Finance Commons^™

The Mathematics Of Financial Portfolio Optimization Incorporating Environmental, Social, And Governance Score Information, Ian Driskill

Master's Theses

We numerically investigate the effects that Environmental, Social, and Governance (ESG) scores have on portfolio optimization with Modern Portfolio Theory assumptions and how ESG scores correlate with the market returns of a rated company's stock. Additionally, we review and analyze a research paper published in the Journal of Financial Economics regarding ESG investing titled “Responsible investing: The ESG-efficient frontier” by Pedersen, Fitzgibbons, and Lukasz. Our overall goal is provide insight for socially responsible inclined investors, to help them understand what ESG scores tell us and how those scores may effect their overall investment returns."

An Empirical Evaluation Of Neural Process Meta-Learners For Financial Forecasting, Kevin G. Patel

Master's Theses

Challenges of financial forecasting, such as a dearth of independent samples and non- stationary underlying process, limit the relevance of conventional machine learning towards financial forecasting. Meta-learning approaches alleviate some of these is- sues by allowing the model to generalize across unrelated or loosely related tasks with few observations per task. The neural process family achieves this by con- ditioning forecasts based on a supplied context set at test time. Despite promise, meta-learning approaches remain underutilized in finance. To our knowledge, ours is the first application of neural processes to realized volatility (RV) forecasting and financial forecasting in general.

We …

Informing The Creation Of A Financial Literacy Tool For Cal Poly Students, Kelly Michelle Carroll

Communication Studies

This research project examines the wants, needs, and desires of Cal Poly students to inform the creation of a financial literacy tool (tentatively named “MoneySmart”) to be created by another student. The methodologies used to gauge these metrics were a literature review and questionnaire. The literature review aids in understanding research regarding the current state of student financial literacy in the United States, including student attitudes toward the topic. Subsequent findings were used to create the questionnaire, which inquired about students’ financial stress, confidence in their abilities to manage their personal finances, specific interests for the design and contents of …

The Martingale Approach To Financial Mathematics, Jordan M. Rowley

Master's Theses

In this thesis, we will develop the fundamental properties of financial mathematics, with a focus on establishing meaningful connections between martingale theory, stochastic calculus, and measure-theoretic probability. We first consider a simple binomial model in discrete time, and assume the impossibility of earning a riskless profit, known as arbitrage. Under this no-arbitrage assumption alone, we stumble upon a strange new probability measure Q, according to which every risky asset is expected to grow as though it were a bond. As it turns out, this measure Q also gives the arbitrage-free pricing formula for every asset on our market. In …

Transitioning College Media From Print Focused Business Models To Digitally Focused Business Models, Celina Oseguera

Journalism

The noticeable downturn in print advertising indicates a need for change in the news industry business model. College media is not immune to this decline and need for change. A change in business model calls for transitioning to an alternative system that does not primarily rely on print products and advertising — a digitally focused business model. Many college media organizations around the United States have started to pursue this type of model, changing the way they produce and present news in the process. Taking into account the state of print focused business models in the general and collegiate news …

A Comment On Christofferson, Jacobs, And Ornthanalia (2012), "Dynamic Jump Intensities And Risk Premiums: Evidence From S&P 500 Returns And Options", Garland Durham, John Geweke, Pulak Ghosh

Finance

No abstract provided.

Improving Asset Price Prediction When All Models Are False, Garland Durham, John Geweke

Finance

This study considers three alternative sources of information about volatility potentially useful in predicting daily asset returns: daily returns, intraday returns, and option prices. For each source of information the study begins with several alternative models, and then works from the premise that all of these models are false to construct a single improved predictive distribution for daily S&P 500 index returns. The prediction probabilities of the optimal pool exceed those of the conventional models by as much as 5.29%. The optimal pools place substantial weight on models using each of the three sources of information about volatility.

Risk-Neutral Modeling With Affine And Nonaffine Models, Garland Bennett Durham

Finance

Option prices provide a great deal of information regarding the market’s expectations of future asset price dynamics. But, the implied dynamics are under the risk-neutral measure rather than the physical measure under which the price of the underlying asset itself evolves. This article demonstrates new techniques for joint analysis of the physical and risk-neutral models using data from both the underlying asset and options. While much of the prior work in this area has focused on affine and affine-jump models because of their analytical tractability, the techniques used in this article are straightforward to apply to a broad class of …

Beyond Stochastic Volatility And Jumps In Returns And Volatility, Garland Durham, Yang-Ho Park

Finance

While a great deal of attention has been focused on stochastic volatility in stock returns, there is strong evidence suggesting that return distributions have time-varying skewness and kurtosis as well. Under the risk-neutral measure, for example, this can be seen from variation across time in the shape of Black-Scholes implied volatility smiles. This paper investigates model characteristics that are consistent with variation in the shape of return distributions using a stochastic volatility model with a regime-switching feature to allow for random changes in the parameters governing volatility of volatility, leverage effect and jump intensity. The analysis consists of two steps. …

A Comparison Of Costs And Returns For Organic And Conventional Cabernet Sauvignon Grape Production In San Luis Obispo County, Amanda N. Johansen

Agribusiness

This study examined the differences in costs and profitability for established conventional and organic Cabernet Sauvignon vineyards in the Edna Valley region of San Luis Obispo County, California. The study used a partial budgeting approach to compare cost and profitability for established vineyards for 2009, and thus ignored transition costs. Data were obtained from UC Davis cost studies for organic and conventional grape production in other regions of California in previous years. Adjustments made to these costs to account for changes in input use, input costs and grape prices in San Luis Obispo County during the 2009 growing season.

The …

Aesthetic Style As A Postructural Business Ethic, John Dobson

Finance

The article begins with a brief history of aesthetic theory. Particular attention is given to the postructuralist ‘aesthetic return’: the resurgence of interest in aesthetics as an ontological foundation for human beingin- the-world. The disordered individual-as-emergentartist- and-artifact, who is at the centre of this ‘aesthetic return’, is then translated into the ‘dis’-organization that is the firm. The firm is thus defined in terms of its primal sensory impact on the world. It invokes a myriad of aesthetic relations between its disorganized self and others: its essence resides within these relations; its power of being is determined by its ability to …

A Pitch For Microfinance: Using An Animation To Promote An Economic Movement, Yelena Kozlova

Art and Design

Microfinance refers to the idea of providing financial services to low-income clients. The purpose of this project was to create an animation using Adobe Flash that could be published online to inform the public about microfinance and to encourage the viewers to take part in this movement.

Alasdair Macintyre’S Aristotelian Business Ethics: A Critique, John Dobson

Finance

This paper begins by summarizing and distilling MacIntyre’s sweeping critique of modern business. It identifies the crux of MacIntyre’s critique as centering on the fundamental Aristotelian concepts of internal goods and practices. MacIntyre essentially follows Aristotle in arguing that by privileging external goods over internal goods, business activity – and certainly modern capitalistic business activity – corrupts practices. Thus, from the perspective of virtue ethics, business is morally indefensible. The paper continues with an evaluation of MacIntyre’s arguments. The conclusion is drawn that MacIntyre’s critique, although partially valid, does not vitiate modern business as he claims. In short, modern business …

Utopia Reconsidered: The Modern Firm As Institutional Ideal, John Dobson

Finance

This paper challenges Alasdair MacIntyre's assertion that the modern firm -such as Google, Unilever, or Microsoft -is inimical to human flourishing within an Aristotelian framework. The paper begins by questioning MacIntyre's rendering of utopian communities. It then addresses four specific criticisms of the modern firm to be found throughout MacIntyre's oeuvre, namely compartmentalisation, myopia, inequality, and loss of community. Arguments are made to the effect that these criticisms do not vitiate the institutional role of the modern firm in an Aristotelian context. The paper concludes with an invocation of the modern firm as institutional ideal within an evolving utopian vision …

Introducing Ethics Into The Finance Curriculum: A Simple Three Level Guide, John Dobson

Finance

Ethics has arrived in the business school curriculum. But what about the curriculum of finance? Can ethics be integrated in any meaningful way into the theory and pedagogy of finance? Given the ever-broader array of topics in finance, should ethics be included at the inevitable expense of something else? Are finance instructors qualified to teach ethics any more than ethicists are qualified to teach finance? In short, are finance educators doing students a service or disservice by devoting class time to ethics? These are the questions addressed here. A menu of three different levels of integration is supplied;each level requiring …

Sv Mixture Models With Application To S&P 500 Index Returns, Garland B. Durham

Finance

Understanding both the dynamics of volatility and the shape of the distribution of returns conditional on the volatility state is important for many financial applications. A simple single-factor stochastic volatility model appears to be sufficient to capture most of the dynamics. It is the shape of the conditional distribution that is the problem. This paper examines the idea of modeling this distribution as a discrete mixture of normals. The flexibility of this class of distributions provides a transparent look into the tails of the returns distribution. Model diagnostics suggest that the model, SV-mix, does a good job of capturing the …

Applying Virtue Ethics To Business: The Agent-Based Approach, John Dobson

Finance

No abstract provided.

Aesthetics As A Foundation For Business Activity, John Dobson

Finance

This paper identifies the ultimate justification for business activity as an aesthetic justification. Aesthetics, loosely defined as the appreciation of beauty, subsumes both ethics and economics within an holistic justificatory mechanism for business decisions.Five essential qualities of aesthetic judgment are identified: disinterest, subjectivity, inclusivity, contemplativity, and internality. The quality of aesthetic judgment, exercised by the individual through the organization, will determine the extent to which business activity enhances quality of life.

Monte Carlo Methods For Estimating, Smoothing, And Filtering One- And Two-Factor Stochastic Volatility Models, Garland B. Durham

Finance

One- and two-factor stochastic volatility models are assessed over three sets of stock returns data: S&P 500, DJIA, and Nasdaq. Estimation is done by simulated maximum likelihood using techniques that are computationally efficient, robust, straightforward to implement, and easy to adapt to different models. The models are evaluated using standard, easily interpretable time-series tools. The results are broadly similar across the three data sets. The tests provide no evidence that even the simple single-factor models are unable to capture the dynamics of volatility adequately; the problem is to get the shape of the conditional returns distribution right. None of the …

Size Matters: Why Managers Should Pursue Corporate Growth, Even At The Expense Of Shareholder Value, John Dobson

Finance

No abstract provided.

Likelihood-Based Specification Analysis Of Continuous-Time Models Of The Short-Term Interest Rate, Garland B. Durham

Finance

An extensive collection of continuous-time models of the short-term interest rate is evaluated over data sets that have appeared previously in the literature. The analysis, which uses the simulated maximum likelihood procedure proposed by Durham and Gallant (2002), provides new insights regarding several previously unresolved questions. For single factor models, I find that the volatility, not the drift, is the critical component in model specification. Allowing for additional flexibility beyond a constant term in the drift provides negligible benefit. While constant drift would appear to imply that the short rate is nonstationary, in fact, stationarity is volatility-induced. The simple constant …

Comment On "Iterative And Recursive Estimation In Structural Nonadaptive Models Iterative And Recursive Estimation In Structural Nonadaptive Models" By S. Pastorello, V. Patilea, And E. Renault, Garland Durham, John Geweke

Finance

No abstract provided.

Method To Their Madness: Dispelling The Myth Of Economic Rationality As A Behavioral Ideal, John Dobson

Finance

Although not immediately apparent, the discipline of behavioral finance is rapidly adopting an implicit prescriptive agenda. Behavioral finance does not merely describe financial market reality, it shapes it. Economic rationality is taken as the ideal toward to which individuals 'should' strive. In this paper I show that, as a behavioral ideal, economic rationality is unjustified both from a strictly economic perspective, and from a moral perspective. In short, there is nothing inherently "wrong" with economically irrational participants in the business environment. Indeed such participants will actually enhance the efficiency, and the ethicality, of business.

Method To Their Madness: Dispelling The Myth Of Economic Rationality As A Behavioral Ideal, John Dobson

Finance

Although not immediately apparent, the discipline of behavioral finance is rapidly adopting an implicit prescriptive agenda. Behavioral finance does not merely describe financial market reality, it shapes it. Economic rationality is taken as the ideal toward to which individuals 'should' strive. In this paper I show that, as a behavioral ideal, economic rationality is unjustified both from a strictly economic perspective, and from a moral perspective. In short, there is nothing inherently 'wrong' with economically irrational participants in the business environment. Indeed such participants will actually enhance the efficiency, and the ethicality, of business. "rationality itself, whether theoretical or practical, …

Numerical Techniques For Maximum Likelihood Estimation Of Continuous-Time Diffusion Processes, Garland B. Durham, A. Ronald Gallant

Finance

Stochastic differential equations often provide a convenient way to describe the dynamics of economic and financial data, and a great deal of effort has been expended searching for efficient ways to estimate models based on them. Maximum likelihood is typically the estimator of choice; however, since the transition density is generally unknown, one is forced to approximate it. The simulation-based approach suggested by Pedersen (1995) has great theoretical appeal, but previously available implementations have been computationally costly. We examine a variety of numerical techniques designed to improve the performance of this approach. Synthetic data generated by a Cox-Ingersoll-Ross model with …

Three Business Contexts: From The Technical And Moral, To The Aesthetic, John Dobson

Finance

No abstract provided.