Finance and Financial Management Commons^™

Using Gmm To Flatten The Option Volatility Smile, Tom Arnold

Finance Faculty Publications

By using an over-identified Generalized Method of Moments (GMM) estimation procedure with careful consideration for data biases existing in the previous literature, parameters are estimated for a stochastic volatility jump diffusion option pricing (SVJ) model. The estimated parameters indicate a statistically significant highly negative infrequent jump process in the underlying security return distribution consistent with market crashes. When comparing to a stochastic volatility (SV) option pricing model, the SVJ is more robust but not always the superior model. The robustness of the models is further gauged by evaluating performance up to a year beyond the estimation data.

Nigeria's External Trade And The New Perspectives For Its Enhancement, G. K. Sanni

Bullion

Trade has been universally acknowledged as indispensable tool to rapid economic growth and development. This is because increased participation in trade is associated with higher inflows of foreign investment and new technologies which can be adopted to transform the economy through appropriate policy. This paper analyses Nigeria's foreign trade with a view to examining the composition and direction as well as impediments to the growth of trade, and proffer suggestions for enhancing Nigeria's foreign trade. The paper is divided into five sections. Following the introduction are the theoretical issues. This is followed by the analysis in section three of the …

Cost As An Independent Variable: A Study Of Its Continued Use By Aeronautical Systems Center's Programs And Their Contractors To Set And Maintain Cost Objectives, Kevin W. Codrington

Theses and Dissertations

The purpose of this research was to assess whether Aeronautical System Center's (ASC's) acquisition professionals believe CAIV has enabled their programs and contractors to set and maintain cost objectives. The three major objectives of this thesis are to answer the following questions: First, Do ASC's acquisition professionals believe their programs are setting and maintaining cost objectives? Second, Do ASC's acquisition professionals believe their contractors are setting and maintaining cost objectives? Last, what is the practitioners' perspective of CAIV? This research identified CAIV as being well received by DoD. It also identified that ASC's acquisition professionals believe their programs and contractors …

Can The Policy Trilemma Be Exposited In The Mundell-Fleming Framework?, Russell S. Boyer

CRIF Seminar series

There is a general recognition that there are deficiencies in the Mundell-Fleming model. Nonetheless, Rose [2000] has stated that Mundell was the first to exposit the Policy Trilemma, which identifies an intrinsic incompatibility among: high capital mobility, fixed exchange rates, and monetary autonomy. We look for the source of Rose’s claim. All of Mundell’s formal modeling after 1964 assumes that capital mobility is zero, so we look to earlier work for verification. The paper in Kyklos states clearly that in comparing equilibrium positions, the impotence of monetary policy is independent of the degree of capital mobility. Two further claims deriving …

Effects Of Financial Information Transparency On Investor Behavior In Taiwan Stock Market, Hsiu-Jen Fu

Graduate Student Dissertations, Theses, Capstones, and Portfolios

Corporate governance is not a new issue in today's world. Nevertheless, addressing the impact of financial information transparency on investor behavior in the stock market should be explored. With the large number of incidents of accounting fraud and misstatements revealed in the past five to six years, the integrity of business financial information becomes an increasingly important issue for investors and the general public. To provide greater definition of the roles and responsibilities of publicly-owned company executives and members of their boards of directors, U.S. President George W. Bush signed the Sarbanes-Oxley Act (SOX) into law on July 30, 2002. …

Government Ownership And The Performance Of Government-Linked Companies: The Case Of Singapore, James Ang, David K. Ding

Research Collection Lee Kong Chian School Of Business

In an emerging economy, the alternative to government control is often no governance. We investigate the governance structure of government-linked companies (GLCs) in Singapore under the ownership/control structure of Temasek Holdings, the government holding entity, which typically owns substantial cash flow rights but disproportional control rights and exercises no operational control. We compare the financial and market performance of GLCs with non-GLCs, where each has a different set of governance structure, the key difference being government ownership. We show that Singaporean GLCs have higher valuations and better corporate governance than a control group of non-GLCs. The results hold even when …

Pricing Options In An Extended Black Scholes Economy With Illiquidity: Theory And Empirical Evidence, U. Çetin, Robert Jarrow, P. Protter, Mitch Warachka

Business Faculty Articles and Research

This article studies the pricing of options in an extended Black Scholes economy in which the underlying asset is not perfectly liquid. The resulting liquidity risk is modeled as a stochastic supply curve, with the transaction price being a function of the trade size. Consistent with the market microstructure literature, the supply curve is upward sloping with purchases executed at higher prices and sales at lower prices. Optimal discrete time hedging strategies are then derived. Empirical evidence reveals a significant liquidity cost intrinsic to every option.

2005-2006 Financial Summary, Morehead State University. Budget & Financial Planning Office.

Morehead State University Financial Summaries Archive

2005-2006 Financial Summary of Morehead State University.

Renminbi Revaluation, Euro Appreciation And Chinese Markets: What Can We Learn From Data?, Paul D. Mcnelis, Salih N. Neftçi

CRIF Working Paper series

This paper examines financial market data to assess the likelihood of renminbi revaluation and its implications for Chinese share price increases, given the continuing appreciation of the Euro against the U.S. dollar. We find that the 3-month non-deliverable forward premia are key series linking these variables. The forward premia predict series A share-price changes, while Euro/US dollar exchange rates in turn predict foreward-premia. Bayesian models outperform standard linear models for forecasting performance.

2005-2006 Revised Operating Budget: Southern University At Shreveport, Southern University System. Office Of Finance & Administration.

All Southern University System Budgets

The 2005-2006 Southern University at Shreveport Revised Operating Budget. FY 2006-2007 Budget Request.

2006-2007 Budget Request Addenda, Southern University System. Office Of Finance & Administration.

All Southern University System Budgets

The Southern University at Shreveport 2006-2007 Budget Request Addenda. Information Technology Budget Request, Operational Plan, Sunset Review Budget Request, Workforce Development Budget Request.

2006-2007 Information Technology Budget Request: Southern University At New Orleans., Southern University System: Office Of Finance & Administration.

All Southern University System Budgets

The Southern University at New Orleans Information Technology Budget Request for 2006-2007.

Indiana State University Financial Report 2006, Indiana State University

Financial Reports

No abstract provided.

Purchasing Power Parity And Heterogeneous Mean Reversion, Kees G. Koedijk, Ben Tims, Mathijs A. Van Dijk

CRIF Seminar series

This paper analyzes the properties of multivariate tests of purchasing power parity (PPP) that fail to take heterogeneity in the speed of mean reversion across real exchange rates into account. We compare the performance of homogeneous and heterogeneous unit root testing methodologies. The recent literature has successfully contested several severe restrictions on the structure of the model, but the assumption of homogeneous mean reversion is still widely used and its consequences are virtually unexplored. Using Monte Carlo simulation, we uncover important adverse properties of the methodology that relies on homogeneous estimation and testing. More specifically, power functions are low and …

Outsourcing Central Banking: Lessons From Estonia, Sarkis Joseph Khoury, Clas Wihlborg

Business Faculty Articles and Research

An orthodox currency board (CB) renders central banking redundant for interest and exchange rate determination. Thereby, monetary policy is de facto outsourced. Foreign direct investment (FDI) in banking can lead to outsourcing of the second important central bank function, responsibility for banking supervision. Economic and political conditions for outsourcing of central banking are discussed. Estonia's experience with a CB and expanding foreign involvement in banking is reviewed. The Argentine CB experience is discussed briefly to provide a contrast. The conclusion outlines the conditions for successful currency outsourcing to another country or regional authority.

Performance Measures: Traditional Versus New Models, Hasan Zafer Yuksel

Theses Digitization Project

The thesis analyzed the performance of 5,987 mutual funds using a database called Steele Mutual Fund Experts and compared the predicting ability of various measures of performance. The measures discussed in the thesis are Treynor Ratio, Sharpe Ratio, Jensen's Alpha, Graham-Harvey-1 (GH-1), and Graham-Harvey-2 (GH-2). The performance measures are mostly used by professional money managers and scholars for literary purposes.

Ua9 Investing In The Spirit, Wku Development & Alumni Relations

WKU Administration Documents

Development office newsletter regarding donors and donations to Western Kentucky University.

Analysis Of Trade Dependence And Correlation Of Market Returns To Hedge Portfolio Risk, Carl Eric Zeise

Theses Digitization Project

The project examines the relationship between trade interdependency and correlation of market returns between the United States and the four emerging economies of Singapore, Malaysia, Thailand and the Philippines. The author analyzed statistical data for trade interdependency and market return to determine if there is a pattern that would provide the basis for increasing the return of a security portfolio without increasing the risk to the investor. The project analysis relied on mathematical formulas to measure the trade relationships between the selected countries and to calculate the measure of return and measure of risk of investing in each emergent market.

Semi-Strong Form Market Hypothesis: Evidence From Cnbc's Jim Cramer's Mad Money Stock Recommendations, Elizabeth Dodson

Inquiry: The University of Arkansas Undergraduate Research Journal

Mad Money has become one of the most popular shows on CNBC. The host, Jim Cramer, has an outlandish style and personality that viewers find intoxicating. Cramer's goal for the show is to make people money. Does he succeed? This paper finds that investors can expect to gain above-average, risk adjusted returns by following Cramer's stock recommendations and trading accordingly. These findings challenge the semi-strong form market hypothesis. According to this hypothesis investors should not recognize gains trading on public information since it states that the market has already adjusted prices for that information. It also contributes to current literature …

Quarter-End Effects In Banks: Preferred Habitat Or Window Dressing?, Vladimir Kotomin, Drew B. Winters

Faculty Publications – Finance, Insurance, and Law

Allen and Saunders (1992) document abnormal behavior of bank assets and liabilities at the turn-of-the-quarter and attribute it to window dressing by banks. Using different methods we re-visit bank turn-of-the-quarter balance sheet activity. We also examine quarter-end changes in the effective fed funds rates and fed funds rate standard deviations. We confirm the presence of turn-of-the-quarter activity on bank balance sheets and in the fed funds market. However, we conclude that the turn-of-the-quarter effects are more consistent with customer preferred habitats than window dressing.

Predicting A Currency Crisis Alternative Approaches And Applications To The Philippines, Fernando Antonio Iv Castillo

Dissertations and Theses Collection (Open Access)

An arrival of a currency crisis can be anticipated through a comprehensive and properly specified Early Warning System (“EWS”). The costs that entail with experiencing a currency crisis far exceed the costs of spending a considerable amount of time to developing an EWS. In a report done by the IMF(1998), they estimated that emerging economies suffer an 8% cumulative loss in real output during a severe currency crisis. Likewise, evidence suggests that a simple look at traditional market indicators of currency and default risks will not provide much advance warning of an impending currency crisis. In a study done by …

Harnessing Innovative Technologies In Higher Education: Access, Equity, Policy & Instruction, Kathleen P. King, Joan K. Griggs

Department of Leadership, Policy, and Lifelong Learning

This publication is an attempt to capture the evolution of distributed higher education over the last decade by tracing the applications of new technologies funded by the Fund for the Improvement of Postsecondary Education (FIPSE). As FIPSE surveyed the current state of distance/distributed education, there existed an opportunity to help post econdary education make the transition to this new generation of distance education made possible by the explosive growth of the Internet and other new technologies. These technologies created the potential for students to access learning that was interactive, customized, and self-paced; to more easily merge lifelong learning with the …

Re-Evaluating Hedging Performance, Jim Hanly, John Cotter

Articles

Mixed results have been documented for the performance of hedging strategies using futures. This paper reinvestigates this issue using an extensive set of performance evaluation metrics across seven international markets. We compare the hedging performance of short and long hedgers using traditional variance based approaches together with modern risk management techniques including Value at Risk, Conditional Value at Risk and approaches based on Downside Risk. Our findings indicate that using these metrics to evaluate hedging performance, yields differences in terms of best hedging strategy as compared with the traditional variance measure. We also find significant differences in performance between short …

A Note On The Instability Of The Unprojected Individual Level Premium Cost Method, Pierre Devolder, Valerie Goffin

Journal of Actuarial Practice (1993–2006)

We compare the unit credit and the unprojected individual level premium cost methods in a continuous time environment and show that the latter may produce unstable contribution rates in a dynamic environment. Specifically, assuming there are no unfunded liabilities, we prove that the unprojected individual premium cost method may produce non-bounded contributions if benefits change too close to the normal retirement age.

Journal Of Actuarial Practice - Volume 13 (2006) - Contents And Masthead

Journal of Actuarial Practice (1993–2006)

Contents

Editorial Policy: Topics suitable for this journal include AIDS, annuity products, asset-liability matching, cash-flow testing, casualty rate making, credibility theory, credit insurance, disability insurance, expense analysis, experience studies, FASB issues, financial reporting, group insurance, health insurance, individual risk taking, insurance regulations, international issues, investments, liability insurance, loss reserves, marketing, pensions, pricing issues, product development, reinsurance, reserving issues, risk-based capital, risk theory, social insurance, solvency issues, taxation, valuation issues, and workers' compensation

Review Process

Editor - Colin Ramsay, University of Nebraska

Associate Editors: Robert Brown, University of Waterloo ○ Cecil Bykerk, Mutual of Omaha ○ Ruy Cardoso, Actuarial Frameworks ○ …

Estimation Of Large Insurance Losses: A Case Study, Tine Buch-Kromann

Journal of Actuarial Practice (1993–2006)

This paper demonstrates an approach to analyzing liability data recently developed by a Danish insurance company. The approach is based on a Champernowne distribution, which is corrected with a non-parametric estimator. The correction estimator is obtained by transforming the data set with the estimated modified Champernowne cdf and then estimating the density of the transformed data set by using the classical kernel density estimator. Our approach is illustrated by applying it to an actual data set.

Solvency Of Life Insurance Companies: Methodological Issues, Rosa Cocozza, Emilia Di Lorenzo

Journal of Actuarial Practice (1993–2006)

The paper deals with solvency assessment for life insurance business; some methodological issues concerning the solvency of life insurance companies, particularly connected to the investment risk, are suggested. Considerations about the technical equilibrium of an insurance portfolio and the financial regulation lead to a dynamic system involving risk measure and solvency assessment. The formal model is applied to a life annuity cohort in a stochastic context in order to exemplify the potential of the model, especially referred to the need to frame solvency assessment in a dynamic perspective.

On Some Risk-Adjusted Tail-Based Premium Calculation Principles, Edward Furman, Zinoviy Landsman

Journal of Actuarial Practice (1993–2006)

This paper explores two tail-based premium calculation principles, the tail standard deviation (TSD) premium and the tail conditional expectation (TCE) premium, in their risk-adjusted and unadjusted forms. They are risk-adjusted using so-called distortion functions. We prove that the proportional hazard (PH) risk-adjusted TCE premium is larger than the unadjusted TCE premium. Additionally, given a risk distribution with location and scale parameters, we prove that the PH risk-adjusted TCE premium reduces to the unadjusted TSD premium.

Bayesian Analysis Of A Health Insurance Model, Helio S. Migon, Edison M.O. Penna

Journal of Actuarial Practice (1993–2006)

We consider the problem of determining health insurance premiums based on past information on size of loss, number of losses, and size of population at risk. The size of loss and the number of losses are treated as mutually independent random variables. The number of losses is assumed to follow a Poisson process, and the loss sizes are independent and identically distributed non-negative random variables, and the population at risk is assumed to follow a non-linear growth model. An expression for the premium is obtained through maximization of the insurer's expected utility under a Bayesian model. The parameter estimation process …

Analysis Of An Insurance Risk Model With Thinning Dependence And Common Shock, Lai Mei Wan, Kam Chuen Yuen, Wai Keung Li

Journal of Actuarial Practice (1993–2006)

We consider a continuous-time insurance risk model with m dependent classes of business with dependent claim number processes due to thinning dependence and a common shock. The impact of the dependence is studied via the adjustment coefficient. The case m = 2 is investigated analytically for exponential claim distributions and via simulation for non-exponential claim distributions.