consistent modeling of s p 500 and vix derivatives abstract this study introduces a model that identifies relationships between stylized features on s p 500 vix and derivatives on vix the paper considers a specification with discontinuous correlated jumps in stock prices and stock price volatility with state dependent arrival intensity and examines how these factors impact vix option pricing and hedging the paper finds strong evidence for jumps in volatility and jumps in returns implicit in vix option data

multinational operation ownership and efficiency differences in the international oil industry abstract although state involvement in market systems often leads to inefficiency this influence in the oil industry is not dwindling due to strong growth of some state oil companies based on this background there are concerns about how state firms can continue to stay relevant in the international oil industry by offsetting inefficiencies due to state control this study assesses the effects of multinational operations on the performance of oil firms this is achieved by comparing productive and scale efficiencies of state and private oil companies as well as state multinationals and private multinationals a dataset of 50 firms each year from 2001 to 2010 reveals that although multinational operation is important in reducing productive inefficiencies of state firms it does not mitigate scale inefficiencies of state owned firms state firms should therefore make multinational operations a key policy direction since this will provide a transformative agenda towards equally competing with their private counterparts however better efforts need to be paid in reducing scale inefficiencies that are pervasive among state owned oil firms providing better controls on firm size will provide better drive towards future efficient production levels

multiproduct short run hospital cost functions empirical evidence and policy implications from cross section data economists and policymakers have been interested in hospital costs and the structure of hospital technologies for several decades now early interest was focused on the possibility of scale economies which implied increased efficiency for larger hospitals 6 8 12 13 18 20 while more recent interest has been stimulated by the inflationary spiral of hospital costs 1 15 17 22 as hospital costs have risen important policy questions concerning the impact on costs of the hospitals diagnostic case mix the hospitals admitting physicians the hospitals size and the hospitals efficiency have emerged and researchers have attempted to deal with these issues within the context of increasingly complex econometric models 1 2 5 24 27 however in attempting to analyze these important policy issues researchers have been forced to make two major types of compromises on the one hand appropriate data are often not available for estimating a well specified cost function e g information on admitting physicians and diagnostic case mix are often missing so that problems of specification error often plague the econometric results conversely in using imaginative ways to deal with data problems e g weighting in patient and out patient care to form a single index of hospital services 1 27 or estimating separate cost functions for each department in the hospital 2 researchers sometimes place unrealistic and unnecessary constraints on their econometric models the purpose of this study is to analyze the impact of several of the primary hospital characteristics mentioned above on the short run costs of hospitals within a theoretically consistent framework in the following discussion we also develop the theoretical

hedging the black swan conditional heteroskedasticity and tail dependence in s p500 and vix the recent financial crisis has accentuated the fact that extreme outcomes have been overlooked and not dealt with adequately while extreme value theories have existed for a long time the multivariate variant is difficult to handle in the financial markets due to the prevalent heteroskedasticity embedded in most financial time series and the complex extremal dependence that cannot be conveniently captured by a single structure moreover most of the existing approaches are based on a limiting argument in which all variables become large at the same rate in this paper we show how the conditional approach of heffernan and tawn 2004 can be implemented to model extremal dependence between financial time series we use a hedging example based on vix futures to demonstrate the flexibility and superiority of the conditional approach against the conventional ols regression approach

pricing vxx option with default risk and positive volatility skew abstract this paper proposes and makes a comparative study of alternative models for vxx option pricing factors such as mean reversion jumps default risk and positive volatility skew are taken into consideration in particular default risk is characterized by jump to default framework and the positive volatility skew issue is addressed by stochastic volatility of volatility and jumps daily calibration is conducted and comparative study of the models is performed to check whether they properly fit market prices and generate reasonable positive volatility skews and deltas overall jump to default extended lrj model with positive correlated stochastic volatility called jdlrjsv in the paper serves as the best model in all the required aspects

analysis of productivity efficiency and technological changes in hospital services in ontario how does case mix matter abstract in this paper we compare productivity efficiency and technological changes with and without case mix as output categories using panel data on ontario hospitals for the period 2002 2006 we use the malmquist productivity index mpi data envelopment analysis dea and non parametric density estimation and related statistical tests we also decompose mpi into efficiency change ech and technological change tch we found that productivity efficiency and technological changes were significantly different between two alternative models with case mix as a weighting device model 2 and without case mix model 1 on the other hand adding case mix as a separate output model 3 did not have any significant impact on the distribution of efficiency estimates compared to the model without case mix we also found that in model 2 productivity growth was driven mainly by improvements in technology rather than increases in efficiency while in model 1 and model 3 the two effects ech and tch almost balanced each other leading to no productivity change

measuring hospital performance a non parametric approach abstract in this paper a technique for assessing the relative performance of firms is introduced and applied to a sample of hospitals in california hospitals are compared on the basis of their relative technical efficiency the reference technology is constructed from observed outputs and inputs including physicians using programming techniques and efficiency is assessed relative to the frontier of the technology using measures similar to those suggested by farrell the technique used here imposes no prespecified functional form allows for multiple outputs and inputs allowing for differences in case mix and yields information on the productive performance of individual hospitals this technique can also be used to determine whether different types of hospitals use different technologies our results although illustrative rather than definitive suggest that ownership affects efficiency as measured here public and nfp hospitals have different best practice frontiers and public hospitals appear to use relatively fewer resources these results could reflect differences in quality of care by ownership

implied volatility functions empirical tests derman and kani 1994 dupire 1994 and rubinstein 1994 hypothesize that asset return volatility is a deterministic function of asset price and time and develop a deterministic volatility function dvf option valuation model that has the potential of fitting the observed cross section of option prices exactly using s p 500 options from june 1988 through december 1993 we examine the predictive and hedging performance of the dvf option valuation model and find it is no better than an ad hoc procedure that merely smooths black scholes 1973 implied volatilities across exercise prices and times to expiration

the world stock markets under geopolitical risks dependence structure this paper reveals joint stochastic behaviours of the world s stock markets and geopolitical risk by a copula approach for the 37 world s stock markets over the period of june 1997 to december 2017 the various bivariate copulas show the different degrees of tail dependences and rank correlations the differences between overall geopolitical risk index and action related geopolitical risk index lie in the higher tail dependence with overall geopolitical risk index the dominancy of concordant movements of stock market indexes with overall geopolitical risk and that of discordant movements of stock market indexes with action related geopolitical risk index the results illustrate that action related geopolitical risk is more often adversely related to the world s stock market performances with less tail dependence

how important is the correlation between returns and volatility in a stochastic volatility model empirical evidence from pricing and hedging in the s p 500 index options market abstract this paper examines the importance of allowing for correlation between returns and volatility in a continuous time stochastic volatility option pricing model specifically it tests the closed form stochastic volatility model of heston review of financial studies 6 1993 327 343 that allows for non zero correlation in terms of pricing and hedging options on the s p 500 index it is found that non zero correlation in the stochastic volatility model leads to significant improvements in mispricing of out of the money options and overall pricing performance compared to if correlation is constrained to be zero in terms of hedging non zero correlation results in significantly lower hedging errors for out of the money options

are electricity risk premia affected by emission allowance prices evidence from the eex nord pool and powernext the links between emission and energy markets are of great interest to practitioners academics and policy makers in this paper it is conjectured that a positive relationship exists between emission allowance spot returns and electricity risk premia within the european union emissions trading scheme eu ets we discuss how this can be justified on the basis of the substantial uncertainties in the carbon markets we also argue that this link could be due to trading strategies followed by electricity producers who attempt to exploit their initial allocation of free allowances analysis of data from three major markets the eex nord pool and powernext offers empirical support to our conjecture these findings have significant policy implications since they imply that efforts should be made in order to reduce the uncertainty in the carbon markets by clearly defining the eu ets regulative framework and design over the next years moreover our results suggest that the allocation of free allowances and their unrestricted trading enable electricity producers to accomplish windfall profits in the derivatives market at the expense of other market participants

the crash of ʼ87 was it expected the evidence from options markets transactions prices of s p 500 futures options over 1985 1987 are examined for evidence of expectations prior to october 1987 of an impending stock market crash first it is shown that out of the money puts became unusually expensive during the year preceding the crash second a model is derived for pricing american options on jump diffusion processes with systematic jump risk the jump diffusion parameters implicit in options prices indicate that a crash was expected and that implicit distributions were negatively skewed during october 1986 to august 1987 both approaches indicate no strong crash fears during the 2 months immediately preceding the crash attempts to explain what caused the stock market crashes around the world in october 1987 have suffered from the paucity of major economic developments occurring around that time that could have triggered the crashes shifting expectations regarding monetary policy foreign investors fears of a dollar decline increasing riskiness of assets none of these appeared major enough if present at all to explain the magnitude of the crashes and although portfolio insurance strategies could conceivably magnify the effects of a jump in fundamentals the initiating jump in fundamentals appears to be lacking

the jump component of s p 500 volatility and the vix index much research has investigated the differences between option implied volatilities and econometric model based forecasts implied volatility is a market determined forecast in contrast to model based forecasts that employ some degree of smoothing of past volatility to generate forecasts implied volatility has the potential to reflect information that a model based forecast could not this paper considers two issues relating to the informational content of the s p 500 vix implied volatility index first whether it subsumes information on how historical jump activity contributed to the price volatility followed by whether the vix reflects any incremental information pertaining to future jump activity relative to model based forecasts it is found that the vix index both subsumes information relating to past jump contributions to total volatility and reflects incremental information pertaining to future jump activity this issue has not been examined previously and expands our understanding of how option markets form their volatility forecasts

option prices implied price processes and stochastic volatility this paper characterizes all continuous price processes that are consistent with current option prices this extends derman and kani 1994 dupire 1994 1997 and rubinstein 1994 who only consider processes with deterministic volatility our characterization implies a volatility forecast that does not require a specific model only current option prices we show how arbitrary volatility processes can be adjusted to fit current option prices exactly just as interest rate processes can be adjusted to fit bond prices exactly the procedure works with many volatility models is fast to calibrate and can price exotic options efficiently using familiar lattice techniques

a parallel production frontiers approach for intertemporal efficiency analysis the case of taiwanese commercial banks abstract a comparison of the efficiency of a production unit at one period with those of other units at another period is challenging because the bases for calculating efficiency are usually different the malmquist productivity index mpi is an effective measure that can overcome this difficulty however the existing measures of this index have various weaknesses with regard to feasibility circularity decomposability and consistency this paper thus develops a model to construct parallel production frontiers for the units at different periods to measure the mpi this model is always feasible the calculated mpi has the property of circularity it can be decomposed into the product of efficiency change and technical change and the results are consistent an application of this model to taiwanese commercial banks for the period 2008 2013 confirms these merits the results also indicate that in general the mpis of these banks increased from 2008 to 2013 and this was attributed to improvements in technology since the efficiencies measured from the parallel model are comparable among different units and different periods they can be used for intertemporal analysis to identify the banks with unsatisfactory performance in different periods

an empirical comparison of continuous time models of implied volatility indices abstract we explore the ability of alternative popular continuous time diffusion and jump diffusion processes to capture the dynamics of implied volatility indices over time the performance of the various models is assessed under both econometric and financial metrics to this end data are employed from major european and american implied volatility indices and the rapidly growing cboe volatility futures market we find that the addition of jumps is necessary to capture the evolution of implied volatility indices under both metrics mean reversion is of second order importance though the results are consistent across the various metrics markets and construction methodologies

pure jump models for pricing and hedging vix derivatives abstract recent non parametric statistical analysis of high frequency vix data todorov and tauchen 2011 reveals that vix dynamics is a pure jump semimartingale with infinite jump activity and infinite variation to our best knowledge existing models in the literature for pricing and hedging vix derivatives do not have these features this paper fills this gap by developing a novel class of parsimonious pure jump models with such features for vix based on the additive time change technique proposed in li et al 2016a li et al 2016b we time change the 3 2 diffusion by a class of additive subordinators with infinite activity yielding pure jump markov semimartingales with infinite activity and infinite variation these processes have time and state dependent jumps that are mean reverting and are able to capture stylized features of vix our models take the initial term structure of vix futures as input and are analytically tractable for pricing vix futures and european options via eigenfunction expansions through calibration exercises we show that our model is able to achieve excellent fit for the vix implied volatility surface which typically exhibits very steep skews comparison to two other models in terms of calibration reveals that our model performs better both in sample and out of sample we explain the ability of our model to fit the volatility surface by evaluating the matching of moments implied from market vix option prices to hedge vix options we develop a dynamic strategy which minimizes instantaneous jump risk at each rebalancing time while controlling transaction cost its effectiveness is demonstrated through a simulation study on hedging bermudan style vix options

valuing futures and options on volatility abstract this paper presents simple closed form expressions for volatility futures and option prices and examines their implications for the characteristics of these securities we show that the properties of these volatility derivatives are fundamentally different from those of conventional option and futures contracts this analysis also provides insights into the role that volatility derivatives may play in managing and hedging volatility risk in financial markets

a comparative application of data envelopment analysis and translog methods an illustrative study of hospital production this paper compares inferences about hospital cost and production correspondences from two different estimation models 1 the econometric modeling of the translog cost function and 2 the application of data envelopment analysis dea while there are numerous examples of the application of each approach to empirical data this paper provides insights into the relative strengths of the estimation methods by applying both models to the same data the translog results suggest that constant reruns are operant whereas the dea results suggest that both increasing and decreasing returns to scale may be observed in different segments of the production correspondence in turn suggesting that the translog model may be averaging diametrically opposite behavior on the other hand by examining the rate of output transformation both models agree that patient days devoted to care of children are more resource intensive than those devoted to adults or to the elderly in addition we compare estimates of technical efficiencies of individual hospitals obtained from the two methods the dea estimates are found to be highly related to the capacity utilization but no such relationship was found for the translog estimates this comparative application of different estimation models to the same data to obtain inferences about the nature of underlying cost and production correspondences sheds interesting light on the strengths of each approach and suggests the need for additional research comparing estimation models using real as well as simulated data

productivity growth technical progress and efficiency change in industrialized countries this paper analyzes productivity growth in 17 oecd countries over the period 1979 1988 a nonparametric programming method activity analysis is used to compute malmquist productivity indexes these are decomposed into two component measures namely technical change and efficiency change we find that u s productivity growth is slightly higher than average all of which is due to technical change japan s productivity growth is the highest in the sample with almost half due to efficiency change jel c43 d24 in this paper we apply recently developed

a remark on lin and chang s paper consistent modeling of s p 500 and vix derivatives abstract lin and chang 2009 lin and chang 2010 establish a vix futures and option pricing theory when modeling s p 500 index by using a stochastic volatility process with asset return and volatility jumps in this note we prove that lin and chang s formula is not an exact solution of their pricing equation more generally we show that the characteristic function of their pricing equation cannot be exponentially affine as proposed by them furthermore their formula cannot serve as a reasonable approximation using the heston 1993 model as a special case we demonstrate that lin and chang formula misprices vix futures and options in general and the error can become substantially large

vix option pricing and cboe vix term structure a new methodology for volatility derivatives valuation abstract this study integrates cboe vix term structure and vix futures to simplify vix option pricing in multifactor models exponential and hump volatility functions with one to three factor models of the vix evolution are used to examine their pricing for vix options across strikes and maturities the results show that using exponential volatility functions presents an effective choice as pricing models for vix calls whereas hump volatility functions provide efficient out of sample valuation for most vix puts in particular with deep in the money and deep out of the money pricing errors for calls can be further reduced with a two factor model

point process models for extreme returns harnessing implied volatility forecasting the risk of extreme losses is an important issue in the management of financial risk there has been a great deal of research examining how option implied volatilities iv can be used to forecast asset return volatility however the role of iv in the context of predicting extreme risk has received relatively little attention the potential benefit of iv in forecasting extreme risk is considered within a range of models beginning with the traditional garch based approach along with a number of novel point process models univariate models where iv is included as an exogenous variable are considered along with a novel bivariate approach where extreme movements in iv are treated as another point process it is found that in the context of forecasting value at risk the bivariate models produce the most accurate forecasts across a wide range of scenarios