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.     

Benchmark simulation Model no 2 in Matlab-simulink: towards plant-wide WWTP control strategy evaluation.

In this paper, implementation of the Benchmark Simulation Model No 2 (BSM2) within Matlab-Simulink is presented. The BSM2 is developed for plant-wide WWTP control strategy evaluation on a long-term basis. It consists of a pre-treatment process, an activated sludge process and sludge treatment processes. Extended evaluation criteria are proposed for plant-wide control strategy assessment. Default open-loop and closed-loop strategies are also proposed to be used as references with which to compare other control strategies. Simulations indicate that the BM2 is an appropriate tool for plant-wide control strategy evaluation.     

新安江电站进水口快速闸门动水闭门鉴定试验

本文叙述了应用现代科学方法和实验原型观测技术对新安江水电站进水口快速闸门进行安全检测鉴定，并介绍了水电站快速闸门动水闭门试验程序，对水电站快速闸门试验及相关鉴定有重要参考意义。