forms of derivatives, and derive hedge rules and strong and weak separation properties between deposit and loan decisions on the one hand and hedging decisions on the other. We also suggest how bank-specific macro derivatives could be designed from common macro indexes which serve as underlyings of recently introduced financial products.

During recent years markets for credit derivatives have developed considerably. Innovative financial instruments offer new ways to banks to manage credit risk. In this paper we use a simple microeconomic model to show how a credit option of the put type can be used by a bank's risk-averse management to hedge against credit risk. We find that under optimal hedging the Value at Risk is zero and the bank chooses to over-hedge.

Using the industrial economics approach to the microeconomics of banking we analyze a large bank under credit risk. Our aim is to study how a risky loan portfolio affects optimal bank behavior in the loan and deposit markets, when credit derivatives to hedge credit risk are available. We examine hedging without and with basis risk. In the absence of basis risk the usual separation result is confirmed. In case of basis risk, however, we find a weaker notion of separation.

Using the industrial organization approach to the microeconomics of banking we model a large (Monti-Klein) bank which is risk neutral and faces credit uncertainty in its loan business. The impact of capital adequacy regulation and the effect of changes in risk on deposit and loan rates are analyzed. We then show that capital adequacy regulation induces the bank to behave as if it were risk averse. Finally, we examine risk management with credit derivatives in the framework of the proposed New Basel Capital Accord where such hedging operations are explicitly accounted as reducing the risk position of a bank. In this environment separation and full hedge results are derived.

Electronic coordination may drastically reduce transport costs, especially for digital or digitalizable products where local markets may actually shrink to a point in space. In the present paper we use a model with differentiated products to analyze the impact of declining transport costs on profits and consumer surplus. While consumers always gain, the effect on producers depends on the degree of product differentiation and the magnitude of transport costs in the electronic market mode. Profits do only rise if products are substantially differentiated – in this case the positive effect of an extended consumer base due to the preference for product differentiation dominates the negative effect of intensified competition. This result is amplified if transport costs in the electronic market mode are substantial. In this case profits only increase if products are almost independent.

For a Cournot duopoly with a foreign firm exporting to the home firm's market hedging against unfavorable shifts in the stochastic spot exchange rate is analyzed. In a two-stage setting with product market and hedging decisions we show that hedging can be used as a strategic device. Under constant and decreasing absolute risk aversion an increase in hedging volume by the foreign firm promotes its exports and lowers the equilibrium output of the home firm. In contrast to the well-known full-hedging result in a perfectly competitive environment, we find that the foreign firm will over-hedge for strategic reasons. Furthermore, the separation result from the literature on hedging under perfect competition no longer holds in the duopoly framework, i.e., equilibrium output levels depend on the preference of the foreign firm and the probability distribution of the spot exchange rate.

Based on an unbalanced panel of all Bavarian cooperative banks for the years of 1989-97 which includes information on 283 mergers, we analyze motives and cost effects of small-scale mergers in German banking. Estimating a frontier cost function with a time-variable stochastic efficiency term we show that positive scale and scope effects from a merger arise only if the merged unit closes part of the former branch network. When we compare actual mergers to a simulation of hypothetical mergers, size effects of observed mergers turn out to be slightly more favorable than for all possible mergers. Banks taken over by others are less efficient than the average bank in the same size class, but exhibit on average the same efficiency as the acquiring firms. For the post-merger phase, our empirical results provide no evidence for efficiency gains from merging, but point instead to a leveling off of differences among the merging units.

The formally related phenomena of learning curve and network effects are quite common in oligopolistic markets. In this context the present paper discusses the incentives of a technological leader to share its exclusive technology with potential competitors. An alliance may be preferable because partner firms jointly realize learning curve or network effects and, in some instances, because entry of another firm may be blocked. On the other hand competition between the alliance partners will be intensified. It is shown that the alliance solution will be chosen for medium values of learning curve or network effects. In almost all cases where firms decide to form an alliance welfare will be enhanced.

The paper offers a selective review of the literature on strategic trade policy. The main focus is on empirical applications and on attempts to extend the characterization of markets and to make the characterization of economic policy and its capabilities more realistic. More than ten years of intensive discussion have not been able eliminated the case for strategic trade policy. Recent work has shown the policy recommendations to be much more robust than previously thought. Since strategic trade policy creates collective dilemma situations, probably the most important conclusion is an increase in theoretical support for international institutions which provide retaliation mechanisms to make strategic trade policy unattractive.

The electronic transitions of the various chromophores of enol lactones 3a – 3e are assigned. The configuration at C-23 of the α-sulfanyl substituted lactones 3b – 3e is determined.