identifying jumps in financial assets a comparison between nonparametric jump tests we perform a comprehensive monte carlo comparison between nine alternative procedures available in the literature to detect jumps in financial assets using high frequency data we evaluate size and power properties of the procedures under alternative sampling frequencies persistence in volatility jump size and intensity and degree of contamination with microstructure noise the overall best performance is shown by the andersen bollerslev and dobrev 2007 and lee and mykland 2008 intraday procedures abd lm provided the price process is not very volatile we propose two extensions to the existing battery of tests the first regards the finite sample improvements based on simulated critical values for the abd lm procedure the second regards a procedure that combines frequencies and tests able to reduce the number of spurious jumps finally we report an empirical analysis using real high frequency data on five stocks listed in the new york stock exchange

oil volatility and sovereign risk of brics abstract we study the dependence between oil implied volatility shocks and brics sovereign risk from july 2009 to march 2017 first we examine spillovers in value at risk using multivariate regression quantiles and reveal that oil volatility represents a common risk for oil exporting and oil importing brics countries we also employ a quantile impulse response function and reveal the presence of an asymmetry in the mechanisms of shock transmissions between oil exporters russia and brazil and oil importers china and india the former are more sensitive to positive oil shocks whereas the latter are more sensitive to negative oil shocks second we measure the directional predictability in the quantiles using the bivariate cross quantilogram approach and show that in most cases a low high volatility of oil market predicts low high sovereign risk at various quantiles and lags policy implications are discussed

geo economic approach to energy security measurement principal component analysis abstract currently there is no single accepted methodology for measuring energy security while the prevailing scientific attitude is that energy security should be defined and quantified in a way to be able to follow rapid developments on the global economic and geopolitical scene considering the fact that the national economies represent an integral part of a dynamic international economy where external shocks global financial and economic crisis political conflicts war etc have the impact on energy prices and energy security in general the paper proposes a new geo economic concept of energy security the new approach differs from the existing ones as regards the fact that in addition to basic indicators it takes into account sovereign credit rating as a measure of economic financial and political stability as one of the decisive factors which determines global energy trade and the ability of national economies to be stable and secure when it comes to energy determination and testing of geo economic index of energy security was conducted by using the principal component analysis in the european union and in the selected countries of the world over a period of ten years 2004 2013 the measured values of a newly proposed geo economic index of energy security demonstrate significant deviations from the data obtained by using usual indicators of energy security observed individually gdp per capita has the greatest impact on the change in final value of geo economic index of energy security while the impact of sovereign credit rating is slightly less the study has shown that the least impact on energy security is exerted by energy dependence which is traditionally used as a proxy indicator of energy security and production of energy from renewable sources which is defined by the eu policy as one of the methods for the improvement of energy security due to the results obtained it is necessary to conduct further analysis of sovereign credit rating and to review the type and significance of the impact of energy dependence indicator as a measure of energy security in general

oil market conditions and sovereign risk in mena oil exporters and importers abstract we analyze for the first time how various levels of oil returns and oil volatility changes affect sovereign risk in static and time varying settings empirical analyses involve daily data from february 14 2011 to november 23 2018 covering a sample of mena oil exporters and importers the results from a quantile based approach show that the sovereign risk of mena oil exporters and importers is directionally predicted by shocks in oil prices and oil volatility especially during the oil crash of 2014 2016 overall the impact of oil returns and volatility changes occur in a very short time span that is within one day lag and the quantile specific reactions of sovereign risk spreads are time varying the impact of oil returns is asymmetric across quantiles the results hold when we control for stock market returns the findings have implications for investors in terms of portfolio and risk management importantly the findings are useful to policymakers for sovereign risk management decisions the cost of sovereign borrowing and the market timing of debt issuance finally the findings matter to bankers given that central and domestic banks hold large amounts of sovereign debt which makes banking systems particularly exposed to their own sovereign stress

higher order generalizations of arrow pratt and ross risk aversion a comparative statics approach abstract we analyze comparative risk aversion in a new way through a comparative statics problem in which for a cost agents can shift from an initial probability distribution toward a preferred distribution the ross characterization arises when the original distribution is riskier than the preferred distribution and the cost is monetary and the arrow pratt characterization arises when the original distribution differs from the preferred distribution by a simple mean preserving spread and the cost is a utility cost higher order increases in risk lead to higher order generalizations and the comparative statics method yields a unified approach to the problem of comparative risk attitudes

the extreme value in crude oil and us dollar markets abstract this study constructs a flexible range based volatility model by considering extreme value information to explore the volatility and dependence structures between the oil price and the us dollar exchange rate an asset allocation strategy is implemented to evaluate the economic value and confirm the efficiency of this model the empirical results indicate that the use of extreme value information can not only enhance the explanatory power of volatility structures but also sort out the asymmetric volatility effect in the oil market besides investors can obtain extra benefits of between 72 and 713 annualized basis points by incorporating extreme value information into their asset allocation strategies less risk averse investors can generate higher benefits the empirical results have potentially important implications for asset allocation and risk management

roughing it up including jump components in the measurement modeling and forecasting of return volatility a rapidly growing literature has documented important improvements in financial return volatility measurement and forecasting via use of realized variation measures constructed from high frequency returns coupled with simple modeling procedures building on recent theoretical results in barndorff nielsen and shephard 2004a 2005 for related bi power variation measures the present paper provides a practical and robust framework for non parametrically measuring the jump component in asset return volatility in an application to the dm exchange rate the s p500 market index and the 30 year u s treasury bond yield we find that jumps are both highly prevalent and distinctly less persistent than the continuous sample path variation process moreover many jumps appear directly associated with specific macroeconomic news announcements separating jump from non jump movements in a simple but sophisticated volatility forecasting model we find that almost all of the predictability in daily weekly and monthly return volatilities comes from the non jump component our results thus set the stage for a number of interesting future econometric developments and important financial applications by separately modeling forecasting and pricing the continuous and jump components of the total return variation process

directional predictability from oil market uncertainty to sovereign credit spreads of oil exporting countries evidence from rolling windows and crossquantilogram analysis abstract given the recent collapse of oil prices this study investigates the directional predictability from the oil market uncertainty to the sovereign credit default swap cds spreads of four oil exporting gcc countries bahrain qatar saudi arabia and united arab emirates and five other oil exporting countries brazil mexico norway russia and venezuela using the modified bootstrap rolling window approach the empirical results reveal a significant directional predictability from oil uncertainty to the cds spreads of most of those oil exporting countries during the subperiods 2010 2011 and 2014 2015 that is during the periods when oil volatility follows a rising trend the most significant directional predictability is found for qatar bahrain saudi arabia and norway particularly during the 2014 2015 oil price collapse subperiod whereas there is no directional predictability found in the case of brazil for mexico the oil market uncertainty predicts cds spreads mostly during 2014 and for venezuela the directional predictability flows are highly impactful and concentrated during 2011 13 to check the robustness of our estimations we use a novel quantile dependence measure called the cross quantilogram that was developed by han et al 2016 the estimation results of this approach confirm our main findings and indicate that the surge in oil volatility predicts the cds spreads in different quantiles overall the findings highlight that the sovereign credit risk of the gcc and the other oil exporting countries is at least partially driven or directionally predicted by the oil volatility shocks this has important implications for investment and policy decisions

tied transfers and paternalistic preferences why do parents make inter vivos transfers to their children and leave them postmortem bequests 1 gary becker s notions of altruism 1981 ch 8 by which he means that children s utilities are arguments of their parents utility function provides one explanation denoting the children s utility functions by u ci where ci denotes consumption by child i the preferences of parents with two children can be represented by a utility function of the form w cp u1 c1 u2 c2 where cp is the parents own consumption 2 in the altruistic model parents sole motive for intergenerational transfers is to increase their children s utility in other models however parents may have nonaltruistic as well as altruistic motives for transferring resources to their children the literature on economic development emphasizes old age support as a motive for fertility and to a lesser degree as a motive for providing children with human capital as part of an explicit or implicit intergenerational contract when human capital formation is the primary focus of the analysis as in discussions of education and earnings it is useful to decompose inter vivos transfers into human capital formation and other inter vivos transfers such a decomposition can mislead in discussing intergenerational transfers however because it obscures the fact that the provision of human capital by parents constitutes an intergenerational transfer laurence kotlikoff and avia spivak 1981 analyze another old age support model one in which the family operates as an incomplete annuities market in their model children make regular transfers to their aging parents and the share that each child contributes to the parents determines his or her share of the parental estate although the prospect of old age support may be an important motive for downstream intergenerational transfers i e from parents to children in some societies in the united states today upstream transfers appear too small and too uncertain to make this motive credible to explain downstream transfers in the united states today economists have investigated other models in which parents have selfish as well as selfless motives for example b douglas bernheim andrei shleifer and lawrence summers propose a model in which parents use the prospect of bequests to exact services from their children we envision a testator who though altruistic is also affected by actions taken individually by a number of potential beneficiaries he may e g enjoy receiving attention from his children 1985 p 1046 bernheim et al assume that such actions increase parents utility and decrease children s utilities in their model the children s utility functions become u1 ai ci where ai denotes services the ith child provides the parents and the parents utility function becomes w cp al a2 ul al c1 u2 a2 ca to measure these services bernheim et al use frequency of contact i e visits plus telephone calls between parents and children this approach expands the concept of child services to include those provided by adult children who live outside the parents household in an attempt to explain bequests and inter vivos transfers child services originally appeared in discussions of fertility and the allocation of resources to young children living with their parents and thus tends to evoke the joys of young parenthood university of pennsylvania philadelphia pa 19104 and university of washington i am grateful to the national science foundation and the national institutes of health for financial support to gary becker samuel preston david stapleton and paul taubman for helpful comments and to judith farnbach for editonal assistance 1 even if bequests are unplanned as some versions of the life cycle savings model assume inter vivos transfers must be intentional 21 ignore the possible dependence of the children s utility on their own children s utility etc because it is not relevant to the issues discussed in this paper

oil price dynamics 2002 2006 abstract oil price dynamics during 2002 2006 have been characterized by high volatility high intensity jumps and strong upward drift and were concomitant with underlying fundamentals of oil markets and world economy namely pressure on oil prices resulting from rigid crude oil supply and expanding world demand for crude oil a change in the oil price process parameters would require a change in underlying fundamentals market expectations extracted from call and put option prices anticipated no change in underlying fundamentals in the short term markets expected oil prices to remain volatile and jumpy and with higher probabilities to rise rather than fall above the expected mean

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

explaining credit default swap spreads by means of realized jumps and volatilities in the energy market abstract this paper studies the relationship between credit default swap cds spreads for the energy sector and oil futures dynamics using data on light sweet crude oil futures from 2004 to 2013 which contains a crisis period we examine the importance of volatility and jumps extracted from the futures in explaining cds spread changes the analysis is performed at an index level and by rating group as well as for the pre crisis crisis and post crisis periods our findings are consistent with merton s theoretical framework at an index level futures jumps are important when explaining cds spread changes with negative jumps having higher impact during the crisis the continuous volatility part is significant and positive indicating that futures volatility conveys relevant information for the cds market as for the analysis per rating group negative jumps have an increasing importance as the credit rating deteriorates and during the crisis period while the results for positive jumps and futures volatility are mixed overall the relation between the cds market and the futures market is stronger during volatile periods and strengthened after the global financial crisis

pricing credit default swaps with option implied volatility using the industry benchmark creditgrades model to analyze credit default swap cds spreads across a large number of companies during the 2007 09 credit crisis the authors demonstrate that the performance of the model can be significantly improved by calibrating it with option implied volatility rather than with historical volatility moreover the advantage of using option implied volatility is greater among companies with more volatile cds spreads more actively traded options and lower credit ratings

risk spillovers in oil related cds stock and credit markets abstract this paper examines risk transmission and migration among six us measures of credit and market risk during the full period 2004 2011 period and the 2009 2011 recovery subperiod with a focus on four sectors related to the highly volatile oil price there are more long run equilibrium risk relationships and short run causal relationships among the four oil related credit default swaps cds indexes the expected equity volatility vix index and the swaption expected volatility smove index for the full period than for the recovery subperiod the auto sector cds spread is the most error correcting in the long run and also leads in the risk discovery process in the short run on the other hand the cds spread of the highly regulated natural monopoly utility sector does not error correct the four oil related cds spread indexes are responsive to vix in the short and long run while no index is sensitive to smove which in turn unilaterally assembles risk migration from vix the 2007 2008 great recession seems to have led to localization and less migration of credit and market risk in the oil related sectors

the monetary utility premium and interpersonal comparisons the utility premium is generally defined as the pain or reduction in expected utility caused by an nth degree risk increase where n 2 while it is a very useful concept in understanding a decision maker s choice in uncertain situations the utility premium is not interpersonally comparable this note shows that the monetary utility premium the utility premium divided by the expected marginal utility at the random starting wealth is interpersonally comparable and the comparison is characterized by ross more risk aversion of the corresponding degree

substituting one risk increase for another a method for measuring risk aversion abstract this paper defines the rate of substitution of one stochastic change to a random variable for another it then focuses on the case where one of these changes is an nth degree risk increase and the other is an mth degree risk increase where n m 1 the paper shows that the rate of substitution for these two risk increases can be used to provide a broader definition and two additional characterizations of the nth degree ross more risk averse partial order the implications for local intensity measures of nth degree risk aversion are also examined the analysis organizes the existing results as well as generates new ones

comparative higher order risk aversion and higher order prudence abstract in this paper we define the n th degree utility premium as the pain associated with facing the passage from a more favorable risk to a less favorable risk where the risk increase is specified by the notion of more n th degree risk we further define the n th degree prudence utility premium as the increase in pain when the individual suffers a sure loss we show that the n th degree utility premium normalized by the n 1 th derivative of the utility function evaluated at the initial wealth can explain comparative risk aversion of higher orders on the other hand the n th degree prudence utility premium normalized by the n th derivative of the utility function evaluated at the initial wealth can explain comparative prudence of higher orders

forecasting the volatility of crude oil futures using intraday data abstract we use the information in intraday data to forecast the volatility of crude oil at a horizon of 1 66 days using a variety of models relying on the decomposition of realized variance in its positive or negative semivariances part and its continuous or discontinuous part jumps we show the importance of these decompositions in predictive in sample regressions using a number of specifications nevertheless an important empirical finding comes from an out of sample analysis which unambiguously shows the limited interest of considering these components overall our results indicates that a simple autoregressive specification mimicking long memory and using past realized variances as predictors does not perform significantly worse than more sophisticated models which include the various components of realized variance

on the volatility volume relationship in energy futures markets using intraday data this paper investigates the relationship between trading volume and price volatility in the crude oil and natural gas futures markets when using high frequency data by regressing various realized volatility measures with without jumps on trading volume and trading frequency our results feature a contemporaneous and largely positive relationship furthermore we test whether the volatility volume relationship is symmetric for energy futures by considering positive and negative realized semivariances we show that i an asymm etric volatility volume relationship indeed exists ii trading volume and trading frequency significantly affect negative and positive realized semivariance and iii the information content of negative realized semivariance is higher than for positive realized semivariance

crude oil equity and gold futures open interest co movements abstract the study is unique in its investigation of the co movements between trading activity on the equity crude oil and gold futures market proxied by open interest it provides empirical evidence that stock and crude oil futures demand for hedging is positively related but reacts negatively to sudden shocks in open interest on the other market furthermore gold futures open interest reacts positively to shocks in the crude oil futures trading activity the level of instantaneous linkage is related to external market conditions during periods of unstable financial markets the correlation between equity and energy futures open interest decreases and the correlation of the open interest on the equity and gold futures market turns weak negative this indicates hedging funds allocation toward gold market in periods of stock market uncertainty

jumps and stochastic volatility in oil prices time series evidence abstract in this paper we examine the empirical performance of affine jump diffusion models with stochastic volatility in a time series study of crude oil prices we compare four different models and estimate them using the markov chain monte carlo method the support for a stochastic volatility model including jumps in both prices and volatility is strong and the model clearly outperforms the others in terms of a superior fit to data our estimation method allows us to obtain a detailed study of oil prices during two periods of extreme market stress included in our sample the gulf war and the recent financial crisis we also address the economic significance of model choice in two option pricing applications the implied volatilities generated by the different estimated models are compared and we price a real option to develop an oil field our findings indicate that model choice can have a material effect on the option values

some stronger measures of risk aversion in the small and the large with applications the arrow pratt measures of risk aversion for von neumann morgenstern utility functions have become workhorses for analyzing problems in the microeconomics of uncertainty they have been used to characterize the qualitative properties of demand in insurance and asset markets to examine the properties of risk taking in taxation models and to study the interaction between risk and life cycle savings problems to name just a few applications equally importantly they have generated the linear risk tolerance class of utility functions which has provided canonical examples in such diverse areas as portfolio theory and the theory of teams despite these successes there have been a number of areas for which the results have been weaker than hoped it is natural to use the risk aversion measures to compare the behavior of individuals in risky choice situations for example consider the individual portfolio choice problem in a two asset world with a riskless asset and a risky asset if individual a has a uniformly higher arrow pratt coefficient of risk aversion than individual b then b will always choose a portfolio combination with more wealth invested in the risky asset but suppose that both assets are risky now there is no obvious sense in which the more risk averse individual can be said to hold a less risky portfolio but it seems strange that such a simple alteration should destroy the analytics which support the basic intuition similarly consider the basic insurance problem if one individual a is more risk averse than another b in the arrow pratt sense it follows that a will pay a larger premium to insure against a random loss than will b typically though an individual evaluates partial rather than total insurance that is only some gambles can be insured against and others must be retained in this case even when the gambles which are retained are independent from those which are insured it is no longer true that the individual whose arrow pratt measure of risk aversion is higher will pay a larger insurance premium the situation is no better when we consider comparative statics exercises for a single individual decreasing absolute risk aversion in the sense of arrow and

the utility premium of friedman and savage comparative risk aversion and comparative prudence we show that the utility premium of friedman and savage can be used to explain comparative risk aversion and comparative prudence more precisely we show that the greater the risk aversion measure the greater a risk s utility premium normalized by the marginal utility and that the greater the prudence measure the greater the utility premium for disaggregating a certain loss of wealth and a zero mean risk normalized by the utility function s second derivative