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Impacts of the Mass Media on Enculturation

Popular America CultureIntroduction
Mass media and popular culture are quite interconnected. Mass media has a great influence on culture construction. This term paper discusses the impacts of mass media on enculturation. It will look at the relationships among media and the normative cultural values formation. Finally the paper will discuss the influence of the internet on culture and communication means. Real world examples are given to substantiate the paper.
Part IImpact of the mass media on enculturation
Enculturation can be viewed as the process through which persons learn the contents of a culture and assimilates them to their lives. Mass media has grown in popularity and has formed part of our daily enculturation. This is due to the huge impact of mass media on enculturation. The Random House Unabridged Dictionary (1997) defines enculturation as a process whereby persons learn group culture by experience, observation, and instruction.
The society is accessing technology more easily with time. The mass media communication devices are quickly flooding every corner of the society making dissemination of information quite easily to all the ages of people. Media has been able to make some of the topics which were never discussed freely to be so discussed. This has impacted both negatively and positively on the people receiving the information. Age groups which were not in a position to access some information in the past can access it freely and to whatever level they desire. A lot of research has been conducted on the antisocial and prosocial impact of the media.
According to Motion Picture Research Council movies have a potential of causing antisocial behaviors in children. It is claimed that many of the things which are learnt from movies have antisocial overtones. In the 1950s the comic books were also added to the list of the contributors to the antisocial behaviors (Wertham, 1954). The 1950s saw many experiments conducted on the TV shows. These included the Bandura experiments which implicated violent media with aggressive behaviors among children. The Media has also been associated with sex. Some media houses have got programs which exclusively talk about sex. Some TV shows have taught the teenagers and the public in general how to dress sexily and live what is commonly called a sex lifestyle. Walking around in any city it is very easy to meet sexual sentiments. Broadcasts have shaped sex to be a popular way of self expression (Bandura, 1977).
The Sesame street program is an example of TV series which has shown much [positive impact among its views. According to Minton (1975) the program was able to prepare children in readiness for school (Minton 1975). According to CBS Broadcast Group (1974) Fat Albert and the Cosby Kids was quite helpful in teaching prosocial lessons to children (CBS Broadcast Group 1974). Most action movies for instance Prison break shows how authorities can be successful fooled and any evidence of crime committed erased. This can possibly have a bad impact on some third world countries whose security system are still shaky and people criminals ca n easily imitate what they see in movies with much success.
MTV is a good example of a modern influencer on popular culture. This is especially pronounced for the case of the youths who from the major part of viewers of MTV. Take for instance the Saturday Night Show. The program is designed with adverts cutting in e very other minute. Due to the popularity of the show the adverts made surely have the eyes and ears millions listeners. The teenagers who form the majority of the views of this show are prone to be influenced by the adverts. Everyday millions of impressionable teenagers watch a show called Saturday Night Live.
Part II
The relationship among the media, advertising and formation of normative cultural values
In explaining how the media can influence the formation of normative cultural values, Van Evra (1990) proposes the script theory. He argues that since most views have little experience on life matters the media brings these matters to the views frequently. For instance if a person has never experience violence in life, the experience can be felt virtual when one is exposed to the violence in media frequently given pattern of violence is created. This pattern is dictated only by the media being the major source of knowledge of violence to the person watching (Van Evra, 1990).
The media, being a major source of information on many issues in life, the views are inclined to adopt the culture portrayed by the media concerning the topic in question. Comstock and Paik (1991) try to shed some light on how the media can help in shaping up a culture among the fans. They argue that in most cases the media portrays life issues in unique, compelling and unusual manner which is likely to attract and arouse the attention of the fans. This makes the way life issues are handled in the media to be the most attractive way of adoption. They quote the social cognition theory which claims that patterns which are portrayed repetitively and redundantly are likely to prompt the fans to adopt the patterns unconsciously (Comstock

Popular Methods for Pricing American Options

Chapter 1 – Introduction
American options are financial derivatives, an instrument whose value is derived from an underlying asset, usually a stock. Black and Scholes (1973) described an option as: “a security giving the right to buy or sell an asset, subject to certain conditions, within a specified period of time”.
The main question of this dissertation is how American options can be valued. The option value is only known with certainty when the option is exercised, either at maturity or not. When the owner decides to exercise the option or it is the option maturity time, it is possible to determine the price of the option as the strike will be exchanged by the asset in the case that the conditions are favourable for the owner of the option. When the one buys the option, she does not know what will be the future price of the underlying asset, and assuming it follows a random process it is hard to put a price on such contract without knowing what will be the price change. This non linear feature of the option makes calculating the price to pay for such contracts a challenging process and has been the focus of a large number of financial studies and publications.
This dissertation deals with the most popular methods for pricing American options and their implementation in MatLab®, including a graphic user interface.
The methods studied include the Black and Scholes (1973) European option pricing as the starting point, followed by the Barone Adesi and Whaley (1987) analytical approximation. Then the binomial and trinomial lattice methods presented in Cox, Ross and Rubinstein (1979) are considered also as the Finite difference approximations models AAA. The most sophisticated method is the Least Squares Monte Carlo simulation presented in Longstaff and Schwartz (2001).
The analysis of the different option pricing methods in this dissertation follow most of the assumptions made by Black and Scholes (1973), the short term interest rate and the dividend are assumed to be known and constant, the underlying stock follows a log normal distributed geometric Brownian motion, the markets are frictionless and finally it exists the possibility of forming a riskless portfolio, consisting of the option and underlying stock.
The dissertation is organised as follows: a brief literature survey is provided in the next Chapter. The analytical approximation method and the numerical methods used are described on Chapter 3 and their implementation in Matlab environment is given in chapter 4. Numerical results are given in Chapter 5. The conclusion and future developments are presented in Chapter 6.
Chapter 2 provides a survey of some of the most relevant publications in American Option Pricing, with focus on analytical approximations, lattice and finite difference methods, more precisely, binomial and trinomial trees, explicit, implicit and Crank Nicolson Scheme, and also on Monte Carlo Simulation.
Chapter 3 provides a description of the methods used, their advantages, disadvantages and limitations. Here the required equations will be derived and the solution for the pricing of American options will be provided.
Chapter 4 focus on the algorithms used and their implementation on the MatLab environment, also as the procedures for the development of the GUI for easier user interface.
On Chapter 5 results and their comparison are shown for the different methods used, with the required figures to support the numerical answers.
In the final chapter the dissertation is concluded and a summary of the findings is provided, also as with further work on this subject.
Chapter 2 – Literature Survey
Black and Scholes (1973) and Merton (1973) developed the first analytical closed form solution for the pricing of European type options and certain types of American options, such as American call options on non dividend paying stocks. “The option pricing model developed by Black and Scholes and extended by Merton gives rise to partial differential equations governing the value of an option” Schwartz (1976).
Black and Scholes (1973) develop their model on the basis of the no arbitrage theory, “If options are correctly priced in the market, it should not be possible to make sure profits by creating portfolios of long and short positions in options and their underlying stocks” Black and Scholes (1973).
The Black and Scholes (1973) model valued European options on non dividend paying stocks, and with a number of quite restrictive assumptions, constant and known interest rates, the markets are frictionless with no transaction costs and penalties for short selling. The Black and Scholes (1973) model also assumes that the underlying stocks follow a random walk. Due to all this assumptions the pricing model Black and Scholes (1973) proposed was of easy use, and there is only the need to input the required values on the proposed pricing equation. The model they have proposed does not take into consideration early exercise of the option so it is inaccurate for pricing American Options.
One of the most popular analytical approximation models that starts from the Black and Scholes (1973) model and adjusts it to consider the scenario of early exercise strategies is the work by Baron Adesi and Whaley (1987) which was based on the paper by MacMillan (1986).
Baron Adesi and Whaley (1987) consider that the Black and Scholes (1973) partial differential equation must apply to the early exercise premium as this is just the difference between the American and the European option prices, which are also priced by the same partial differential equation. After some transformation they end with an easily solvable through an interactive process second order differential equation.
When closed form solutions, like the Black and Scholes (1973) valuation model cannot be derived, numerical methods must be developed. These are computational methods where the values for the underlying assets are modelled up to maturity and the price of the options is derived from them. In the case of American options this is a complex process, as the modelled price changes may have to be adjusted to include dividend payments and the derivation of the option price must also include the possibility of early exercise.
Cox, Ross and Rubinstein (1979) developed a simple discrete time lattice model to deal with the complexity of option valuation, as they considered the methods of Black and Scholes (1973) “quite advanced and have tended to obscure the underlying economics” Cos, Ross and Rubinstein (1979). The use of lattice models such as the one by Cox, Ross and Rubinstein (1979) is the simplicity of its application.
The most significant drawback of the Cox, Ross and Rubinstein (1979) model, is to increase its accuracy the number of time intervals must increase, in order to approach a continuous time model, which will significantly increase the computational time, needed for processing the entire tree in order to derive the option value.
Others such as Hull and White (1988), (1993) and Trigeorgis (1991) have extended the model of Cox, Ross and Rubinstein (1979).
Hull and White (1988) present a study of the use of lattice models for underlying assets with known dividends instead of known divided yields. They also consider the use of a control variate to price a option numerically, by a the lattice model, using the price of a similar option calculated analytically. While Trigeorgis (1991) proposes “a log transformed variation of binomial option pricing designed to overcome problems of consistency, stability and efficiency encountered in the Cox, Ross and Rubinstein (1979)” focusing on the pricing of exotic options. Hull and White (1993) also present an application of binomial and trinomial procedures for exotic path dependent options, where they developed a model faster than Monte Carlo simulation and faster than other numerical methods.
Usually the analytical procedures are applicable to simple payoffs of the American Options, but in the cases where this is not possible numerical solutions must be developed. Geske and Shastri (1985) give a detailed comparison of the lattice methods to the different numerical methods, finite difference methods and other simulation methods.
The model proposed by Brennan and Schwartz (1978) for valuing options was the first approach that used the finite difference method. This approach was used due to the fact that most of the times an analytical solution for the option pricing problem does not exist. The finite difference method uses the heat equation derived from the Black and Sholes PDE to obtain an approximation of the option price. Courtadon (1998) goes further to reduce the approximation error of the Brennan and Schwartz (1978) model but only applies his findings only to simple option pay offs.
Geske and Shastri (1985) give a good description of the finite difference method: “The finite difference technique analyze the partial differential equation (…) by using discrete estimates of the changes in the options value for small changes in time or the underlying stock price to form equations as approximations to the continuous partial derivatives.” Usually the approximations is done using forward, backward or central difference theorem, which respectively result in the explicit, implicit and Crank Nicolson schemes, the procedure used in this study will be shown further in the paper.
In this case as with most of the methods for pricing options, the most significant drawback is the duality between accuracy and processing time. In order to increase accuracy the time and stock change steps must be smaller, increasing their number and the number of computations to make, this issue also affects the stability and convergence of the methods.
Another approach used for solving the option pricing problem, especially for path dependent American options is the use of simulation. This means that the option price is derived from a simulated underlying asset price, usually using a Monte Carlo simulation method. Boyle (1977) and Schwartz (1977) pioneered the use of Monte Carlo simulation which is nowadays used to price complex options contracts. The Monte Carlo simulation method is very powerful in terms of its flexibility to generate the returns of the underlying asset of the options, by changing the random variables used to generate the process a new returns distribution may be easily obtained, Boyle (1977).
Boyle (1977) introduces the Monte Carlo technique for pricing European option where there is a dividend payment, but Schwartz (1977) was the true pioneer, pricing American options, with the underlying asset paying discrete dividends, and also deriving an optimal strategy for early exercise of the option, which is the crucial point for pricing American type options. Schwartz (1997) focused on a particular type of contract, warrants, so in fairness his first model is not exactly on an American type option.
Tilley (1993) was one of the first to fully focus on the pricing of American option using a Monte Carlo simulation method as he mentioned that simulation methods were reserved for exotic options or other complex debt products. His findings are only applied to American options on non dividend paying stocks, but he develops an important part of the model which is the optimal early exercise option.
Carriere (1996) presents a development of the Monte Carlo simulation method presented by Tilley (1993). The paper by Carriere (1996) presents a model where the optima early exercise strategy is based on conditional expectations of Markov processes by carrying a nonparametric regression on the simulated underlying asset return paths.
Brodie and Glasserman (1997) extended the previous studies by considering an upper and lower converging bounds of the option price. These estimated bounds are calculated using a high and a low bias, which “Combining the two estimators yields a confidence interval for the true price.” Brodie and Glasserman (1997)
One of the most important papers, and probably one of the most used ones, is the paper by Longstaff