where do we go from here 2 real wages effective demand and economic development a central purpose of this paper is to argue for a more active role for historical analysis in filling out and extending classical theory firstly what is required is a more modern vision of capitalist growth which would not only include such classical variables as the rate of profit and accumulation but also take into account the changing level and composition of the standard of living and how this interrelates with the compositional evolution of the industrial structure including the effect of new technology and changes in industrial organisation such as the development of new industries new products and new systems of marketing the second important need is for a more differentiated class analysis with which to study the growth process this would require a detailed consideration of the historical stratification and re stratification of the working class and would incorporate an analysis of the impact of and the interaction between the evolving industrial and political organisation of labour state policy collective bargaining the restructuring of labour resulting from changing power relations in the market and in the labour process changing technology and industrial organisation these processes have particular relevance in the present context for inter and intra class distribution of income and how this relates to the level and structuring of demand the paper consists of five main sections the first considers representative attempts to incorporate historical processes into theory the second considers the development in the structure of consumption in britain since 1860 the third links changing consumption to the standard of living the fourth examines the relationship between the standard of life and institutional developments in wage determination and in welfare provision and the fifth is a brief attempt to relate these factors to economic development

optimal hedge ratio under a subjective re weighting of the original measure abstractin this article we study a risk minimizing hedge ratio with futures contracts where the risk of the hedged portfolio is measured through a spectral risk measure srm thus incorporating the degree of agent s risk aversion we empirically estimate the optimal hedge ratio ohr using a long time series of uk and us equity indices the eurusd and eurgbp exchange rates and four liquid commodities brent crude oil corn gold and copper to represent different asset classes comparing the results with common ohrs such as the minimum variance and the minimum expected shortfall we find that the agent s risk aversion has a material impact and should not be ignored in risk management

the effect of asymmetries on optimal hedge ratios there is widespread evidence that the volatility of stock returns displays an asymmetric response to good and bad news this article considers the impact of asymmetry on time varying hedges for financial futures an asymmetric model that allows forecasts of cash and futures return volatility to respond differently to positive and negative return innovations gives superior in sample hedging performance however the simpler symmetric model is not inferior in a hold out sample a method for evaluating the models in a modern risk management framework is presented highlighting the importance of allowing optimal hedge ratios to be both time varying and asymmetric

bivariate garch estimation of the optimal commodity futures hedge six different commodities are examined using daily data over two futures contract periods cash and futures prices for all six commodities are found to be well described as martingales with near integrated garch innovations bivariate garch models of cash and futures prices are estimated for the same six commodities the optimal hedge ratio ohr is then calculated as a ratio of the conditional covariance between cash and futures to the conditional variance of futures the estimated ohrs reveal that the standard assumption of a time invariant ohr is inappropriate for each commodity the estimated ohr path appears non stationary which has important implications for hedging strategies

a bivariate markov regime switching garch approach to estimate time varying minimum variance hedge ratios this article develops a new bivariate markov regime switching bekk generalized autoregressive conditional heteroscedasticity garch rs bekk garch model the model is a state dependent bivariate bekk garch model and an extension of gray s univariate generalized regime switching grs model to the bivariate case to solve the path dependency problem inherent in the bivariate regime switching bekk garch model we propose a recombining method for the covariance term in the conditional variance covariance matrix the model is applied to estimate time varying minimum variance hedge ratios for corn and nickel spot and futures prices out of sample point estimates of hedging portfolio variance show that compared to the state independent bekk garch model the rs bekk garch model improves out of sample hedging effectiveness for both corn and nickel data we perform white s 2000 data snooping reality check to test for predictive superiority of rs bekk garch over the benchmark model and find that the difference

the optimal value at risk hedging strategy under bivariate regime switching arch framework unlike the majority of other hedging literatures in which variance is taken as the risk indicator this article uses the value at risk var as the risk management tool of the hedged portfolio this article adopts a bivariate markov regime switching autoregressive conditional heteroscedastic swarch model to formulate the optimal var hedging strategy and then compares it with the other dynamic futures hedging strategies mentioned in the literature in hedging performance using taiwan stock exchange capitalization weighted stock index taiex futures data the in sample and out of sample results shows that when var is used as the criterion to measure the futures hedging effectiveness the performance of the dynamic hedging strategy is superior to that of the static hedging strategy and the performance of the optimal var hedging strategy is better than that of the minimum variance and mean variance hedging strategies besides from the standpoint that the volatility of hedge ratio and hedged portfolio var

recent trends in aggregate concentration in the united kingdom economy the extent to which large corporations dominate economic activity and the design of ap propriate policies towards them have been the subject of an extensive debate in the uk in recent years trends in concentration in manufacturing have played an important role in fuelling this debate recent studies however suggest that the unprecedented increases in overall or aggregate concentration in manufacturing which took place in the 1960s have not been repeated in the 1970s on the contrary concentration seems to have stabilised or fallen in the first half of the 1970s 1 in our view such estimates are not necessarily a good guide to the size and role of big business in the economy as a whole the discussion needs to be extended beyond the confines of manufacturing non manufacturing activity in the uk in the 1970s accounted for around 70 of gdp and over two thirds of employ ment 2 many of the largest uk companies including the oil companies the clearing banks and insurers and major retailers operate principally outside manufacturing and many of those within manufacturing have substantial non manufacturing interests as their consoli dated annual accounts reveal 3 mergers provide a more dramatic indication of this pattern in 1983 bat industries one of the ten largest industrial companies in the uk made a takeover bid for eagle star the sixth largest insurer whilst this may be an extreme example it is certainly the case that in the 1970s conglomerate mergers have generally become of far greater relative importance than they were in the 1960s 4 our object in this paper is therefore to provide recent estimates of aggregate concen tration which extend beyond manufacturing industry and cover the years 1968 82 this involves major problems because there are no official statistics to guide us we have there fore had to use a variety of published sources principally based on company accounts

hedging multiple price uncertainty in international grain trade commodity and freight futures contracts are analyzed for their effectiveness in reducing uncertainty for international traders a theoretical model is developed for a trader exposed to several types of risk ols hedge ratio estimation is compared to the sur and the multivariate garch methodologies explicit modeling of the time variation in hedge ratios via the multivariate garch methodology using all derivatives and taking into account dependencies between prices results in reductions in risk even after accounting for transaction costs results confirm that while the commodity futures contracts are important for hedging risk freight futures are a useful mechanism for reducing risk copyright 2000 oxford university press

pay and employment determination in britain what are labour contracts really like the recent growth of unemployment in western economies has prompted new research on the workings of the labour market there has been much interest in particular in the questions what determines the level of real pay and why is it apparently so insensitive to changes in aggregate demand and unemployment european economists now find it hard to take seriously the notion still taught to many undergraduate that wages are determined by the intersection of demand and supply curves roughly half of all british employees belong to trade unions a much higher percentage have their pay fixed by some kind of collective bargain in this country it is negotiations not impersonal com petitive markets which decide what most of us will be paid the difficult problem is that of how to understand this process or to put it differently of how to think up the right model of the world

green electricity market development lessons from europe and the us this study compares the development and implementation of green electricity policies in germany the netherlands sweden and the united states a set of countries applying a range of policy instruments to encourage electricity from renewable energy sources a general tendency is identified that policies shift emphasis from r d stimulation towards dissemination and market application of renewable energy technologies we argue that in light of the long term nature of policy goals on energy security mitigation of climate change and environmental protection the applied range of policy instruments may be lacking in providing incentives for the long term development of new technologies clarifying policy objectives would allow careful selection of policy instruments including support for r d improved capacity building for policy implementation is also important

the political economy of socially irrational products in the past long waves have dissipated themselves in an exhaustion of innovations under spending and or a shortage of labour and ensuing upswings depended upon adjustments in the wage profit relation and a restructuring of the patterns of production and consumption whereas monetarist keynesian and marxist perspectives all focus attention on changes in the distributional or former dimension of the present crisis in this paper i argue that the critical distinguishing feature is grounded more in the latter the intractable character of post world war ii production and consumption the intractability refers to the resilience of the contemporary structure of production and consumption whereas in the past competitive market forces facilitated the restructuring of production and consumption required at the end of a long boom today the economy remains encumbered with a range of investments and product forms entrenched within the social and political order but which are increasingly costly in real terms proposals to resolve these dislocations by government cutbacks and the imposition of selective austerity fail to capture the organisational sources of rising costs and government paralysis even if such programmes were to stimulate a renewed spurt of economic growth they would quickly be accompanied by rising cost pressures and a political backlash for the austerity would be imposed on a populace imprisoned within an expensive infrastructure of consumption and therefore required to maintain a high level of expenditure the task of this paper is to explain the intractable character of the current crisis in terms of the contemporary organisation of consumption and production the argument proceeds in the following order first the politicised market generating irrational patterns of production and consumption in key industries has driven up the cost of living second these patterns of production and consumption once they were embedded in political and social institutions have become highly resistant to the competitive forces which in theory reduce inflationary pressures third the burdens and constraints imposed on the state by the prevailing patterns of production and consumption combine with the relative ineffectiveness of keynesian and monetarist measures to set up the state as a scapegoat for economic irrationalities lodged more deeply in the contemporary structure of production and consumption

crack spread hedging accounting for time varying volatility spillovers in the energy futures markets crude oil heating oil and unleaded gasoline futures contracts are simultaneously analysed for their effectiveness in reducing price volatility for an energy trader a conceptual model is developed for a trader hedging the crack spread various hedge ratio estimation techniques are compared to a multivariate garch model that directly incorporates the time to maturity effect often found in futures markets modelling of the time variation in hedge ratios via the multivariate garch methodology and thus taking into account volatility spillovers between markets is shown to result in significant reductions in uncertainty even while accounting for trading costs copyright 2002 john wiley sons ltd

market volatility and the dynamic hedging of multi commodity price risk commodity cash and futures prices experienced a severe boom and bust cycle between 2006 and 2009 increases in commodity price volatility have raised concerns about the usefulness of commodity futures and options as risk management tools dynamic hedging strategies have the potential to improve risk management when conditional co variances depart significantly from their unconditional long run counterparts and may be useful to decision makers despite their greater complexity and higher transaction costs we propose a nonparametric copula based generalized autoregressive conditional heteroscedastic npc garch approach to estimate time varying hedge ratios and evaluate the benefits of dynamic hedging during four sub periods between 2000 and 2011 using a stylized texas cattle feedlot management problem the npc garch approach allows for a flexible nonlinear and asymmetric dependence structure between cash and futures prices for different commodities we find that npc garch dynamic hedging performs bette

time varying risk aversion an application to energy hedging abstract risk aversion is a key element of utility maximizing hedge strategies however it has typically been assigned an arbitrary value in the literature this paper instead applies a garch in mean garch m model to estimate a time varying measure of risk aversion that is based on the observed risk preferences of energy hedging market participants the resulting estimates are applied to derive explicit risk aversion based optimal hedge strategies for both short and long hedgers out of sample results are also presented based on a unique approach that allows us to forecast risk aversion thereby estimating hedge strategies that address the potential future needs of energy hedgers we find that the risk aversion based hedges differ significantly from simpler ols hedges when implemented in sample risk aversion hedges for short hedgers outperform the ols hedge ratio in a utility based comparison

european natural gas seasonal effects on futures hedging abstract this paper is the first to discuss the design of futures hedging strategies in european natural gas markets nbp ttf and zeebrugge a common feature of energy prices is that conditional mean and volatility are driven by seasonal trends due to weather demand and storage level seasonalities this paper follows and extends the ederington and salas 2008 framework and considers seasonalities in mean and volatility when minimum variance hedge ratios are computed our results show that hedging effectiveness is much higher when the seasonal pattern in spot price changes is approximated with lagged values of the basis futures price minus spot price this fact remains true for short a week and long one three and six months hedging periods furthermore volatility of weekly price changes also has a seasonal pattern and is higher in winter than in summer a simple volatility seasonal model that is based on sinusoidal functions on the basis improves the risk reduction obtained by strategies in which hedging ratios are estimated with linear regressions seasonal hedging strategies linear regression based strategies or even a naive position perform better than more sophisticated statistical methods

unemployment a survey this paper presents a survey of the economics of unemployment it covers competitive and imperfect competition models the role of different methods of wage determination and explanation of postwar unemployment patterns in the oecd countries copyright 1990 by royal economic society

spatial temporal model of insect growth diffusion and derivative pricing insect derivatives represent an important innovation in specialty crop risk management an active over the counter market in insect derivatives will require a transparent pricing method this paper develops an econometric model of the spatio temporal process underlying a particular insect population and develops a pricing model based on this process we show that insect derivatives can play an important risk management role in mitigating b tabaci whitefly damage in cotton beyond developing a new risk management instrument the key methodological contribution of this paper lies in pricing derivatives with stochastic properties in both space and time dimensions copyright 2008 oxford university press

basis convergence and long memory in volatility when dynamic hedging with futures abstractwhen market returns follow a long memory volatility process standard approaches to estimating dynamic minimum variance hedge ratios mvhrs are misspecified simulation results and an application to the s p 500 index document the magnitude of the misspecification that results from failure to account for basis convergence and long memory in volatility these results have important implications for the estimation of mvhrs in the s p 500 example and other markets as well

neo liberalism and new labour policy economic performance historical comparisons and future prospects the paper analyses19760 70s inflation the replacement of keynesian with neo liberal economic policy and the post 1979 decline in inflation it is shown that the fall in inflation is explained by trends in import prices rather than by switches in economic policy however new labour s conversion to neo liberalism means that no alternative to it is on political offer despite returns to pre keynesian policy making the success of which will depend on price policies based on an understanding of the institutional roots of inflation

estimation of the optimal futures hedge standard approaches to designing a futures hedge often suffer from two major problems first they focus only on minimizing risk so no account is taken of the impact on expected return second in estima ting the hedge ratio no allowance is made for time variation in the distribution of cash and futures price changes this paper describes a technique for estimating the optimal futures hedge that corrects these problems and illustrates its use in hedging treasury bonds with t bond futures copyright 1988 by mit press

parameter based decision making under estimation risk an application to futures trading this study shows how the standard portfolio model of futures trading should be modified when there is less than perfect information about the relevant parameters estimation risk the standard and the optimal decision rules for futures trading in the presence of estimation risk are compared and discussed an operational model of futures trading for use under estimation risk is advanced in the presence of relevant prior and sample information the model can be used to optimally blend both types of information many of the contributions of economic theory to the study of financial markets involve the use of parameters that are assumed known or estimable by the economic agents examples include the risk premium coefficient 18 and the security market lines that underlie the capital asset pricing model the volatility measures required for option pricing and the minimum variance hedge ratio and expected basis used to construct portfolios of futures contracts and cash positions generally it is left to practitioners to provide estimates of these parameters which are then directly substituted for the actual parameter values of the theoretical model whenever textbooks demonstrate how these parameters can be estimated there is usually a cookbook formula provided that requires some relatively straightforward analysis of the relevant data e g marshall 1989 chapters 6 and 7 cox and rubinstein 1985 chapter 6 the problems with the procedure described above are twofold first the theory has been slow to acknowledge that the practical application of the model almost always involves parameter estimates generally the additional risk of not knowing the true parameters is completely neglected second practitioners or the market participants will often have some type of nonsample information such as insider information or subjective priors that seems relevant for decision making however this potentially important information is ignored altogether when only sample data are used to obtain the parameter estimates

the de merits of minimum variance hedging application to the crack spread we study the empirical performance of the classical minimum variance hedging strategy comparing several econometric models for estimating hedge ratios of crude oil gasoline and heating oil crack spreads given the great variability and large jumps in both spot and futures prices considerable care is required when processing the relevant data and accounting for the costs of maintaining and re balancing the hedge position we find that the variance reduction produced by all models is statistically and economically indistinguishable from the one for one naive hedge however minimum variance hedging models especially those based on garch generate much greater margin and transaction costs than the naive hedge therefore we encourage hedgers to use a naive hedging strategy on the crack spread bundles now offered by the exchange this strategy is the cheapest and easiest to implement our conclusion contradicts the majority of the existing literature which favours the implementation of garch based hedging strategies

market power in a non monetarist inflation model for greece a post keynesian inflation model for greece is constructed and tested the model consists of three equations including a cost demand price equation for the gross domestic expenditure deflator cost demand functions have been occasionally estimated in the past the equation presented is a more systematic test since the effect of industry concentration is examined both theoretically and empirically a collective bargaining equation for the first time in greece was simultaneously estimated the role of public deficit was investigated and it was found that this exerts a moderate influence on inflation

pure martingale and joint normality tests for energy futures contracts abstract in this study we empirically analyze to see if the pure martingale hypothesis holds for three energy related commodities crude oil heating oil and natural gas we also test this hypothesis for five different hedging horizons 1 day 1 week 4 week 8 week and 12 week our empirical results show that the pure martingale hypothesis holds for all three commodities and all five horizons this implies that the expected return on futures contract can be ignored in determining the optimal hedge ratio we also test to see if the joint normality between futures and spot returns holds for the same three commodities and five hedging horizons we reject the joint normality hypothesis for all three commodities and five hedging horizons this implies that hedgers with different utility function have different optimal hedge ratios thus in general one needs to take into account of hedger s utility function when deriving optimal hedge ratio our results are robust to pre and post financial crisis as well as some other specifications considered in the paper

hedging effectiveness of the hedged portfolio the expected utility maximization subject to the value at risk approach multivariate volatilities and distribution play an important role in portfolio selection and can be used to calculate the value at risk var of a multiple asset financial position this study proposes a new expected utility maximization eum model that accounts for var eum model with a var constraint eum var additionally using the eum var model this study investigates the hedging effectiveness of short and long hedged portfolios constructed with multivariate generalized autoregressive conditional heteroscedasticity garch type models that feature level effects and multivariate normal and skewed distributions for stock indexes and their corresponding futures in the greater china region it is found that all else equal portfolios constructed using the multivariate skewed distribution are far more effective in hedging than those that rely on the other distributions and the effectiveness of hedged portfolios from the multivariate garch type models with level effects outperform those without level

optimal hedge ratios at the winnipeg commodity exchange multivariate garch models are employed to estimate time varying hedge ratios for three commodities traded on the winnipeg commodity exchange garch hedge ratios are shown to be superior to those based on the traditional regression approach to calculating the optimal hedge les ratios optimaux de comptant par rapport aux contrats a terme a la bourse de denrees de winnipeg l auteur emploie des modeles multivaries de type garch pour calibrer les ratios optimaux de comptant par rapport aux contrats a terme pour trois denrees transigees a la bourse des denrees de winnipeg ces ratios s averent superieurs a ceux qu on obtient par les methodes de regression traditionnelles

wages economic development and the customary standard of life this paper examines empirically the evolution of the customary standard of life and how this relates to real wages and economic development its starting point is sraffa s reintroduction of the classical notion of wages as the cost of reproducing labour so that they are necessarily a charge on production however when considering a production system generating a surplus sraffa offered no explanation of how the surplus might be realised and distributed rather he concentrated on the choice of technique as the profit share varied from 0 to 1 his approach was one of taking a snapshot of a productive system at a point in time in contrast this paper explores the trend in wages in the uk over the past 150 years and the evolving level and composition of what became the social necessities of worker consumption i e the customary standard of life in this process four dynamically interacting processes can be identified i a progressive increase in the productive potential of the system ii the diffusion of a greater quantity and varieties of consumer goods the growth of property ownership by consumers and their use of credit in a cumulative improvement in their customary standard of life iii the consolidation of the customary standard of life into real wages by collective bargaining and iv diffusion of improved living standards by an extension of collective bargaining coverage to include groups previously excluded and the growth of the welfare state in which the failure to achieve the customary standard of life defines poverty and triggers policy designed to alleviate it the central role played by the customary standard of life in driving real wages means that the inputs of labour power into commodity production can be represented by the commodity composition of the customary standard of life in sraffa style analyses in this the successive cross sections in the historical flow of economic development showing the commodity flows into and out of production will be ever changing like the still frames in a moving picture show moreover such a historical approach rules out the possibility that at any time changes in the rate of profit will precipitate the switching of methods of production past choices of techniques are historically embedded in the capital stock the composition of which is modified by new investment and the scrapping of old as it wears out becomes technically outmoded and or demand for its products declines nevertheless changes in the distribution of income have consequences for the future path of economic and social development and what this might be is arguably the most useful area for economic and social research copyright oxford university press

an examination of dynamic hedging abstract i compare garch modeled dynamic hedging strategies with traditional ols modeled strategies to determine which perform better i find that dynamic hedging reduces risk more than static hedging but only slightly this is consistent with some previous findings that more complex hedging methods may not improve the performance much briys and solnik s 1992 static comparison of the macroeconomic and asset specific components of the hedge ratio is extended to a dynamic setting to examine how the relative importance of these two components evolves through time cointegrating relationship between the spot and forward rates in the macroeconomic component is also considered but its effect is minimal the asset specific component has effect in the out of sample period especially under dynamic strategies and under short term hedging horizons

optimal hedge ratio estimation and hedge effectiveness with multivariate skew distributions this article proposes to use the three multivariate skew distributions generalized hyperbolic distribution multivariate skew normal distribution and multivariate skew student t distribution for estimating the minimum variance hedge ratio in a dynamic setting three criteria for measuring hedge effectiveness are employed hedging instrument effectiveness overall hedge effectiveness and relative to optimal hedge ratio effectiveness rhre three portfolios of spot and futures series are formed for empirical analysis the outcomes confirm that the three multivariate skew distributions are more helpful in deciding the minimum variance hedge ratio especially the generalized hyperbolic distribution than the symmetrical normal and student t distributions this outperformance is significant especially at critical market moments and it is indicated by three hedge effectiveness measures this advantage is held without the cost of lowering portfolio return in addition there is speculation possibility exist

futures cross hedging with a stationary basis when managing risk frequently only imperfect hedging instruments are at hand we show how to optimally cross hedge risk when the spread between the hedging instrument and the risk is stationary for linear risk positions we derive explicit formulas for the hedge error and for nonlinear positions we show how to obtain numerically efficient estimates finally we demonstrate that even in cases with no clear cut decision concerning the stationarity of the spread it is better to allow for mean reversion of the spread rather than to neglect it

energy affordability and the benefits system in italy abstract in this paper we discuss a number of ways to define and measure the affordability of energy consumption and we examine the emergence of energy poverty in italy in the period from 1998 to 2011 the paper examines the eligibility criteria for claiming the benefits available to support energy consumption for vulnerable families and it identifies the potential beneficiaries the study assesses the appropriateness of the eligibility criteria by comparing the population targeted by the policy with the population actually facing affordability problems a simulation exercise using the hypothetical scenario most likely to result in energy benefits being made available shows that regardless of the affordability index adopted the provision of state energy benefits has little impact on fuel poverty

estimating the optimal hedge ratio in the presence of potential unknown structural breaks we propose a new approach in the estimation of the optimal hedge ratio that allows the hedge ratio to vary over time but without the necessity of frequently rebalancing the portfolio we apply this in the context of the us and uk equity markets using weekly spot share prices and future share prices during the period 5 january 1999 to 29 september 2009 our method is to test for cointegration in the presence of two potentially unknown structural breaks by determining the timing of each via the underlying data the empirical findings reveal that the spot and future prices are strongly cointegrated in each market the estimated parameters disclose that the optimal hedge ratio is not constant in case of the us and the uk we find one negative and one positive shift in the optimal hedge ratio in the us however we find only one significant and positive shift in the optimal hedge ratio in the uk the implication of these findings from the perspective of both investors as well as policy makers is elaborated on

optimal dynamic hedging portfolios and the currency composition of external debt abstract we present a model which shows that the currency composition of a country s external debt can serve as a hedging instrument against changes in exchange rates and commodity prices because our model permits the second moments to change through time we get a sequence of optimal dynamic hedging portfolios which can be estimated with a multivariate generalized autoregressive conditional heteroskedasticity garch model to illustrate the usefulness of the technique we apply it to indonesia and it is found as expected that indonesia s optimal debt portfolio consists of a much larger proportion of us dollars and a much smaller proportion of japanese yen than they have in their current debt portoflio

why does unemployment persist the main movements of unemployment correspond to fluctuations in the short run nairu around a stable long term nairu these supply side fluctuations have two main origins i variations in the number of insiders involved in wage setting ii variations in the effectiveness of the unemployed outsiders as potential job seekers the evidence of micro studies suggests that ii is more important than i and this also helps to explain the widespread shift outwards in the u v curve to derive these arguments rigorously the paper presents a simple model of efficiency wages another of collective bargaining and finally a fully dynamic model with labour market flows

the relationship between inflation and the budget deficit in turkey this article analyzes the empirical relationship between inflation and the budget deficit for the turkish economy by a multivariate cointegration analysis a single equation model shows that the scaled budget deficit as well as income growth and debt monetization significantly affects inflation in turkey the conditional model of inflation is constant and it encompasses a previously estimated model

a markov model of switching regime arch in this article i present a new approach to model more realistically the variability of financial time series i develop a markov arch model that incorporates the features of both hamilton s switching regime model and engle s autoregressive conditional heteroscedasticity arch model to examine the issue of volatility persistence in the monthly excess returns of the three month treasury bill the issue can be resolved by taking into account occasional shifts in the asymptotic variance of the markov arch process that cause the spurious persistence of the volatility process i identify two periods during which there is a regime shift the 1974 2 1974 8 period associated with the oil shock and the 1979 9 1982 8 period associated with the federal reserve s policy change the variance approached asymptotically in these two episodes is more than 10 times as high as the asymptotic variance for the remainder of the sample i conclude that regime shifts have a greater impact on the properties of the data and i ca

another look at models of the short term interest rate the short term rate of interest is fundamental to much of theoretical and empirical finance yet no consensus has emerged on the dynamics of its volatility we show that models which parameterize volatility only as a function of interest rate levels tend to over emphasize the sensitivity of volatility to levels and fail to model adequately the serial correlation in condi tional variances on the other hand serial correlation based models like garch models fail to capture adequately the relationship between interest rate levels and volatility we introduce and test a new class of models for the dynamics of short term interest rate volatility which allows volatility to depend on both interest rate levels and information shocks two important conclusions emerge first the sensitivity of interest rate volatility to interest rate levels has been overstated in the literature while this relationship is important adequately modeling volatility as a function of unexpected information shocks is also important sec ond we conclude that the volatility processes in many existing theoretical models of interest rates are misspecified and suggest new paths toward improving the theory

a utility based approach to energy hedging abstract a key issue in the estimation of energy hedges is the hedgers attitude towards risk which is encapsulated in the form of the hedgers utility function however the literature typically uses only one form of utility function such as the quadratic when estimating hedges this paper addresses this issue by estimating and applying energy market based risk aversion to commonly applied utility functions including log exponential and quadratic and we incorporate these in our hedging frameworks we find significant differences in the optimal hedge strategies based on the utility function chosen

the effect of barge and ocean freight price volatility in international grain markets this paper looks at the potential role of time varying volatility of mississippi river barge and ocean freight prices on commodity prices in illinois at the us gulf and in rotterdam using a vector error correction garch in mean model the model is used to infer the extent to which transportation price risk affects price dynamics in international grain markets results from a simulation exercise indicate that both barge and ocean price volatility influence grain prices but barge price volatility tends to have a greater impact on grain prices and marketing margins than that arising from ocean price volatility consistent with most studies that evaluate the role of risk in marketing channels results here suggest that a reduction in barge rate risk would reduce marketing margins between illinois and the us gulf and between the us gulf and rotterdam the existence of an ocean freight futures contract coupled with the lack of a futures contract for barge rates may be partially responsible for the finding that barge rates have a significant influence on grain prices and contribute most to wide marketing margins found throughout the international grain marketing system

managing economic risk in value based marketing of fed cattle this research investigates optimal price risk management strategies for fed cattle producers engaged in grid pricing stochastic simulation is used to determine optimal hedge ratios for fed cattle priced on a live weight basis or on a series of grids that vary in terms of premium discount structure as well as base price results indicate that the optimal hedging strategy is greatly affected by the base price used in a particular grid this has significant implications for pricing efficiency in the cattle market base prices that are linked more closely with downstream markets offer the potential to improve pricing efficiency however the risk associated with these prices is difficult to manage effectively with existing futures instruments