A closed-form solution for options with stochastic volatility with applications to bond and currency options

I use a new technique to derive a closed-form solution for theprice of a European call option on an asset with stochasticvolatility. The model allows arbitrary correlation between volatilityand spot asset returns. I introduce stochastic interest ratesand show how to apply the model to bond options and foreigncurrency options. Simulations show that correlation betweenvolatility and the spot asset's price is important for explainingreturn skewness and strike-price biases in the Black-Scholes(1973) model. The solution technique is based on characteristicfunctions and can be applied to other problems     

Real Estate Risk,Corporate Investment and Financing Choice

This paper empirically examines how real estate risk impacts corporate investment and financing decisions. Using a panel of United States firms from 1985 to 2013, we document that real estate risk is negatively associated with firms’ long-term investments and long-term external financing in equity and debt. The results are robust to different risk measurements and in particular salient during the financial crisis period when the endogeneity between risk and investment is less of a concern. The effect on firm leverage, however, depends on risk measures. Overall, in contrast to previously documented positive effects of the real estate value, real estate risk exposure exhibits mostly the opposite effects on investment, financing and capital structure. This difference is consistent with option value determinants. Findings in this paper shed new lights on the impact of real estate holding on corporate decisions, offer a new explanation for the underperformance of hedge funds’ real estate strategies, and confirm the theoretical predictions in Deng et al. (2015).     

RO brine treatment and recovery by biological activated carbon and capacitive deionization process

The generation of brine solutions from dense membrane (reverse osmosis, RO or nanofiltration, NF) water reclamation systems has been increasing worldwide, and the lack of cost effective disposal options is becoming a critical water resources management issue. In Singapore, NEWater is the product of a multiple barrier water reclamation process from secondary treated domestic effluent using MF/UF-RO and UV technologies. The RO brine (concentrates) accounts for more than 20% of the total flow treated. To increase the water recovery and treat the RO brine, a CDI based process with BAC as pretreatment was tested. The results show that ion concentrations in CDI product were low except SiO2 when compared with RO feed water. CDI product was passed through a RO and the RO permeate was of better quality including low SiO2 as compared to NEWater quality. It could be beneficial to use a dedicated RO operated at optimum conditions with better performance to recover the water. BAC was able to achieve 15-27% TOC removal of RO brine. CDI had been tested at a water recovery ranging from 71.6 to 92.3%. CDI based RO brine treatment could improve overall water recovery of NEWater production over 90%. It was found that calcium phosphate scaling and organic fouling was the major cause of CDI pressure increase. Ozone disinfection and sodium bisulfite dosing were able to reduce CDI fouling rate. For sustainable operation of CDI organic fouling control and effective organic fouling cleaning should be further studied.     

Asset-Backed Securitization in Singapore: Value of Embedded Buy-Back Options

Asset backed securities have been promoted as an important financing instrument for property developers to raise capital in Singapore. In 1999 alone, S$1.92 billion worth of bonds have been issued via the securitization of six commercial properties and one residential condominium project under construction. Buy-back option is a unique feature embedded in the asset-backed securitization (ABS) in Singapore, which allow the originator to retain a contingent claim on the upside potential of the asset price. Based on the multi-period binomial option pricing framework proposed by Cox et al. (1979), the prices of the options embedded in the ABS contracts are estimated. Using the securitization of the 132,111 square feet 268 Orchard Road office building for illustration, the premium of the options embedded in the 10-year ABS deal was estimated at S$28.47 million, or 15.48 percent of the bond value. Recognition of the value of embedded options is important for structuring a fair and transparent ABS deal.     

An Analysis of the Financing Decisions of REITs: The Role of Market Timing and Target Leverage

This paper examines the role of capital market conditions and target leverage on the marginal financing decisions of Real Estate Investment Trusts (REITs), which include both capital raising and capital reduction activities. We investigate the relevance of a hybrid hypothesis whereby REITs have target leverage, but they also choose and time their marginal financing decisions according to the capital market conditions. The empirical results suggest that target leverage behavior plays a secondary role to market timing behavior in the financing decisions of REITs. In particular, we find strong and consistent evidence that REITs exhibit market timing behavior in terms of when and what type of capital to issue or reduce. Such market timing practices, motivated by attempts to take advantage of capital market conditions, may shift the firms away from their target leverage. However, we observe that in the long run, most REITs do move their capital structure towards the target debt level.     

Nitrification and denitrification in partially aerated biological aerated filter (BAF) with dual size sand media.

A 104-mm (4-inch) diameter pilot-scale biological aerated filter (BAF) with a media depth of 2.5 m (8.3 feet) was operated with an anaerobic, anoxic and oxic zone at a temperature of 23 degrees C. The medium for the anaerobic and anoxic zones was 10 mm diameter sand while the medium for the oxic zone was 5 mm diameter sand. The influent sCOD and total nitrogen concentrations in the feedwater were approximately 250 mg/L and 35 mg N/L, respectively. sCOD removal at optimum hydraulic retention time (HRT) of 3 h with recirculation rates of 100, 200 and 300% in the column was above 96%. Nitrification was found to be more than 96% for 3 h HRT at 200 and 300% recirculation. Total nitrogen removal was consistent at more than 80% for 4 and 6 h HRT at 300% recirculation. For 3 h HRT and 300% recirculation, total nitrogen removal was approximately 79%. The ammonia loading rates for maximum ammonia removed were 0.15 and 0.19 kg NH3-N/m3-day for 100 and 200% recirculation, respectively. The experimental results demonstrated that the BAF can be operated at an HRT of 3h with 200-300% recirculation rates with more than 96% removal of sCOD and ammonia and at least 75% removal of total nitrogen.     

The US National Tobacco Settlement: the effects of advertising and price changes on cigarette consumption

This paper provides an econometric analysis of the effects of cigarette price and advertising changes stemming from the United States Tobacco Settlement of 1998. This is done by estimation of a demand function for cigarettes, based on data from both before and after the Settlement. The model is estimated using monthly time series data for the period 1990–2000. Results show that the increase in cigarette prices stemming from the Settlement reduced per capita cigarette consumption in the USA by 8.3%. However, the cigarette companies also increased advertising in the years immediately preceding and following the Settlement. This study estimates that this increased advertising partially offsets the effects of the higher prices, increasing cigarette consumption by 2.7 to 4.7%, and hence blunting the effects of the price increase by 33–57%.     

Mortgagor Motivations in Prepayments for Adjustable Rate Mortgages

This paper provides the first rigorous analysis of residential adjustable mortgage prepayment using individual ARM mortgage data in Singapore. The prepayment rate for residential mortgages is low and is dominated more by macroeconomic factors than mortgage–specific factors. Specifically, the prepayment rate is increasing in residential property prices, but decreasing in income as proxied by GDP and volatility in mortgage rates. There is weak evidence to suggest that prepayment is increasing in the borrower's age, mortgage rate hikes, cash–availability variables and sentiments of the stock market, and decreasing in the price premium over valuation, payment–to–income ratio, loan–to–value ratio, loan term and floor level of the property.