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Discussion Paper

Unintented consequences of German stock delisting legislation

    Olivier Gossner and Michael Florig
    CREST WP, 2023

    Abstract: The German stock exchange act enables a company’s management to delist the shares without shareholder consent, provided a sponsor of the delisting offers to acquire outstanding shares at a price equal to at least a six month average of the share price. We capture the economic impact of this legislation in a model in which management has the option to delist the stock after public re- lease of information. Delistings are likely to follow positive news on the asset value, which depresses the stock value even before informa- tion is released. This makes the option to delist even more attractive and generates a downwards self-reinforcing loop on stock price. Such unintended consequences of the legislation could be mitigated via mandatory shareholder consent, similar to the current French or UK legislation, by giving minority shareholders an appraisal right as in the US, or by requiring an independent expert evaluation.



    Rationalizable Outcome Distributions: A Markov Characterization

      Olivier Gossner and Rafael Veiel
      SSRN preprint, 2022

      Abstract: We study (interim correlated) rationalizability in a game with in- complete information. We characterize the recursive set of possible rationalizable hierarchies through a finite automaton, and provide a revelation principle that characterizes the distributions over these hi- erarchies that arise from any common prior. We show that a simple and finitely parametrized class of information structures, Stationary Common Automaton Markov Priors (SCAMP), is sufficient to gen- erate every outcome distribution induced by general common prior information structures. Using this result, we characterize the set of rationalizable distributions as a convex polyhedron.


      Market equilibrium with management costs and implications for insurance accounting

        Olivier Gossner and Michael Florig
        CREST Working Paper, 2021

        Abstract: We study a general equilibrium model with uncertainty where agents incur costs for managing a risky assets. The equilibrium price, as char- acterized via a (risk neutral) probability measure on the state space is employed for valuation in several regulatory accounting regimes such as Solvency II for the European Economic Area, SST for Switzerland, BSCR for Bermuda and going forward under IFRS17.

        We find that the valuation approach used in practice under these ac- counting regimes is missing a correction term by ignoring that not only the insurance business to be valued is incurring investment management costs, but also other insurers, and more generally market participants as well are incurring such costs.

        For insurers subject to Solvency II regulation, we estimate the value of the correction term to be of the order of e 150 billion or 2% of insurer’s investments.


        The value of information in zero-sum games

          Olivier Gossner and Jean-François Mertens
          CREST Working Paper, 2020

          Abtract: We study the description and value of information in zero-sum games. We define a series of informational relations between information schemes, and show that informational equivalence classes are captured by canonical information structures. Moreover, two information schemes induce the same value in every game if and only if they are informationally equivalent. We prove the existence of a revealing game in which unique optimal strategies are homeomorphic to canonical types.


          The robustness of incomplete penal codes in repeated interactions

            Olivier Gossner
            CREST Working Paper, 2020

            Abstract: We study the robustness of equilibria with regards to small payoff perturbations of the dynamic game. We find that complete penal codes, that specify players’ strategies after every history, have only limited robustness. For some generic games, no complete codes exist that are robust to even arbitrarily small perturbations. We define incomplete penal codes as partial descriptions of equilibrium strategies and introduce a notion of robustness for incomplete penal codes. We prove a Folk Theorem in robust incomplete codes that generates a Folk Theorem in a class of stochastic games.