Pricing Defaultable Bonds Using a Lévy Jump‐Diffusion Model

This paper uses a reduced‐form approach to derive a closed‐form pricing formula for defaultable bonds. The authors specify the default hazard rate as an affine function of multiple variables which follow the Lévy jump‐diffusion processes. Because such specification allows greater flexibility in the generation of a valid probability of default, their pricing model should be more accurate than the valuation models in traditional studies, which ignore the jump effects. This paper also proposes a new method for estimating the parameters in a Lévy Jump‐diffusion process. The real data from the Taiwanese bond market are used to illustrate how their model can be applied in practical situations. The authors compare the pricing results for the influential variables with no jump effects, with jump magnitudes following the normal distribution, and with jump magnitudes following the gamma distribution. The results reveal that the predictive ability is the best for the model with the jump components. The valuation model shown in this paper should help portfolio managers more accurately price defaultable bonds and more effectively hedge their portfolio holdings.     

Costs and potential funding of expanded public pension coverage in Asia

Public pension burdens in most emerging Asian economies are still relatively small. However, there are a number of reasons to believe that they will increase markedly in the coming years. First, many Asian economies will face rapidly ageing populations, which will raise pension and other old‐age‐related spending dramatically. Second, as economies develop, political pressures to expand the coverage of public pensions and raise pension benefits will likely increase. The first objective of this paper is to identify the potential fiscal burden of public pensions in 23 emerging Asian economies, based on econometric models and forecasts of GDP and demographic trends. Using two different methodologies yields estimated increases in the average share of public pension expenditures in GDP of 1.0 percentage point and 3.6 percentage points by 2030 compared with current levels. We believe the latter estimate is more realistic. The second objective is to recommend policies to provide adequate funding for public pension needs, including enhancing the efficiency of social insurance programs, improving the balance of revenues and expenditures, implementing more explicit fiscal rules and frameworks, and establishing stronger fiscal surveillance at the national and regional levels.     

Prediction based on entrepreneurship-prone personality profiles: sometimes worse than the toss of a coin

Small Business Economics - The human personality predicts a wide range of activities and occupational choices—from musical sophistication to entrepreneurial careers. However, which method...     

Sparse Signals in the Cross‐Section of Returns

This paper applies the Least Absolute Shrinkage and Selection Operator (LASSO) to make rolling one‐minute‐ahead return forecasts using the entire cross‐section of lagged returns as candidate predictors. The LASSO increases both out‐of‐sample fit and forecast‐implied Sharpe ratios. This out‐of‐sample success comes from identifying predictors that are unexpected, short‐lived, and sparse. Although the LASSO uses a statistical rule rather than economic intuition to identify predictors, the predictors it identifies are nevertheless associated with economically meaningful events: the LASSO tends to identify as predictors stocks with news about fundamentals.     

Demonstration of a tool for automatic learning and re-use of knowledge in the activated sludge process.

Wastewater treatment plant operators encounter complex operational problems related to the activated sludge process and usually respond to these by applying their own intuition and by taking advantage of what they have learnt from past experiences of similar problems. However, previous process experiences are not easy to integrate in numerical control, and new tools must be developed to enable re-use of plant operating experience. The aim of this paper is to investigate the usefulness of a case-based reasoning (CBR) approach to apply learning and re-use of knowledge gained during past incidents to confront actual complex problems through the IWA/COST Benchmark protocol. A case study shows that the proposed CBR system achieves a significant improvement of the benchmark plant performance when facing a high-flow event disturbance.     

Analysis of phosphorus removal and anaerobic selector performance in a full-scale activated sludge process in Singapore.

This paper analyses the performance of the anaerobic selector (A/O process) in a full-scale activated sludge process receiving mostly industrial sewage discharge (> 60%) in Singapore. In addition to the sludge settleability, enhanced biological phosphorus removal (EBPR) was studied. The sludge volume index (SVI) reduced from 200 to 80 ml g(-1) and foaming was suppressed significantly, indicating the effectiveness of the anaerobic selector in improving sludge settleability. The phosphorus removal efficiency was 66%, and 7.5 mg HAc-COD was consumed per mg PO4(3-) -P removed. In the anaerobic compartment, 31% of the SCOD and 73% of the acetic acid in the settled sewage were removed with PO4(3-) -P release of 14.1 mg PO4(3-)-P l(-1). The linear correlation between PO4(3-) -P release in the anaerobic compartment and PO4(3-) -P uptake in the aerobic compartment indicates that there is about 0.8 mg PO4(3-) -P release in the anaerobic compartment per mg PO34(3-) -P uptake in the aerobic compartment. The fates of volatile fatty acids (VFAs) and its short chain acids (SCAs) in the process were studied and discussed.     

Co-digestion of ruminal content and blood from slaughterhouse industries: influence of solid concentration and ammonium generation.

At the present time, organic solid wastes from industries and agricultural activities are considered to be promising substrates for biogas production via anaerobic digestion. Moreover solids stabilisation is required before reutilization or disposal. Slaughterhouses are among the most important industries in Uruguay and produce 150,000 tons of ruminal content (RC) and 30,000 tons of blood per year. In order to determine the influence of the solids and blood contents, the ammonia inhibition and the inoculum adaptation co-digestion batch tests were performed. A set of experiences with TS concentration of 2.5%, 5% and 7.5% and different ratios of RC/blood were carried out using an inoculum from an UASB reactor. In all experiences fast blood hydrolisation was observed. A higher methane production was detected in the experiences with higher TS content. However, the fraction of solids degradation was lower in these experiences. A plateau in the biogas production was found. The free ammonia level, which was above the reported inhibitory levels, could explain this behaviour. After the inhibition period the biogas production restarted probably due to the biomass acclimatisation to the ammonia. In order to determine the inoculum adaptation a new experiment was performed. The inoculum used was the sludge coming from the first set of experiences. Based upon batch tests a 3.5 m3 pilot reactor was designed and started up. Ammonia inhibition was avoided by the start-up strategy and in two weeks the biogas production was 3.5 m3/d. The VS stabilisation with a solid retention time of 20 days was of 43%. The pilot reactor working at steady state had a TS concentration of 3-4% with a ratio of RC/blood of 10:1 at the entrance.