bluuebunny/crossref_metadata_2025 huggingface dataset:
PROPOSAL FOR THE EFFECT OF CHONDROCYTE VOLUME ON THE MINERALIZATION RATE
Authors: Tanck E. , van Dijk M. E. , Errington R. J. , Blankevoort L. , Burger E. H. , Huiskes R.
Published: April 2003

Mineralization of the cartilage matrix in embryonic long bones and growth plates is preceded by hypertrophy of chondrocytes. We hypothesize that the swollen hypertrophic cells exert pressure on the matrix, and that this pressure plays a role in the cartilage mineralization process. For this study, we asked the following questions. First, does the ratio of cell volume to matrix volume (CV/MV) increase from the proliferation to the hypertrophic zone in embryonic long bones? Second, is there a correlation between cell-volume increase and the mineralization rate in embryonic and postnatal long bones? The CV/MV ratios in the proliferation and hypertrophic zones in embryonic mouse metatarsals at 17 days of gestational age were determined using morphometric analyses. Confocal laser scanning microscopy was used to determine chondrocyte volumes. Cell volumes in the proliferation and hypertrophic zones of embryonic mouse metatarsals at 17 days of gestational age were compared to the ones in the metatarsal growth plates of nine-day-old mice. The mineralization rate was determined using photographs at 24-hour intervals. The CV/MV increased significantly from the proliferation to the hypertrophic zone, from 1.30±0.15 (mean ± standard deviation) to 1.80±0.18. The relative increase in cell volume from the proliferation to the hypertrophic zone was 1.6 for embryonic cells, i.e. from 370±101 mm3to 610±107 mm3, and 2.8 for postnatal cells, i.e. from 280±41 mm3to 786±155 mm3(p<0.05). The mineralization rate was 295±47mm/24 hours and 382±149 mm/24 hours for embryonic and postnatal metatarsals, respectively (p<0.05). The finding that chondrocyte volume increase is accompanied by a higher mineralization rate supports the hypothesis that cell hypertrophy plays an important role during the mineralization process.
PATIENT OUTCOMES FOR ANTERIOR MULTILEVEL CERVICAL FUSIONS: A COMPARATIVE ANALYSIS OF AO VERSUS DOC INSTRUMENTATION
Authors: Humphreys S. Craig , Hodges Scott D. , Eck Jason C.
Published: April 2003

A retrospective review of 56 patients receiving anterior cervical fusion with either AO plate or DOC plate was conducted. Both lead to significant improvements in pain and functional capacity. Both groups had cases of transient dysphasia and lingering pain. Neither group had severe complications, and minor complications were similar for the two groups. DOC ia a safe and effective system to promote anterior cervical fusion, and its dynamic nature could theoretically reduce the amount of load shielding of the bone graft during the fusion process. Our results have shown that complications and clinical improvements were similar for the two groups.
LEVELS OF MYOSIN HEAVY CHAIN FRAGMENTS IN MYOSKELETAL INJURIES
Authors: Onuoha Gracey N. , Alpar E. Kaya , Laprade Michel , Rama Daniel , Pau Bernard
Published: April 2003

Myosin heavy chain (MHC) is a structurally bound contractile protein of the thick filaments. The magnitude of myoskeletal injury may be estimated by serial determinations of these contractile proteins released into the circulation as a consequence of loss of cell membrane integrity. The polymorphism of MHC is believed to be responsible, at least in part, for the variable contraction velocity of muscles. It was the aim of the present study to confirm the utility of MHC for the assessment of skeletal muscle damage within 24 hr of injury in patients with myoskeletal injuries. Plasma MHC fragments was measured in 25 patients with muscle injuries. Samples were obtained immediately on hospital admission (A1) and 24 hr after admission (A2). These were compared with 15 noninjured controls. In addition, creatine kinase (CK), myoglobin and cardiac troponin I (cTnI) were measured in order to confirm the extent of the injury and to exclude protein released from the heart. Radioimmunoassay, enzyme immunoassay, and one-step immunoenzymometric assay (IEMA) techniques were used for measurements of plasma MHC fragments, CK plus myoglobin and cTnI, respectively. Mean (SD) uU/l of MHC was (94.1±116.1) p=NS and (673.3±1943) p<0.0001 on A1 and A2, respectively, compared to controls (96.8±96.35). CK (IU/l) was 226.0±231.0 on A1 and 451.0±678.0 on A2 compared to 104.0±51.0 on controls. Myoglobin was 200% higher at A1 and A2 than at controls. We substantiate previous study and conclude that MHC could be a useful tool in the study of myoskeletal injuries in human.
EFFECTS OF FLUORIDE ON GROWTH PLATE AND BONE HISTOPATHOLOGY IN YOUNG RATS
Authors: Heybeli Nurettin , Eroğlu Erol , Sari Aliye , Çetin Meltem , Mumcu Ethem Faruk
Published: April 2003

The purpose of this study is to investigate the effects of normal, moderate and high doses of fluoride on rat epipyseal growth plate and surrounding bone, and to compare it with controls. In order to achieve this, 80 rats were divided into five groups (n: 16/group) and treated with 0, 1.2, 3, 50 and 100 ppm fluoridated water since birth (Groups I to V, respectively). Four rats from each group were sacrificed at 6th, 9th, 12th and 16th weeks for radiological and histopathological examinations.

There was no significant variation on programmed cell death of cartilagenous components of the growth plate and chondroid matrix histopathologically between control group and fluoride-treated groups. But, minimal irregularities on the cartilage septum of primary spongiosa were detected in one rat from Group IV and one from Group V. The main histopathologic findings of the rats which were treated with high doses of fluoride were irregular lamella, variation in calcium content, minimally enlarged Haversian canals, focal osteoblastic proliferation, rare zones of woven bone on the diaphyseal cortical bone and secondary spongiosa, increase in ossicle size and minimal focal osteoblastic proliferation on the secondary ossification center. The only consistent radiological finding was relative widening and late partial fusing of the epiphyseal growth plates of high-dose treated groups at 16th week.

As a result, high doses of fluoride did not directly affect chondrocyte morphology of growth plate on young rats. More sophisticated techniques would be beneficial for further investigations on this subject.
MRI FINDINGS AFTER AN EXPERIMENTAL DISC LESION
Authors: Kerttula L. , Kääpä E. , Kurunlahti M. , Holm S. , Vanharanta H. , Karttunen A. , Suramo I. , Tervonen O.
Published: April 2003

Purpose: A minipig model was used to demonstrate MRI findings in the first three months after an annular disruption. Methods: An incision was made into one of the lumbar discs in each of eight minipigs in the outer and middle parts of the annulus. The remaining intact discs in the lumbar and thoracolumbar regions were used as controls. MR imaging was performed one month and three months after trauma using both a 1.0 T and a 1.5 T MR unit. The histologic analysis was also carried out to demonstrate morphological changes in disc. Results: Eighty-eight percent of the injured discs had a diminished area of bright signal in the nucleus pulposus, also in cases where no signs of trauma in the annulus could be detected in MRI. The degeneration process of the nucleus pulposus was shown to progress during follow-up. High intensity zones were detected in 50% of the injured discs and they tended to appear already after one month follow-up. Histological examination showed that the high-intensity zone contained clusters of nuclear cells originating in the nucleus pulposus. Conclusion: It is concluded that lesions producing high-intensity zones can be induced in an experimental animal model and it can already be detected one month after the trauma. Degeneration process of the nucleus is generally initiated after a peripheral annular lesion.
STRUCTURAL PROPERTIES OF THE SUPRASPINATUS TENDON IN TWO JOINT POSITIONS
Authors: Halder Andreas M. , Zobitz Mark E. , Schultz Fred , An Kai-Nan
Published: April 2003

The supraspinatus tendon is frequently involved in rotator cuff tears. It has been suggested that joint position affects the structural mechanics of the tendon–bone complex. The purpose of this study was to determine regional variations in structural properties of the supraspinatus tendon in two glenohumeral positions. Supraspinatus tendons from 17 fresh frozen cadavers were divided into three strips of equal width and tested with a material-testing machine. The arm orientation was either in hanging position or 60 degrees glenohumeral abduction corresponding to 90 degrees arm abduction assuming 30 degrees scapular rotation. Tensile force, tendon elongation and failure mode were recorded. Overall, there was no significant difference in structural properties between hanging arm position and 60 degrees of glenohumeral abduction (p>0.05). However, the mean ultimate load (385 N, SD 56 N) and mean ultimate stress (14 MPa, SD 3 MPa) of the anterior tendon section with the arm in glenohumeral abduction were lower in 60 degrees abduction than in the hanging arm position (611 N, SD 276 N; 24 MPa, SD 10 MPa). In hanging arm position, the anterior tendon portion had a significantly greater ultimate load and stiffness than the middle and posterior portions (p<0.05). The regional variation in structural properties substantiates the clinical finding that rotator cuff ruptures easily extend posteriorly. Our study suggests that glenohumeral abduction reduces the failure strength of the supraspinatus tendon, specifically of its anterior portion. In our study, the maximum load of the anterior portion was substantially higher than predicted maximum loads transmitted physiologically through the entire tendon.
IN VITRO SIMULATION OF THE STANCE PHASE IN HUMAN GAIT
Authors: Kim Kyu-Jung , Kitaoka Harold B. , Luo Zong-Ping , Ozeki Satoru , Berglund Lawrence J. , Kaufman Kenton R. , An Kai-Nan
Published: April 2003

The purpose of this study is to develop an electromechanical system for dynamic simulation of the stance phase of a human gait using cadaveric foot specimens. The system can be used for quantification of foot and ankle pathomechanics and design of foot and ankle reconstructive surgeries. Servo-pneumatic systems were used for application of the tibial weight loading and muscle loadings. A four-bar mechanism was constructed to provide the progressive motion of a tibia during the simulation while the external loadings were simultaneously applied. Muscle loadings were estimated based on the physiological cross-sectional area and normal electromyography (EMG) data with the assumption of the linear EMG–force relationship. Ad hoc tuning of the unknown muscle gains was conducted until a reasonable match with the normal vertical ground reaction force profile, center of pressure advancement, and characteristic foot motion events (heel strike, foot flat, heel rise and toe-off) could be made. Three cadaver feet and an artificial foot were tested with five repeated trials. The simulator reproduced the stance phase of a human gait in the sagittal plane with reasonable accuracy and consistency without compromising either kinematics or kinetics of the foot and ankle complex.
RESULT OF ANTERIOR DEBRIDEMENT AND FUSION IN PYOGENIC VERTEBRAL OSTEOMYELITIS: ANALYSIS OF 20 CASES
Authors: Buranapanitkit Boonsin , Jutidamrongphun Surin
Published: April 2003

Twenty cases of pyogenic vertebral osteomyelitis treated by anterior debridement and fusion from January 1989 to January 1999 were analyzed. Thirteen were males, seven females. Age ranged from 16 to 76 years (median, 52 years). The most common location was L4–L5level (12 patients). The mean duration of symptoms was 3.5 months (range, 3 days to 12 months). Gram-positive cocci infection was the most frequent causative organism. Fever was found in only two patients (10%). Misdiagnoses frequently occurred, especially at L4–L5involvement (9 patients). Anterior debridement and fusion using iliac crest graft was chosen when the patient was neurologically compromised or had spinal instability or doubtful diagnosis. The result was rated as good in 75 percent. Solid fusion occurred in 18 cases within one year. Complications occurred in five cases, most of them related to the surgical approach.
ANALYSIS OF PROTEOGLYCAN GENE EXPRESSION IN CONNECTIVE TISSUES BY SEMI-QUANTITATIVE RT-PCR
Authors: Dobra K. , Hjerpe A.
Published: April 2003

Proteoglycans (PGs) are cell-membrane and extracellular matrix components with a wide variety of different functions. In the matrix, they are mainly of structural importance, although some of them have been ascribed specific regulatory functions, such as in the assembly of collagen fibers. PGs on the cell surface act as essential modulators of specific ligand-binding reactions, involving interactions between adjacent cells and between cells and surrounding matrix. Through these interactions they participate in different processes, including cell proliferation and differentiation. Qualitative and quantitative changes in PG expression can therefore be associated with various physiological and pathological conditions. We have optimized the conditions for semi-quantitative evaluation of proteoglycan expression by RT-PCR reaction, using glyceraldehyde-3-phosphate dehydrogenase (GAPDH) as reference gene. The relative fluorescence of analyte to reference amplimers can — within certain limits — be used to estimate the amount of target RNA and allows direct comparison of multiple samples. The profile of PG expression obtained in this way can be used to extend our current understanding of the possible functions that can be associated with these complex molecules.
SIGNIFICANCE OF THE ANNULUS PROPERTIES TO FINITE ELEMENT MODELING OF INTERVERTEBRAL DISCS
Authors: Nagy G. T. , Gentle C. R.
Published: April 2003

Current mathematical material laws work quite accurately with conventional engineering materials because they are linear and isotropic. These laws are much less effective, however, at representing living tissues. Biomechanical engineers therefore often face the problems of modelling material non-linearities, particularly with the soft tissues, muscles and tendons of the human body. The non-linear and often anisotropic structure of these materials makes any mathematical representation very difficult. In particular, the lack of a good general mathematical model of the intervertebral disc has hampered the study of spinal mechanics, as the disc annulus is a nonlinear fibrous tissue with highly directional properties. Previous studies have concentrated on the overall behavior of discs and this has been largely explained but knowledge is still very limited on the effect of the individual disc components. This means that current mathematical models are poor when it comes to describing a prolapsed disc, where there has been failure of at least one of the components. This finite element study described here focuses on the disc annulus properties and their effect on disc behavior. The novelty of this study lies in the material formulation of the annulus fibrosus, which changes its Young's modulus according to a non-linear curve.
THE EFFECTS OF INSULIN-LIKE GROWTH FACTOR-1 AND NERVE GROWTH FACTOR ON DENERVATED MUSCLE ATROPHY
Authors: Buranapanitkit Boonsin , Qu Zhuqing , Moreland Morey M. , Geater Alan , Somogyi George , Huard Johnny
Published: April 2003

The effects of growth factors on denervated muscle atrophy in mouse gastrocnemius muscle were studied by morphometric, physiologic and histologic methods. Fifteen mice were randomized into three groups: intact, denervated-insulin-like growth factor-1-treated (D-IGF-1) and denervated-nerve growth factor-treated (D-NGF). In denervated animals, the left sides were used as a control by injecting balanced salt solution (HBSS), while the right sides were injected with growth factors. The mean wet weight and the mean wet weight/body weight were significantly higher in D-IGF-1 muscles compared to the D-NGF and D-HBSS muscles, but were not different from the muscle of intact controls. Physiologic testing showed that the mean maximal tetanic twitch strength and the mean maximal fast twitch strength were also significantly higher in the D-IGF-1 muscles than in the D-NGF and D-HBSS muscles. Mean time-to-peak was significantly only decreased in the D-NGF muscles. Histological studies found that the mean percentage of type 2 fiber was significantly higher in D-NGF muscles. The types I and II mean diameters in the D-IGF-1 muscles were larger than in the D-NGF and D-HBSS muscles, but all denervated muscles had higher interstitial fibrosis than the intact controls. In conclusion, we show that IGF-1 can effectively retard denervated muscle atrophy by increasing types I and II fibre muscle diameter. However, IGF-1 cannot prevent interstitial fibrosis in the denervated muscle.
CLOSED-LOOP CONTROL OF QUADRICEPS/HAMSTRING ACTIVATION FOR FES-INDUCED STANDING-UP MOVEMENT OF PARAPLEGICS
Authors: Yu Nan-Ying , Chen Jia-Jin Jason , Ju Ming Shiang
Published: April 2003

Functional electrical stimulation (FES) standing system can enable the paraplegics to achieve the standing position for functional activities in daily living. FES standing system is usually applied by stimulating the knee extensor muscles. The hip joints are in hyperextension and the ankle joints remain free. Therefore, the knee joint control is the key point of the FES standing control system.

Traditional open-loop control often induces high knee end-velocity (KEV) when the subject reaches the upright position. In this work, the reducing of KEV by closed-loop control was addressed. An on/off feedback control based on mechanical energy conservation was developed to control the knee extensors and flexors. The result was compared to the open loop controlled standing up in a mechanically simulative experiment. It is concluded that the on/off control strategy can reduce the KEV more efficiently when compared to the open-loop control. Proportional-integral-derivative (PID) position controlled standing up was also studied and compared with the on/off control system. The PID controller was found to be capable of reducing KEV to a level lower than that of the on/off control, whereas its instability for knee control was also found.
RESISTANT NERVE ROOT SYMPTOMS OF PATIENTS NOT REPORTING SIGNIFICANT HISTORY OF TRAUMA CAN BE MANAGED BY ABBREVIATED MEASURED VERTICAL TRACTION
Authors: Stamatiadis Anna Y. , Istamatyadis Y. Th.
Published: April 2003

The conventional lumbar traction techniques which has been in use to manage low back pain, has ordinarily utilized multiple sessions of horizontal traction during a treatment. However, this mode of proceeding proved unable to give discreet therapeutical benefits.30,43Would the therapeutic outcome become improved by modifying the established proceeding? We have tried the Abbreviated Measured Vertical Traction (Abbr.M.V.T.) technique in the treatment of resistant low back pain. The referred technique utilizes a single session of strong stretch, which is applied once only upon a patient suspended from a frame. In this paper we report the interesting issue of this application on five back pain patients with different diagnoses.
MARKOV MARKET MODEL CONSISTENT WITH CAP SMILE
Authors: BALLAND P. , HUGHSTON L. P.
Published: April 2003

New interest rate models have emerged recently in which distributional assumptions are made directly on financial observables. In these "Market Models" the Libor rates have a log-normal distribution in the corresponding forward measure, and caps are priced according to the Black–Scholes formula. These models present two disadvantages. First, Libor rates do not in reality have a log-normal distribution since the implied volatility of a cap depends typically on the strike. Second, these models are difficult to use for pricing derivatives other than caps. In this paper, we extend these models to allow for a broader class of Libor rate distributions. In particular, we construct multi-factor Market Models that are consistent with an initial cap smile surface, and have the useful feature of exhibiting Markovian Libor rates. We show that these Markov Market Models can be used relatively easily to price complex Libor derivatives, such as Bermudan swaptions, captions or flexi-caps, by construction of a tree of Libor rates.
PROFILING NEURAL NETWORKS FOR OPTION PRICING
Authors: CARELLI A. , SILANI S. , STELLA F.
Published: April 2003

In recent years the problem of option pricing has received increasing interest from both financial institutions and academics. It is well known that conventional modeling techniques for option pricing have inherent, persistent and systematic biases which are mainly due to the assumption of constant volatility for prices associated with the underlying financial instrument. Nowadays, there is strong and increasing evidence that financial markets are far from being stationary and then, whenever dealing with option pricing, we have to take into account the market heteroschedasticity. A possible approach for dealing with non-constant volatility relies on the modeling of the basic characteristics named implied volatility. Unfortunately this task is extremely complex and parametric models are not available. In this paper the authors discuss how models from the class of Feedforward Neural Networks can be exploited for approaching the task of implied volatility modeling. In particular the paper shows how the main techniques from the nonlinear regression framework can be exploited when models from the class of Feedforward Neural Networks are used. Indeed, in such a case the paucity of data, which can be used for the network training, and the particular structure of Feedforward Neural Networks make the modeling task numerically complex. The authors discuss how the nonlinear regression technique named profile can be exploited for selecting the optimal network's structure and evaluating its numeical properties. To this end, a numerical procedure for empirical model building, in the case of Feedforward Neural Networks, has been developed. Results are evaluated through an ad-hoc procedure which utilizes the estimated implied volatility surface for pricing general contingent claims. Numerical experiments, in the case of the USD/DEM options, are presented and discussed.
ON THE RATE OF INFORMATION ABSORPTION IN THE CONDITIONAL VARIANCE OF SES DUAL LISTED STOCKS
Authors: FONG WAI MUN , CHNG PHENG LUI
Published: April 2003

This paper uses daily returns on dual listed stocks traded on the Stock Exchange of Singapore (SES) to test the information-based hypothesis proposed by Longin [16]. The hypothesis is that the rate of information absorption in the conditional variance is faster for foreign shares (open to foreigners and locals) than for local shares (open to locals only). We test this hypothesis using a bivariate GARCH(1,1) model for 9 dual listed stocks over the period 1991–1996. The evidence indicates that the rate of information absorption is consistent with Longin's conjecture that the rate of information absorption varies inversely with the number of informed traders. The results also support previous U.S. evidence by Conrad, Gultekin and Kaul [7]. Our study suggests that in markets with foreign ownership restrictions, removing those restrictions is likely to improve both market efficiency and liquidity.
CRASHES AS CRITICAL POINTS
Authors: JOHANSEN ANDERS , LEDOIT OLIVIER , SORNETTE DIDIER
Published: April 2003

We study a rational expectation model of bubbles and crashes. The model has two components: (1) our key assumption is that a crash may be caused by local self-reinforcing imitation between noise traders. If the tendency for noise traders to imitate their nearest neighbors increases up to a certain point called the "critical" point, all noise traders may place the same order (sell) at the same time, thus causing a crash. The interplay between the progressive strengthening of imitation and the ubiquity of noise is characterized by the hazard rate, i.e. the probability per unit time that the crash will happen in the next instant if it has not happened yet. (2) Since the crash is not a certain deterministic outcome of the bubble, it remains rational for traders to remain invested provided they are compensated by a higher rate of growth of the bubble for taking the risk of a crash. Our model distinguishes between the end of the bubble and the time of the crash: the rational expectation constraint has the specific implication that the date of the crash must be random. The theoretical death of the bubble is not the time of the crash because the crash could happen at any time before, even though this is not very likely. The death of the bubble is the most probable time for the crash. There also exists a finite probability of attaining the end of the bubble without crash. Our model has specific predictions about the presence of certain critical log-periodic patterns in pre-crash prices, associated with the deterministic components of the bubble mechanism. We provide empirical evidence showing that these patterns were indeed present before the crashes of 1929, 1962 and 1987 on Wall Street and the 1997 crash on the Hong Kong Stock Exchange. These results are compared with statistical tests on synthetic data.
CURRENCY-TRANSLATED FOREIGN EQUITY OPTIONS WITH PATH DEPENDENT FEATURES AND THEIR MULTI-ASSET EXTENSIONS
Authors: KWOK YUE-KUEN , WONG HOI-YING
Published: April 2003

Currency-translated foreign equity options (quanto options) are designed for investors who would like to manage different types of risk in international equity investments. The terminal payoffs of quanto options depend on the price of a foreign currency denominated asset (or stock index) and the exchange rate in different combinations of choices. This paper presents a systematic framework to derive pricing formulas for different European-style quanto options with path-dependent payoff functions. The path dependent features can be the barrier feature associated with the underlying asset price movement, the averaging feature of the exchange rate over the life of the option, etc. In many cases, the pricing formulas for quanto options can be inferred from their vanilla counterparts by applying the quanto-prewashing technique of making modifications on the risk neutralized drift rates and volatility rates. The extension of the pricing formulations to multi-asset extremum options with the quanto feature is also considered. The pricing behaviors of the joint quanto options and the Asian quanto options are examined.
ESTIMATION IN CONTINUOUS-TIME STOCHASTIC VOLATILITY MODELS USING NONLINEAR FILTERS
Authors: NIELSEN JAN NYGAARD , VESTERGAARD MARTIN
Published: April 2003

The stylized facts of stock prices, interest and exchange rates have led econometricians to propose stochastic volatility models in both discrete and continuous time. However, the volatility as a measure of economic uncertainty is not directly observable in the financial markets. The objective of the continuous-discrete filtering problem considered here is to obtain estimates of the stock price and, in particular, the volatility using discrete-time observations of the stock price. Furthermore, the nonlinear filter acts as an important part of a proposed method for maximum likelihood for estimating embedded parameters in stochastic differential equations. In general, only approximate solutions to the continuous-discrete filtering problem exist in the form of a set of ordinary differential equations for the mean and covariance of the state variables. In the present paper the small-sample properties of a second order filter is examined for some bivariate stochastic volatility models and the new combined parameter and state estimation method is applied to US stock market data.
LOCAL SCALE INVARIANCE AND CONTINGENT CLAIM PRICING
Authors: HOOGLAND J. K. , NEUMANN C. D. D.
Published: April 2003

Prices of tradables can only be expressed relative to one another at any instant of time. This fundamental fact should therefore also hold for contingent claims, i.e. tradable instruments, whose prices depend on the prices of other tradables. We show that this property induces a local scale invariance in the problem of pricing contingent claims. Due to this symmetry we do not require any martingale techniques to arrive at the price of a claim. If the tradables are driven by Brownian motion, we find, in a natural way, that this price satisfies a PDE. Both possess a manifest gauge invariance. A unique solution can only be given when we impose restrictions on the drifts and volatilities of the tradables, i.e. the underlying market structure. We give some examples of the application of this PDE to the pricing of claims. In the Black–Scholes world we show the equivalence of our formulation with the standard approach. It is stressed that the formulation in terms of tradables leads to a significant conceptual simplification of the pricing-problem.
LOCAL SCALE INVARIANCE AND CONTINGENT CLAIM PRICING II: PATH-DEPENDENT CONTINGENT CLAIMS
Authors: HOOGLAND J. K. , NEUMANN C. D. D.
Published: April 2003

This article is the second one in a series on the use of local scale invariance in finance. In the first [6], we introduced a new formalism for the pricing of derivative securities, which focuses on tradable objects only, and which completely avoids the use of martingale techniques. In this article we show the use of the formalism in the context of path-dependent options. We derive compact and intuitive formulae for the prices of a whole range of well-known options such as arithmetic and geometric average options, barriers, rebates and lookback options. Some of these have not appeared in the literature before. For example, we find rather elegant formulae for double barrier options with exponentially moving barriers, continuous dividends and all possible configurations of the barriers. The strength of the formalism reveals itself in the ease with which these prices can be derived. This allowed us to pinpoint some mistakes regarding geometric mean options, which frequently appear in the literature. Furthermore, symmetries such as put-call transformations appear in a natural way within the framework.
IMPLIED AND LOCAL VOLATILITIES UNDER STOCHASTIC VOLATILITY
Authors: LEE ROGER W.
Published: April 2003

For asset prices that follow stochastic-volatility diffusions, we use asymptotic methods to investigate the behavior of the local volatilities and Black–Scholes volatilities implied by option prices, and to relate this behavior to the parameters of the stochastic volatility process. We also give applications, including risk-premium-based explanations of the biases in some naïve pricing and hedging schemes.

We begin by reviewing option pricing under stochastic volatility and representing option prices and local volatilities in terms of expectations. In the case that fluctuations in price and volatility have zero correlation, the expectations formula shows that local volatility (like implied volatility) as a function of log-moneyness has the shape of a symmetric smile. In the case of non-zero correlation, we extend Sircar and Papanicolaou's asymptotic expansion of implied volatilities under slowly-varying stochastic volatility. An asymptotic expansion of local volatilities then verifies the rule of thumb that local volatility has the shape of a skew with roughly twice the slope of the implied volatility skew. Also we compare the slow-variation asymptotics against what we call small-variation asymptotics, and against Fouque, Papanicolaou, and Sircar's rapid-variation asymptotics.

We apply the slow-variation asymptotics to approximate the biases of two naïve pricing strategies. These approximations shed some light on the signs and the relative magnitudes of the biases empirically observed in out-of-sample pricing tests of implied-volatility and local-volatility schemes. Similarly, we examine the biases of three different strategies for hedging under stochastic volatility, and we propose ways to implement these strategies without having to specify or estimate any particular stochastic volatility model. Our approximations suggest that a number of the empirical pricing and hedging biases may be explained by a positive premium for the portion of volatility risk that is uncorrelated with asset risk.
WEIGHTED MONTE CARLO: A NEW TECHNIQUE FOR CALIBRATING ASSET-PRICING MODELS
Authors: AVELLANEDA MARCO , BUFF ROBERT , FRIEDMAN CRAIG , GRANDECHAMP NICOLAS , KRUK LUKASZ , NEWMAN JOSHUA
Published: April 2003

A general approach for calibrating Monte Carlo models to the market prices of benchmark securities is presented. Starting from a given model for market dynamics (price diffusion, rate diffusion, etc.), the algorithm corrects price-misspecifications and finite-sample effects in the simulation by assigning "probability weights" to the simulated paths. The choice of weights is done by minimizing the Kullback–Leibler relative entropy distance of the posterior measure to the empirical measure. The resulting ensemble prices the given set of benchmark instruments exactly or in the sense of least-squares. We discuss pricing and hedging in the context of these weighted Monte Carlo models. A significant reduction of variance is demonstrated theoretically as well as numerically. Concrete applications to the calibration of stochastic volatility models and term-structure models with up to 40 benchmark instruments are presented. The construction of implied volatility surfaces and forward-rate curves and the pricing and hedging of exotic options are investigated through several examples.
A GENERAL SUBORDINATED STOCHASTIC PROCESS FOR DERIVATIVES PRICING
Authors: LESNE J. L. , PRIGENT J. L.
Published: April 2003

A general subordinated stochastic process is proposed to model the dynamics of the underlying asset of an option. We prove that this class of models can be considered generically as the limit of discrete time models in which the number of transactions is random. We also derive several results for the valuation of contingent claims in this framework. In particular, we compare the impacts of different choices of subordinator processes on the option valuation.
OPERATORS ON INHOMOGENEOUS TIME SERIES
Authors: ZUMBACH GILLES , MÜLLER ULRICH
Published: April 2003

We present a toolbox to compute and extract information from inhomogeneous (i.e. unequally spaced) time series. The toolbox contains a large set of operators, mapping from the space of inhomogeneous time series to itself. These operators are computationally efficient (time and memory-wise) and suitable for stochastic processes. This makes them attractive for processing high-frequency data in finance and other fields. Using a basic set of operators, we easily construct more powerful combined operators which cover a wide set of typical applications.

The operators are classified as either macroscopic operators (that have a limit value when the sampling frequency goes to infinity) or microscopic operators (that strongly depend on the actual sampling). For inhomogeneous data, macroscopic operators are more robust and more important. Examples of macroscopic operators are (exponential) moving averages, differentials, derivatives, moving volatilities, etc.…
OPTION PRICING FOR INCOMPLETE MARKETS VIA STOCHASTIC OPTIMIZATION: TRANSACTION COSTS, ADAPTIVE CONTROL AND FORECAST
Authors: FEDOTOV SERGEI , MIKHAILOV SERGEI
Published: April 2003

The problem of determining the European-style option price in incomplete markets is examined within the framework of stochastic optimization. An analytic method based on the stochastic optimization is developed that gives the general formalism for determining the option price and the optimal trading strategy (optimal feedback control) that reduces the total risk inherent in writing the option. The cases involving transaction costs, the stochastic volatility with uncertainty, stochastic adaptive process, and forecasting process are considered. A software package for the option pricing for incomplete markets is developed and the results of numerical simulations are presented.
ON THE CONSISTENCY OF THE DETERMINISTIC LOCAL VOLATILITY FUNCTION MODEL ('IMPLIED TREE')
Authors: STROBL KARL
Published: April 2003

We show that the frequent claim that the implied tree prices exotics consistently with an arbitrage-free market is untrue if the local volatilities are stochastic. This is a consequence of the market incompleteness under stochastic volatility. We also show that the problem cannot be mitigated by conveniently defining some 'weakly stochastic' local volatility, as this would violate the no-arbitrage condition. In the process of constructing the proof, we analyse — in the most general context — the impact of stochastic variables on the P&L of a hedged portfolio. We find that any stochastic tradeable either has quadratic variation — and therefore a Γ-like P&L on instruments with non-linear exposure to that asset — or it introduces arbitrage opportunities.
MATHEMATICAL PSEUDO-COMPLETION OF THE BGM MODEL
Authors: YASUOKA TAKASHI
Published: April 2003

In this paper, the BGM model is generalized such that it does not need the instantaneous forward rates in the framework of HJM, but includes the original BGM theory as a special case with smooth volatility. Our two convergence theorems show that the original BGM theory is topologically dense in our framework. This topological result makes the BGM model mathematically complete for numerical pricing with piecewise continuous volatility. In addition, we shall make some remarks on the BGM calibration for business use in connection with our theorems.
VOLATILITY SMILE CONSISTENT OPTION MODELS: A SURVEY
Authors: SKIADOPOULOS GEORGE
Published: April 2003

The developing literature on "smile consistent" no-arbitrage models has emerged from the need to price and hedge exotic options consistently with the prices of standard European options. This survey paper describes the steps through which this literature has evolved by providing a taxonomy of the various models. It highlights the main ideas behind the different models, and it outlines their advantages and limitations. Practical issues in implementing the models are also discussed.
REPLICATION OF AMERICAN CONTINGENT CLAIMS IN INCOMPLETE MARKETS
Authors: YONG JIONGMIN
Published: April 2003

The problem of hedgeability and replicatability of American contingent claims is discussed in an incomplete market. Here the incompleteness of the market is due to the possible degeneracy of the volatility matrix. Using the idea of the four-step scheme and penalization for a class of nonlinear backward stochastic differential equations, we prove, under proper conditions, that the so-called s-hedgeable American contingent claims are replicatable.
UNDERSTANDING BID-ASK SPREADS OF DERIVATIVES UNDER UNCERTAIN VOLATILITY AND TRANSACTION COSTS
Authors: ANÉ THIERRY , LACOSTE VINCENT
Published: April 2003

The classical option valuation models assume that the option payoff can be replicated by continuously adjusting a portfolio consisting of the underlying asset and a risk-free bond. This strategy implies a constant volatility for the underlying asset and perfect markets. However, the existence of non-zero transaction costs, the consequence of trading only at discrete points in time and the random nature of volatility prevent any portfolio from being perfectly hedged continuously and hence suppress any hope of completely eliminating all risks associated with derivatives. Building upon the uncertain parameters framework we present a model for pricing and hedging derivatives where the volatility is simply assumed to lie between two bounds and in the presence of transaction costs. It is shown that the non-arbitrageable prices for the derivatives, which arise in this framework, can be derived by a non-linear PDE related to the convexity of the derivatives. We use Monte Carlo simulations to investigate the error in the hedging strategy. We show that the standard arbitrage is exposed to such large risks and transaction costs that it can only establish very wide bounds on equilibrium prices, obviously in contradiction with the very tight bid-ask spreads of derivatives observed on the market. We explain how the market spreads can be compatible with our model through portfolio diversification. This has important implications for price determination in options markets as well as for testing of valuation models.
THE PRICING OF DEBT AND PARETO-OPTIMAL FINANCING UNDER ENDOGENOUS BANKRUPTCY
Authors: EBRAHIM M. SHAHID , MATHUR IKE
Published: April 2003

Using an agency theoretical framework, this paper extends the optimal capital structure literature by modeling the rivalry between equity and debt to arrive at some very fundamental results involving endogeneity of bankruptcy, equilibrium interest rates, pricing of risk-free/risky debt and pareto-optimal financing techniques.
WAVELET TRANSFORMS FOR THE STATISTICAL ANALYSIS OF RETURNS GENERATING STOCHASTIC PROCESSES
Authors: CAPOBIANCO ENRICO
Published: April 2003

We study high frequency Nikkei stock index series and investigate what certain wavelet transforms suggest in terms of volatility features underlying the observed returns process. Several wavelet transforms are applied for exploratory data analysis. One of the scopes is to use wavelets as a pre-processing smoothing tool so to de-noise the data; we believe that this procedure may help in identifying, estimating and predicting the latent volatility. Evidence is shown on how a non-parametric statistical procedure such as wavelets may be useful for improving the generalization power of GARCH models when applied to de-noised returns.
HOW TO PRICE INFORMATION BY KULLBACK-LEIBLER ENTROPY AND A MOMENT-RETURN RELATION FOR PORTFOLIOS
Authors: DE VRIES ANDREAS
Published: April 2003

A connection between the notion of information and the concept of risk and return in portfolio theory is deduced. This succeeds in two steps: A general moment-return relation for arbitrary assets is derived, thereafter the total expected return is connected to the Kullback-Leibler information. With this result the optimization problem to maximize the expected return of a portfolio consisting of n subportfolios by moment variation under a given value-at-risk constraint is solved. This yields an ansatz to price information.
PRICING PARISIAN-STYLE OPTIONS WITH A LATTICE METHOD
Authors: AVELLANEDA MARCO , WU LIXIN
Published: April 2003

A Parisian-style barrier option expires if the price of the underlying asset remains above or below some level(s) continuously over a specified period of time (the "window"). A trinomial-lattice scheme is developed for calculating the price and the sensitivities of such options. Monte–Carlo simulation of hedging events using the resulting deltas show errors which are of the same magnitude as for hedging vanilla options, confirming the validity of proposed scheme. We use these results to price callable and convertible bonds with this "window" feature.
CLOSED FORM FORMULAS FOR EXOTIC OPTIONS AND THEIR LIFETIME DISTRIBUTION
Authors: DOUADY RAPHAËL
Published: April 2003

We first recall the well-known expression of the price of barrier options, and compute double barrier options by the mean of the iterated mirror principle. The formula for double barriers provides an intraday volatility estimator from the information of high-low-close prices. Then we give explicit formulas for the probability distribution function and the expectation of the exit time of single and double barrier options. These formulas allow to price time independent and time dependent rebates. They are also helpful to hedge barrier and double barrier options, when taking into account variations of the term structure of interest rates and of volatility. We also compute the price of rebates of double knock-out options that depend on which barrier is hit first, and of the BOOST, an option which pays the time spent in a corridor. All these formulas are either in closed form or double infinite series which converge like e-α n2.
VALUE AT RISK OF A BANK'S BALANCE SHEET
Authors: HO THOMAS , ABBOTT MARK , ABRAHAMSON ALLEN
Published: April 2003

Through the application of a VaR analysis to the balance sheet of a hypothetical bank this paper will address several issues important to bank managers. We will establish which balance sheet accounts lend themselves to meaningful VaR measures and the kind of information needed for input to these measures. We explain how depositor and borrower behaviors are captured in the risk measures. We also address the accuracy of the measures, and how the bank can use the VaR information for actionable decisions.
MONTE CARLO SIMULATION OF VOLATILITY CLUSTERING IN MARKET MODEL WITH HERDING
Authors: STAUFFER DIETRICH , DE OLIVEIRA PAULO M. C. , BERNARDES AMERICO T.
Published: April 2003

Through slow changes in the position of the traders, we introduce correlations between the volatility (root mean square change) of the prices at different times. We find this volatility correlation to decay slowly with time, as also observed in reality, and quite independent of the dimensionality of the lattice. We also make the trading activity of a cluster of traders proportional to the cluster size.
ASIAN OPTIONS WITH THE AMERICAN EARLY EXERCISE FEATURE
Authors: WU LIXIN , KWOK YUE KUEN , YU HONG
Published: April 2003

By appropriate scaling of the variables, the reduction in the dimensionality of the partial differential equation formulation of an American-style Asian option model is achieved. The integral representation of the early exercise premium can be obtained in a succinct manner. The exercise policy of Asian options with the early exercise provision can then be examined.
LOAN SALES AND BANK LIQUIDITY MANAGEMENT
Authors: CHEN ANDREW H. , MAZUMDAR SUMON C.
Published: April 2003

Bank loan sales activities in the U.S. increased dramatically in the 1980s. We develop a dynamic control model that integrates existing rationales for loan sales. Our model explains several recently documented empirical facts concerning both bank loan sales and purchases in a consistent fashion and yields additional testable hypotheses.
ON THE PROFIT AND LOSS DISTRIBUTION OF DYNAMIC HEDGING STRATEGIES
Authors: ESIPOV SERGEI , VAYSBURD IGOR
Published: April 2003

Hedging a derivative security with non-risk-neutral number of shares leads to portfolio profit or loss. Unlike in the Black–Scholes world, the net present value of all future cash flows till maturity is no longer deterministic, and basis risk may be present at any time. The key object of our analysis is probability distribution of future P & L conditioned on the present value of the underlying. We consider time dynamics of this probability distribution for an arbitrary hedging strategy. We assume log-normal process for the value of the underlying asset and use convolution formula to relate conditional probability distribution of P & L at any two successive time moments. It leads to a simple PDE on the probability measure parameterized by a hedging strategy. For risk-neutral replication the P & L probability distribution collapses to a delta-function at the Black–Scholes price of the contingent claim. Therefore, our approach is consistent with the Black–Scholes one and can be viewed as its generalization. We further analyze the PDE and derive formulae for hedging strategies targeting various objectives, such as minimizing variance or optimizing distribution quantiles. The developed method of computing the profit and loss distribution for a given hedging scheme is applied to the classical example of hedging a European call option using the "stop-loss" strategy. This strategy refers to holding 1 or 0 shares of the underlying security depending on the market value of such security. It is shown that the "stop-loss" strategy can lead to a loss even for an infinite frequency of re-balancing. The analytical method allows one to compute profit and loss distributions without relying on simulations. To demonstrate the strength of the method we reproduce the Monte Carlo results on "stop-loss" strategy given in Hull's book, and improve the precision beyond the limits of regular Monte-Carlo simulations.