one sided performance measures under gram charlier distributions angel leon would like to acknowledge the financial support from the spanish ministry for science and innovation through the grant eco2014 58434 p and from the grant prometeoii 2013 015 manuel moreno gratefully acknowledges financial support by grants p12 sej 1733 and ppii 2014 030 p

omega performance measure and portfolio insurance abstract we analyze the performance of the two main portfolio insurance methods the obpi and cppi strategies using downside risk measures for this purpose we introduce kappa performance measures and especially the omega measure these measures take account of the entire return distribution we show that the cppi method performs better than the obpi as a by product we determine the set of threshold values for these risk reward performance measures

estimating financial risk measures for options abstract this paper proposes a simulation lattice procedure to estimate financial risk measures for option positions the framework proposed can be applied to many different kinds of options including exotic and vanilla options it can take account of early exercise features heavy tails in underlying processes estimate different risk measures including var expected shortfall and spectral risk measures and in a limited way it can be generalized to accommodate multiple factors it avoids many of the limitations of existing approaches and in particular avoids the problems associated approaches based on delta gamma and similar approximations it also generates some interesting results about the risk measures of some illustrative options positions

nonlinearly weighted convex risk measure and its application abstract we propose a new class of risk measures which satisfy convexity and monotonicity two well accepted axioms a reasonable and realistic risk measure should satisfy through a nonlinear weight function the new measure can flexibly reflect the investor s degree of risk aversion and can control the fat tail phenomenon of the loss distribution a realistic portfolio selection model with typical market frictions taken into account is established based on the new measure real data from the chinese stock markets and american stock markets are used for empirical comparison of the new risk measure with the expected shortfall risk measure the in sample and out of sample empirical results show that the new risk measure and the corresponding portfolio selection model can not only reflect the investor s risk averse attitude and the impact of different trading constraints but can find robust optimal portfolios which are superior to the corresponding optimal portfolios obtained under the expected shortfall risk measure

derivative pricing using multivariate affine generalized hyperbolic distributions abstract in this paper we use multivariate affine generalized hyperbolic magh distributions introduced by schmidt et al 2006 to show how to price multidimensional derivatives when the underlying asset follows a magh distribution we also illustrate the approach using market data from the bovespa sao paulo stock exchange and the exchange rate of the brazilian real vs us dollar to price some multidimensional derivatives

optimal asset allocation aid system from one size vs tailor made performance ratio abstract optimal asset allocation well fitting investors goals is a pressing challenge in risk management making a step forward to the sharpe ratio the parameter dependent sortino satchell generalized rachev and farinelli tibiletti performance ratios are suggested for personalizing asset allocation tailor made optimal asset paths for five different investor risk profiles are traced over a rolling 12 month investing horizon our simulations show a satisfactorily good match between asset allocation and correspondent risk profile specifically generalized rachev ratios outperform in personalized allocation for extreme risk profiles i e conservative and aggressive investors whereas sortino satchell and farinelli tibiletti ratios for those that are more moderate sharpe ratio confirms its ability in constructing steady diversified portfolios although underperformed

empirical martingale simulation for asset prices this paper proposes a simple modification to the standard monte carlo simulation procedure for computing the prices of derivative securities the modification imposes the martingale property on the simulated sample paths of the underlying asset price this procedure is referred to as the empirical martingale simulation ems the ems ensures that the price estimated by simulation satisfies the rational option pricing bounds the ems yields a substantial error reduction for the price estimate and can be easily coupled with the standard variance reduction methods simulation studies are conducted for european and asian call options using both the black and scholes and garch option pricing frameworks the results indicate that the ems yields substantial variance reduction particularly for in and at the money or longer maturity options the option price estimate based on the ems is found to exhibit a minor small sample bias only in few occasions an analysis of the trade off between computing time and price accuracy reveals that the ems dominates the conventional simulation methods

a quick algorithm for pricing european average options an algorithm is described that prices european average options the algorithm is tested against monte carlo estimates and is shown to be accurate the speed of the algorithm is comparable to the black scholes algorithm a closed form solution is derived for european geometric average options

tempered stable and tempered infinitely divisible garch models abstract in this paper we introduce a new garch model with an infinitely divisible distributed innovation this model which we refer to as the rapidly decreasing tempered stable rdts garch model takes into account empirical facts that have been observed for stock and index returns such as volatility clustering non zero skewness and excess kurtosis for the residual distribution we review the classical tempered stable cts garch model which has similar statistical properties by considering a proper density transformation between infinitely divisible random variables we can find the risk neutral price process thereby allowing application to option pricing we propose algorithms to generate scenarios based on garch models with cts and rdts innovations to investigate the performance of these garch models we report parameter estimates for the dow jones industrial average index and stocks included in this index to demonstrate the advantages of the proposed model we calculate option prices based on the index

pricing european average rate currency options abstract this paper develops a simple methodology that yields closed form analytical approximations for valuing european option claims involving the arithmetic average of future foreign exchange rates the main advantage of the approach is that it avoids the need to adopt time consuming numerical procedures the precision of the resulting formula and the distributional assumption that underlies it is examined by way of monte carlo simulations jel f31

foster hart optimal portfolios we reinvestigate the classic portfolio optimization problem where the notion of portfolio risk is captured by the foster hart risk a new bankruptcy proof reserve based measure of risk extremely sensitive to left tail events foster and hart 2009 to include financial market frictions induced by market microstructure we employ a general ex ante transaction cost function with fixed linear and quadratic penalty terms in the objective function we represent the us equity market by the dow jones industrial average djia index and study the performance of the foster hart optimal djia portfolio in order to capture the skewed and leptokurtotic nature of real life stock returns we model the returns of the djia constituents as an arma garch process with multivariate normal tempered stable innovations we demonstrate that the foster hart optimal portfolio s performance is superior to those obtained under several techniques currently in use in academia and industry

an evaluation of contingent immunization abstract this paper tests the effectiveness of contingent immunization a stop loss strategy that allows portfolio managers to take advantage of their ability to forecast interest rate movements as long as their forecasts are successful but switches to a pure immunization strategy should the stop loss limit be encountered this study uses actual daily transactions in the spanish treasury market covering the period 1993 2003 and uses performance measures that accounts for skewness and kurtosis as well as mean variance the main result of this paper is that contingent immunization provides excellent performance despite its simplicity

non parametric frontier estimates of mutual fund performance using c and l moments some specification tests there is a burgeoning literature using non parametric frontier methods to measure mutual fund performance these articles measure the relationship between the various characteristics mainly return information and some costs of ownership of these specialized financial products to establish a ranking using some efficiency measure we argue in favor of the use of the shortage function which is compatible with general investor preferences and question some of the often maintained hypotheses in this line of research the empirical part employs a large database of us and european mutual funds to offer extensive tests of the underlying modeling assumptions using various frontier estimators

a pricing method for options based on average asset values abstract in this paper we present a new strategy for pricing average value options i e options whose payoff depends on the average price of the underlying asset over a fixed period leading up to the maturity date such options are of particular interest and importance for thinly traded assets e g crude oil since price manipulation is inhibited and both the investor and issuer enjoy a welcome degree of protection from the vagaries of the market these options are often implicit in a bond contract although they also appear in a straightforward form our results suggest that the price of an average value option will always be lower than that of a standard european option our pricing strategy involves monte carlo simulation with variance reduction elements and offers an enhanced pricing method to both arbitragers and hedgers as well as to the issuers of such bonds

carbon value dynamics for france a key driver to support mitigation pledges at country scale the climate agenda in france and several other countries is a complex combination of unilateral commitments with regional and international objectives when analyzing national policies the findings of worldwide analyses are of limited accuracy and the large aggregates on which they are built level out most local specificities and inertia specific assessments are hence needed this paper quantifies the dynamic evolution of carbon values for french climate and energy policy its time dependency over successive periods and the effects of setting intermediate targets are evaluated using a long term optimization model addressing critical issues for france we produce consistent energy emissions and carbon value estimates with a 5 year time step our results are situated above the upper range of carbon value estimates of world models with an overlapping zone we show that the official policy guideline value is only consistent with an optimistic combination of assumptions the central estimates are 4 times greater than the guideline carbon value for 2050 and up to 14 times greater in 2020 because of short term inertia that are costly to move we also find that with intermediate objectives the carbon value s dynamic is more than a simple upward curve and that its variability is itself time dependent

from measure changes to time changes in asset pricing abstract the goal of the paper is to review the last 35 years of continuous time finance by focusing on two major advances i the powerful elegance of the martingale representation for primitive assets and attainable contingent claims in more and more general settings thanks to the probabilistic tool of probability change and the economic flexibility in the choice of the numeraire relative to which prices are expressed this numeraire evolved over time from the money market account to a zero coupon bond or a stock price lastly to strictly positive quantities involved in the libor or swap market models and making the pricing of caps or swaptions quite efficient ii the persistent central role of brownian motion in finance across the 20th century even when the underlying asset price is a very general semi martingale the no arbitrage assumption and monroe theorem monroe i 1978 processes that can be embedded in brownian motion annals of probability 6 42 56 allow us to write it as brownian motion as long as we are willing to change the time the appropriate stochastic clock can be shown empirically to be driven by the cumulative number of trades hence by market activity consequently starting with a general multidimensional stochastic process s defined on a probability space f f t p and representing the prices of primitive securities the no arbitrage assumption allows for any chosen numeraire to obtain a martingale representation for s under a probability measure qs equivalent to p this route will be particularly beneficiary for the pricing of complex contingent claims alternatively changing the clock i e changing the filtration f t we can recover the brownian motion and normality of returns in all cases martingales appear as the central representation of asset prices either through a measure change or through a time change

mesdames et messieurs momentum performance is not so abnormal after all this article provides evidence regarding the performance of momentum investment strategies that is consistent with the neoclassical theory more specifically while momentum investment returns appear orthogonal to systematic risk in the extant literature this article illustrates that they are due to correlated changes of hedge portfolio systematic risk exposures with market conditions momentum portfolios are excellent market timers in both expanding and contracting markets their returns however are generally not abnormal when timing is considered in an augmented unconditional capital asset pricing model capm while the standard version erroneously considers them to be so possibly explaining why momentum studies have so far rejected the neoclassical theory

white and green comparison of market based instruments to promote energy efficiency the white and green project completed under the eu save programme reviewed policies and measures to promote energy efficiency which involved analysing the experience with instruments that are already implemented and assessing innovative instruments that are proposed in particular the practicability of using white certificates energy efficiency along the same lines as green certificates renewable energy was explored several of the policies and measures were simulated using technical economic model of the markal family the results show that by 2020 it is possible to increase energy effiency by 15 at no cost without taking externalities into account if externalities are considered an increase of 30 35 with respect to the business as usual scenario is justified the wealth of information obtained through the models and analysis provides a set of recommendations for policy makers including 1 the need for closer co ordination between energy policies and environmental and climate policies 2 the opportunity to establish more ambitious targets for energy efficiency 3 the scope for increased eu co ordination 4 the extension of white certificates to the medium and low energy intensive industries 5 the need to support white certificates with accompanying actions such as running information campaigns promoting energy service companies and providing dedicated credit lines 6 the need to develop similar instruments for transport and 7 the continuing need for energy research and development c 2005 published by elsevier ltd

do physicians financial incentives affect medical treatment and patient health we investigate whether physicians financial incentives influence health care supply technology diffusion and resulting patient outcomes in 1997 medicare consolidated the geographic regions across which it adjusts physician payments generating area specific price shocks areas with higher payment shocks experience significant increases in health care supply on average a 2 percent increase in payment rates leads to a 3 percent increase in care provision elective procedures such as cataract surgery respond much more strongly than less discretionary services non radiologists expand their provision of mris suggesting effects on technology adoption we estimate economically small health impacts albeit with limited precision

investment horizon and the attractiveness of investment strategies a behavioral approach we analyze the attractiveness of investment strategies over a variety of investment horizons from the viewpoint of an investor with preferences described by cumulative prospect theory cpt currently the most prominent descriptive theory for decision making under uncertainty a bootstrap technique is applied using historical return data of 1926 2008 to allow for variety in investors preferences we conduct several sensitivity analyses and further provide robustness checks for the results in addition we analyze the attractiveness of the investment strategies based on a set of experimentally elicited preference parameters our study reveals that strategy attractiveness substantially depends on the investment horizon while for almost every preference parameter combination a bond strategy is preferred for the short run stocks show an outperformance for longer horizons portfolio insurance turns out to be attractive for almost every investment horizon interestingly we find probability weighting to be a driving factor for insurance strategies attractiveness

pricing discretely monitored asian options under levy processes we present methodologies to price discretely monitored asian options when the underlying evolves according to a generic levy process for geometric asian options we provide closed form solutions in terms of the fourier transform and we study in particular these formulas in the levy stable case for arithmetic asian options we solve the valuation problem by recursive integration and derive a recursive theoretical formula for the moments to check the accuracy of the results we compare the implementation of our method to monte carlo simulation implemented with control variates and using different parametric levy processes we also discuss model risk issues

sharpe thinking in asset ranking with one sided measures abstract if we exclude the assumption of normality in return distributions the classical risk reward sharpe ratio becomes a questionable tool for ranking risky projects in line with sharpe thinking a general risk reward ratio suitable to compare skewed returns with respect to a benchmark is introduced the index includes asymmetrical information on 1 good volatility above the benchmark and bad volatility below the benchmark and 2 asymmetrical preference to bet on potential high stakes and the aversion against possible huge losses the former goal is achieved by using one sided volatility measures and the latter by choosing the appropriate order for the one sided moments involved the omega index see cascon a keating c shadwick w 2002 introduction to omega the finance development centre and the upside potential ratio see sortino f van der meer r plantinga a 1999 the dutch triangle journal of portfolio management 26 i fall 50 58 follow as special cases

municipal scale scenario analysis of an italian seaside town with markal times this work presents three 25 year energy scenarios developed with the times model generator for pesaro a seaside municipality in central italy it evaluates the effectiveness of local scale energy policies in three sectors households transport and the public sector ps since the local energy demand is affected by summer tourism seasonal consumption by holiday homes was also studied three scenarios were hypothesized business as usual bau exemplary public sector eps and exemplary municipality em the eps scenario models the exemplary role that recent european directives attribute to the ps in setting energy efficiency and technology penetration targets for itself the em scenario extends these targets to the household sector in particular the study underscores the potential of micro cogeneration technologies in achieving local environmental targets even though their diffusion would involve an increase in local energy consumption due to internalization of the primary energy used to produce electricity which would no longer be wholly imported from outside municipal boundaries the study provides information to local decision makers by estimating the cost of implementing a number of energy policies finally the study discusses the adequacy of times as a tool to analyse municipal scale scenarios

momentum strategies based on reward risk stock selection criteria abstract in this paper we analyze momentum strategies that are based on reward risk stock selection criteria in contrast to ordinary momentum strategies based on a cumulative return criterion reward risk stock selection criteria include the standard sharpe ratio with variance as a risk measure and alternative reward risk ratios with the expected shortfall as a risk measure we investigate momentum strategies using 517 stocks in the s p 500 universe in the period 1996 2003 although the cumulative return criterion provides the highest average monthly momentum profits of 1 3 compared to the monthly profit of 0 86 for the best alternative criterion the alternative ratios provide better risk adjusted returns measured on an independent risk adjusted performance measure we also provide evidence on unique distributional properties of extreme momentum portfolios analyzed within the framework of general non normal stable paretian distributions specifically for every stock selection criterion loser portfolios have the lowest tail index and tail index of winner portfolios is lower than that of middle deciles the lower tail index is associated with a lower mean strategy the lowest tail index is obtained for the cumulative return strategy given our data set these findings indicate that the cumulative return strategy obtains higher profits with the acceptance of higher tail risk while strategies based on reward risk criteria obtain better risk adjusted performance with the acceptance of the lower tail risk

assessing the performance of alternative investments using non parametric efficiency measurement approaches is it convincing abstract dea based performance assessment in the alternative investment fund industry is often motivated by the fact that dea is capable of simultaneously handling multiple input risk and multiple output return measures thereby still offering a single real number as a performance index without utilizing subjective weights to aggregate these inputs and outputs this paper aims at investigating whether dea based performance indexes previously used to assess alternative investment fund performance are actually able to satisfy these properties and to contrast the findings using a dea based performance index with those using a traditional financial performance index

financial market models with levy processes and time varying volatility abstract asset management and pricing models require the proper modeling of the return distribution of financial assets while the return distribution used in the traditional theories of asset pricing and portfolio selection is the normal distribution numerous studies that have investigated the empirical behavior of asset returns in financial markets throughout the world reject the hypothesis that asset return distributions are normally distribution alternative models for describing return distributions have been proposed since the 1960s with the strongest empirical and theoretical support being provided for the family of stable distributions with the normal distribution being a special case of this distribution since the turn of the century specific forms of the stable distribution have been proposed and tested that better fit the observed behavior of historical return distributions more specifically subclasses of the tempered stable distribution have been proposed in this paper we propose one such subclass of the tempered stable distribution which we refer to as the kr distribution we empirically test this distribution as well as two other recently proposed subclasses of the tempered stable distribution the carr geman madan yor cgmy distribution and the modified tempered stable mts distribution the advantage of the kr distribution over the other two distributions is that it has more flexible tail parameters for these three subclasses of the tempered stable distribution which are infinitely divisible and have exponential moments for some neighborhood of zero we generate the exponential levy market models induced from them we then construct a new garch model with the infinitely divisible distributed innovation and three subclasses of that garch model that incorporates three observed properties of asset returns volatility clustering fat tails and skewness we formulate the algorithm to find the risk neutral return processes for those garch models using the change of measure for the tempered stable distributions to compare the performance of those exponential levy models and the garch models we report the results of the parameters estimated for the s p 500 index and investigate the out of sample forecasting performance for those garch models for the s p 500 option prices

universal option valuation using quadrature methods abstract this paper proposes and develops a novel simple widely applicable numerical approach for option pricing based on quadrature methods though in some ways similar to lattice or finite difference schemes it possesses exceptional accuracy and speed discretely monitored options are valued with only one timestep between observations and nodes can be perfectly placed in relation to discontinuities convergence is improved greatly in the extrapolated scheme a doubling of points can reduce error by a factor of 256 complex problems e g fixed strike lookback discrete barrier options can be evaluated accurately and orders of magnitude faster than by existing methods

a garch option pricing model with α stable innovations we develop an option pricing model which is based on a garch asset return process with stable innovations with truncated tails the approach utilizes a canonic martingale measure as pricing measure which provides the possibility of a model calibration to market prices the garch stable option pricing model allows the explanation of some well known anomalies in empirical data as volatility clustering and heavy tailedness of the return distribution finally the results of monte carlo simulations concerning the option price and the implied volatility with respect to different strike and maturity levels are presented

evaluating the econometric evaluations of training programs with experimental data this paper takes the results of an employment and training program thatwas run as a field experiment in which the participants were randomlyassigned into a treatment or a control group and compares these results to the estimates that might have been produced by an econometrician who evaluated the program using the same econometric procedures that have been used in the program evaluation literature this comparison shows that many of these econometric procedures fail toreplicate the experimentally determined results and suggests that researchers should be aware of the potential for specification errorsin other nonexperimental evaluations copyright 1986 by american economic association

a snapshot of the european energy service market in 2010 and policy recommendations to foster a further market development abstract as of 2010 the energy service market in europe is still far from utilising its full potential wide scale peer reviewed studies investigating the development and up to date status of the european esco market are scarce this article presents a comprehensive insight of the european esco industry based on the results from a large scale survey carried out 2009 2010 in 39 european countries the observed market development during the period 2007 2010 trends in business practices and factors influencing the esco industry evolution are described finally having considered the remaining barriers and the supporting factors as well as the successful experiences in europe policy measures that could further promote esco activities are proposed

time series analysis for financial market meltdowns abstract there appears to be a consensus that the recent instability in global financial markets may be attributable in part to the failure of financial modeling more specifically it is alleged that current risk models have failed to properly assess the risks associated with large adverse stock price behavior in this paper we first discuss the limitations of classical time series models for forecasting financial market meltdowns then we set forth a framework capable of forecasting both extreme events and highly volatile markets based on the empirical evidence presented in this paper our framework offers an improvement over prevailing models for evaluating stock market risk exposure during distressed market periods

mean gini portfolio theory and the pricing of risky assets this paper presents the mean gini mg approach to analyze risky prospects and construct optimum portfolios the proposed method has the simplicity of a mean variance model and the main features of stochastic dominance efficiency since mean gini is consistent with investor behavior under uncertainty for a wide class of probability distributions gini s mean difference is shown to be more adequate than the variance for evaluating the variability of a prospect the mg approach is then applied to capital markets and the security valuation theorem is derived as a general relationship between average return and risk this is further extended to include a degree of risk aversion that can be estimated from capital market data the analysis is concluded with the concentration ratio to allow for the classification of different securities with respect to their relative riskiness

gain loss and asset pricing we develop an approach to asset pricing in incomplete markets that bridges the gap between the two fundamental approaches in finance model based pricing and pricing by no arbitrage we strengthen the absence of arbtrage assumption by precluding investment opportunities whose attractiveness to a benchmark investor exceeds a specified threshold in our framework the attractiveness of an investment opportunity is measured by the gain loss ratio we show that a restriction on the maximum gain loss ratio is equivalent to a restriction on the ratio of the maximum to minimum values of the pricing kernel by limiting the maximum gainloss ratio we can restrict the admissible set of pricing kernels which in turn allows us to restrict the set of prices that can be assigned to assets we illustrate our methodology by computing price bounds for call options in a black scholes economy without intermediate trading when we vary the maximum permitted gainloss ratio these bounds can range from the exact prices implie

wearable technologies and health behaviors new data and new methods to understand population health we study a randomized control trial in a large employer population of access to wearable technologies and the associated planning and monitoring tools on improved health behaviors sleep and exercise both itt and iv estimates based on actual plan enrollment for the treatment group suggest statistically significant but economically small changes in behavior after three months we then implement machine learning based models to assess treatment effect heterogeneity we find little evidence for heterogeneous treatment effects base on observables we also present detailed data on sleep patterns underscoring the value of this new data source to researchers

the fine structure of asset returns an empirical investigation we investigate the importance of diffusion and jumps in a new model for asset returns in contrast to standard models we allow for jump components displaying finite or infinite activity and variation empirical investigations of time series indicate that index dynamics are devoid of a diffusion component which may be present in the dynamics of individual stocks this leads to the conjecture confirmed on options data that the risk neutral process should be free of a diffusion component we conclude that the statistical and risk neutral processes for equity prices are pure jump processes of infinite activity and finite variation

the internal economics of the firm evidence from personnel data we analyze twenty years of personnel data from one firm the hierarchical structure is quite simple and stable career movements suggest that the employee s rate of learning and the firm s learning about ability are important there are promotion fast tracks exit rates vary little with tenure or salary the firm has personnel policies like those described in the internal labor markets literature although several theoretical preconditions for ilms such as ports of entry and exit are lacking job levels are important to compensation but there is also substantial individual variation in pay within levels our companion paper in this issue explores the wage policy of this firm

the impact of terrorism on financial markets an empirical study the main focus of this paper is to previous termstudynext term empirically the previous termimpact of terrorismnext term on the behavior of stock bond and commodity previous termmarkets next term we consider terrorist events that took place in 25 countries over an 11 year time period and implement our analysis using different methods an event previous termstudynext term approach a non parametric methodology and a filtered garch evt approach in addition we compare the effect of terrorist attacks on previous termfinancial markets with the impactnext term of other extreme events such as previous termfinancialnext term crashes and natural catastrophes the results of our analysis show that a non parametric approach is the most appropriate method among the three for analyzing the previous termimpact of terrorism on financial markets next term we demonstrate the robustness of this method when interest rates equity previous termmarketnext term integration spillover and contemporaneous effects are controlled we show how the results of this approach can be used for investors portfolio diversification strategies against previous termterrorismnext term risk

sufficient conditions for expected utility to imply drawdown based performance rankings the least restrictive sufficient condition for expected utility to imply sharpe ratio rankings is the location and scale ls condition see meyer 1987 the ls condition includes the normal and many other asymmetric and leptokurtic distributions commonly used in finance in this paper we argue that this condition is also sufficient for expected utility to imply drawdown based performance measure rankings because for investment funds satisfying the ls condition it does not matter whether funds are ranked with the sharpe ratio or with a drawdown based performance measure as the rankings are identical hence the same conditions that provide an expected utility foundation for the sharpe ratio also provide an expected utility foundation for drawdown based performance measures theoretically drawdown based performance measures are as good as the sharpe ratio

when are path dependent payoffs suboptimal abstract generalizing a result by cox and leland 2000 vanduffel et al 2009 this note shows that risk averse investors with fixed planning horizon prefer path independent payoffs in any financial market if the pricing kernel is a function of the underlying s price at the end of the planning horizon generally for every payoff which is not a function of the pricing kernel there is a more attractive alternative that depends solely on the pricing kernel at the end of the planning horizon

a jump diffusion model for option pricing brownian motion and normal distribution have been widely used in the black scholes option pricing framework to model the return of assets however two puzzles emerge from many empirical investigations the leptokurtic feature that the return distribution of assets may have a higher peak and two asymmetric heavier tails than those of the normal distribution and an empirical phenomenon called volatility smile in option markets to incorporate both of them and to strike a balance between reality and tractability this paper proposes for the purpose of option pricing a double exponential jump diffusion model in particular the model is simple enough to produce analytical solutions for a variety of option pricing problems including call and put options interest rate derivatives and path dependent options equilibrium analysis and a psychological interpretation of the model are also presented

ranking of investment funds acceptability versus robustness abstract within the class of performance ratios the sharpe measure can lead to misleading evaluation and various modifications have been investigated as a starting point we consider the axiomatic approach based on the notion of acceptable index of performance our goal is to show how the promising properties possessed by alternative measures such as the gain loss ratio or the average value at risk ratio are not compatible with the statistical robustness of their estimated counterparts this clearly affects the ranking of funds and consequently the performance persistence we study the qualitative robustness along with the quantitative resistance of the corresponding estimators in a nonparametric setting we include the value at risk ratio which is not an acceptability index of performance these measures do not possess qualitative robustness nonetheless we show how some degree of resistance to data contamination restricted to bounded intervals can be recovered using the relationship between the influence function of estimators and their bias for large samples we suggest the average value at risk ratio and the value at risk ratio as the less sensitive to outliers as a consequence acceptability is no longer a prerequisite for performance evaluation to limit the alteration of a given ranking among alternative investment funds one can use the not acceptable value at risk ratio as well eventually we propose a modified ratio either of the trimmed mean or of the median to the value at risk

convergence to market efficiency of top gainers abstract this study investigates the convergence process toward efficiency of daily top gainers the convergence process toward efficiency is much clearer as a result of using a garch 1 1 model compared to the ols model and exhibits a monotonic decline as the time interval increases the relationship between volatility and order imbalances is however not strong enough suggesting that market makers do have the capability to reduce price volatility this study develops an imbalance based trading strategy which earns a positive profit but fails to outperform the buy and hold strategy i e open to close returns a nested causality approach which examines the dynamic return order imbalance relationship during the price formation process confirms the results

centralisation and decentralisation in strategic municipal energy planning in denmark denmark s future energy system is to be entirely based on renewable energy sources municipalities will play an important role as local energy planning authorities in terms of adopting and refining this vision in different local contexts based on a review of 11 municipal energy plans this paper examines to what extent municipal energy planning matches national 100 renewable energy strategies the results indicate a willingness among danish municipalities to actively carry out energy planning and the plans reveal a large diversity of new activities at the same time however there is a strong need for better coordination of municipal energy planning activities at the central level it is suggested that the role of municipalities as energy planning authorities needs to be outlined more clearly in e g strategic energy planning which integrates savings efficiency and renewable energy in all energy sectors this requires the state to provide municipalities with the necessary planning instruments and establish a corresponding planning framework consequently there is a need for a simultaneous centralisation and decentralisation during the implementation of the 100 renewable energy vision the paper outlines a basic division of tasks between the central and the local level within such a strategic energy planning system

early warning signals using avars of infinitely divisible garch models evidence from stock index markets classical time series models have failed to properly assess the risks that are associated with large adverse stock price behaviour this article contributes to autoregressive moving average model garch arma garch models with standard infinitely divisible innovations and assesses the performance of these models by comparing them with other time series models that have normal innovation we discuss the limitations of value at risk var and aim to develop early warning signal models using average value at risk avars based on the arma garch model with standard infinitely divisible innovations empirical results for the daily dow jones industrial average index the england financial times stock exchange 100 index and the japan nikkei 225 index reveal that estimating avars for the arma garch model with standard infinitely divisible innovations offers an improvement over prevailing models for evaluating stock market risk exposure during periods of distress in financial markets and provides a suitable early

a decision theoretic foundation for reward to risk performance measures abstract in this paper we prove that partial moments based performance measures e g omega kappa upside potential ratio sortino satchell ratio farinelli tibiletti ratio value at risk based performance measures e g var ratio cvar ratio rachev ratio generalized rachev ratio and other admissible performance measures are a strictly increasing function in the sharpe ratio the theoretical basis of this result is the location and scale property and two other plausible and mild conditions our result provides a decision theoretic foundation for all these frequently used performance measures moreover it might explain the empirical finding that all these measures typically lead to very similar rankings

cvar sensitivity with respect to tail thickness abstract the sensitivity of a risk measure with respect to the parameters of the hypothesized distribution is a useful tool in investigating the impact of marginal rebalancing decisions on the portfolio return distribution and also in the analysis of the asymptotic variability of the risk estimator we calculate the relative importance of the conditional value at risk cvar sensitivity with respect to tail thickness and scale of the portfolio return distribution in the case of regularly varying tails and in the case of exponential and faster than exponential decay we discuss the implications for asset return modeling and the asymptotic variability of the risk estimator

the effect of holdings data frequency on conclusions about mutual fund behavior abstract a number of articles in financial economics have used quarterly or semi annual mutual fund holdings data to test hypotheses about investment manager behavior this article reexamines four well known hypotheses in finance to determine whether the results of prior tests of these hypotheses remain valid when higher frequency monthly holdings data are employed the areas examined are momentum trading tax motivated trading window dressing and tournament behavior we find that the use of monthly holdings data rather than quarterly holdings data or in the case of tournament behavior holdings data rather than monthly return data change and in some cases reverse previous results this occurs because monthly holdings data capture a large number of trades missed by quarterly data 18 5 of the trades and permit a more precise estimation of the timing of trades

analysis of esco activities using country indicators energy service companies escos are private sector instruments that offer energy emission improvement energy saving energy efficiency energy conservation emission reduction projects in the developed and in some developing countries literature reveals that energy emission improvements of countries may be related to their innovation and r d activity levels in this work we use a literature data on the activities and the sectors targeted by escos in 38 countries summarized in terms of the age of esco market aem number of esco companies ne and total value of esco projects ve along with the global innovation index gii data of the countries we investigate the relationships among the esco indicators eis aem ne ve sectors targeted by escos and the country indicators cis gii and per capita gdp energy consumption co2 emission we observe noteworthy dependencies between the eis and cis using the simple trend equations we estimate the missing ves in the original data we also project as a hint for the size and orientation of the upcoming turkish esco market the set of eis and the distribution of the sectors that are likely to be targeted by escos in turkey

pure jump levy processes for asset price modelling abstract the goal of the paper is to show that some types of levy processes such as the hyperbolic motion and the cgmy are particularly suitable for asset price modelling and option pricing we wish to review some fundamental mathematic properties of levy distributions such as the one of infinite divisibility and how they translate observed features of asset price returns we explain how these processes are related to brownian motion the central process in finance through stochastic time changes which can in turn be interpreted as a measure of the economic activity lastly we focus on two particular classes of pure jump levy processes the generalized hyperbolic model and the cgmy models and report on the goodness of fit obtained both on stock prices and option prices

beyond sharpe ratio optimal asset allocation using different performance ratios abstract as the assumption of normality in return distributions is relaxed classic sharpe ratio and its descendants become questionable tools for constructing optimal portfolios in order to overcome the problem asymmetrical parameter dependent performance ratios have been recently proposed in the literature the aim of this note is to develop an integrated decision aid system for asset allocation based on a toolkit of eleven performance ratios a multi period portfolio optimization up covering a fixed horizon is set up at first bootstrapping of asset return distributions is assessed to recover all ratios calculations at second optimal rebalanced weights are achieved at third optimal final wealth is simulated for each ratios eventually we make a robustness test on the best performance ratios empirical simulations confirm the weakness in forecasting of sharpe ratio whereas asymmetrical parameter dependent ratios such as the generalized rachev sortino satchell and farinelli tibiletti ratios show satisfactorily robustness

combining equilibrium resampling and analyst s views in portfolio optimization abstract this paper proposes the use of a portfolio optimization methodology which combines features of equilibrium models and investor s views as in black and litterman 1992 and also deals with estimation risk as in michaud 1998 in this way our combined methodology is able to meet the needs of practitioners for stable and diversified portfolio allocations while it is theoretically grounded on an equilibrium framework we empirically test the methodology using a comprehensive sample of developed countries fixed income and equity indices as well as sub samples stratified by geographical region time period asset class and risk level in general our proposed combined methodology generates very competitive portfolios when compared to other methodologies considering three evaluation dimensions financial efficiency diversification and allocation stability by generating financially efficient stable and diversified portfolio allocations our methodology is suitable for long term investors such as central banks and sovereign wealth funds

the dynamic black litterman approach to asset allocation abstract we generalize the black litterman bl portfolio management framework to incorporate time variation in the conditional distribution of returns in the asset allocation process we evaluate the performance of the dynamic bl model using both standard performance ratios as well as other measures that are designed to capture tail risk in the presence of non normally distributed asset returns we find that the dynamic bl model outperforms a range of different benchmarks moreover we show that the choice of volatility model has a considerable impact on the performance of the dynamic bl model

prediction of daily peak electricity demand in south africa using volatility forecasting models abstract daily peak electricity demand forecasting in south africa using a seasonal autoregressive integrated moving average sarima model a sarima model with generalized autoregressive conditional heteroskedastic sarima garch errors and a regression sarima garch reg sarima garch model is presented in this paper the garch modeling methodology is introduced to accommodate the possibility of serial correlation in volatility since the daily peak demand data exhibits non constant mean and variance and multiple seasonality corresponding to weekly and monthly periodicity the proposed reg sarima garch model is designed in such a way that the predictor variables are initially selected using a multivariate adaptive regression splines algorithm the developed models are used for out of sample prediction of daily peak demand a comparative analysis is done with a piecewise linear regression model results from the study show that the reg sarima garch model produces better forecast accuracy with a mean absolute percent error mape of 1 42

energy environmental and economic effects of renewable portfolio standards rps in a developing country abstract this paper analyses the potential of renewable energy for power generation and its energy environmental and economic implications in pakistan using a bottom up type of long term energy system based on the markal framework the results show that under a highly optimistic renewable portfolio standard rps of 80 fossil fuel consumption in 2050 would be reduced from 4660 pj to 306 pj and the ghg emissions would decrease from 489 million tons to 27 million tons nevertheless price of the electricity generation will increase significantly from us 47 mwh under current circumstances in the base case to us 86 mwh under rps80 however the effects on import dependency energy mix diversity per unit price of electricity generation and cost of imported fuels indicate that it may not be desirable to go beyond rps50 under rps50 in 2050 fuel consumption of the power sector would reduce from 21 under the base case to 9 of total fossil fuels supplied to the country it will decrease not only ghg emission to 170 million tons but also will reduce import dependency from 73 under the base case to 21 and improve energy diversity mix with small increase in price of electricity generation from us 47 mwh under the base case to us 59 mwh under rps 50

what do workplace wellness programs do evidence from the illinois workplace wellness study workplace wellness programs cover over 50 million u s workers and are intended to reduce medical spending increase productivity and improve well being yet limited evidence exists to support these claims we designed and implemented a comprehensive workplace wellness program for a large employer and randomly assigned program eligibility and financial incentives at the individual level for nearly 5 000 employees we find strong patterns of selection during the year prior to the intervention program participants had lower medical expenditures and healthier behaviors than nonparticipants the program persistently increased health screening rates but we do not find significant causal effects of treatment on total medical expenditures other health behaviors employee productivity or self reported health status after more than two years our 95 confidence intervals rule out 84 of previous estimates on medical spending and absenteeism

spectral expansions for asian average price options arithmetic asian or average price options deliver payoffs based on the average underlying price over a prespecified time period asian options are an important family of derivative contracts with a wide variety of applications in currency equity interest rate commodity energy and insurance markets we derive two analytical formulas for the value of the continuously sampled arithmetic asian option when the underlying asset price follows geometric brownian motion we use an identity in law between the integral of geometric brownian motion over a finite time interval 0 t and the state at timet of a one dimensional diffusion process with affine drift and linear diffusion and express asian option values in terms of spectral expansions associated with the diffusion infinitesimal generator the first formula is an infinite series of terms involving whittaker functionsm andw the second formula is a single real integral of an expression involving whittaker functionw plus for some parameter values a finite number of additional terms involving incomplete gamma functions and laguerre polynomials the two formulas allow accurate computation of continuously sampled arithmetic asian option prices