A multivariate Lévy process model with linear correlation

In this paper, we develop a multivariate risk-neutral Lévy process model and discuss its applicability in the context of the volatility smile of multiple assets. Our formulation is based upon a linear combination of independent univariate Lévy processes and can easily be calibrated to a set of one-dimensional marginal distributions and a given linear correlation matrix. We derive conditions for our formulation and the associated calibration procedure to be well-defined and provide some examples associated with particular Lévy processes permitting a closed-form characteristic function. Numerical results of the option premiums on three currencies are presented to illustrate the effectiveness of our formulation with different linear correlation structures.     

Volatility forecasts and at-the-money implied volatility: a multi-component ARCH approach and its relation to market models

This article explores the relationships between several forecasts for the volatility built from multi-scale linear ARCH processes, and linear market models for the forward variance. This shows that the structures of the forecast equations are identical, but with different dependencies on the forecast horizon. The process equations for the forward variance are induced by the process equations for an ARCH model, but postulated in a market model. In the ARCH case, they are different from the usual diffusive type. The conceptual differences between both approaches and their implication for volatility forecasts are analysed. The volatility forecast is compared with the realized volatility (the volatility that will occur between date t and t + ΔT), and the implied volatility (corresponding to an at-the-money option with expiry at t + ΔT). For the ARCH forecasts, the parameters are set a priori. An empirical analysis across multiple time horizons ΔT shows that a forecast provided by an I-GARCH(1) process (one time scale) does not capture correctly the dynamics of the realized volatility. An I-GARCH(2) process (two time scales, similar to GARCH(1,1)) is better, while a long-memory LM-ARCH process (multiple time scales) replicates correctly the dynamics of the implied and realized volatilities and delivers consistently good forecasts for the realized volatility.     

Variance swap dynamics

We compare several parametric and non-parametric approaches for modelling variance swap curves by conducting an in-sample and an out-of-sample analysis using market prices. The forecasted Heston model gives the best overall performance. Moreover, the static Heston model highlights some problems of stochastic volatility models in option pricing of forward starting products.     

Disentangling and quantifying market participant volatility contributions

Thanks to the access to labeled orders on the CAC 40 index future provided by Euronext, we are able to quantify market participants contributions to the volatility in the diffusive limit. To achieve this result, we leverage the branching properties of Hawkes point processes. We find that fast intermediaries (e.g. market maker type agents) have a smaller footprint on the volatility than slower, directional agents. The branching structure of Hawkes processes allows us to examine also the degree of endogeneity of each agent behavior, and we find that high-frequency traders are more endogenously driven than other types of agents.     

Portfolio analysis of intraday covariance matrix in the Greek equity market

The intraday nonparametric estimation of the variance–covariance matrix adds to the literature in portfolio analysis of the Greek equity market. This paper examines the economic value of various realized volatility and covariance estimators under the strategy of volatility timing. I use three types of portfolios: Global Minimum Variance, Capital Market Line and Capital Market Line with only positive weights. The estimators of volatilities and covariances use 5-min high-frequency intraday data. The dataset concerns the FTSE/ATHEX Large Cap index, FTSE/ATHEX Mid Cap index, and the FTSE/ATHEX Small Cap index of the Greek equity market (Athens Stock Exchange). As far as I know, this is the first work of its kind for the Greek equity market. Results concern not only the comparison of various estimators but also the comparison of different types of portfolios, in the strategy of volatility timing. The economic value of the contemporary non-parametric realized volatility estimators is more significant than this when the covariance is estimated by the daily squared returns. Moreover, the economic value (in b.p.s) of each estimator changes with the volatility timing.     

Mean-Reversion and Long Memory in the Stock Market Indexes of Some Latin American Countries

ABSTRACT

In this paper we examine the mean-reversion and long-memory properties in the stock market indexes of some Latin American countries by means of fractional integration. In doing so, we allow for a much richer degree of flexibility in the dynamic behaviour of the series not achieved when using the classical representations based on I(0) or I(1) processes. We use a semiparametric local Whittle estimator based on the frequency domain. The results show that the order of integration of the series is higher than 1 for Argentina, Venezuela and Colombia and is around 1 or slightly higher for Mexico. The results also show that the unit root cannot be rejected for the case of Brazil. Splitting the samples around the periods of crisis, we find long-memory stock market returns in the pre-crisis period for all countries except Brazil. However, using post-crisis data, the unit-root cannot be rejected, which might be consistent with the Efficient Market Hypothesis. A notable exception is the case of Colombia, where long memory is also found in the returns for the post-crisis period.

RESUMEN. En este estudio examinamos las propiedades de la reversión media y de la memoria prolongada en los índices del mercado bursátil en algunos países latino-americanos, a través de la integración fraccional. Utilizando este método, permitimos la ocurrencia de una flexibilidad mucho más rica en el comportamiento dinámico de las series, que no se puede lograr con el uso de las representaciones clásicas, basadas en los procesos I(0) o I(1). Utilizamos un estimador Whittle local semiparamétrico, fundamentado en el dominio de la frecuencia. Los resultados obtenidos muestran que el orden de integración de la serie es mayor a 1 para Argentina, Venezuela y Colombia, y alrededor de o poco más de 1 para México. Además, los resultados también demuestran que, en el caso brasileño, no puede rechazarse la unidad raíz. Al dividir las muestras alrededor de los períodos de crisis, descubrimos que el mercado bursátil con memoria prolongada vuelve a aparecer en el período pre crisis en todos los países menor Brasil. Sin embargo, si usamos los datos post crisis no podemos rechazar la unidad raíz ya que la misma puede ser coherente con la Hipótesis del Mercado Eficiente. Una excepción notable esel caso de Colombia, donde la memoria prolongada también se encuentra en los retornos para el período post crisis.

RESUMO. Neste artigo examinamos as propriedades de reverãs média e memória longa nos índices de mercados de aç[otilde]es de alguns países latino-americanos por meio da integração fracionária. Com isto, permitimos um grau de flexibilidade bem maior no comportamento dinâmico da série, não obtida quando se usam representaç[otilde]es clássicas baseadas nos processos I(0) e I(1). Empregamos um estimador Whittle local semiparamétrico baseado no domínio da freqüência. Os resultados mostram que a ordem de integração das série é maior que 1 para a Argentina, Venezuela e Colômbia e em torno de 1 ou ligeiramente maior para o México. Os resultados também mostram que a raiz unitária não pode ser rejeitada para o caso do Brasil. Dividindo-se as amostras em torno dos períodos de crise, encontramos retornos de mercado de aç[otilde]es de memória longa no período pré-crise para todos os países, exceto o Brasil. Entretanto, usando dados pós-crise, a raiz unitária não pode ser rejeitada, o que poderia ser compatível com a Hipótese do Mercado Eficiente. Uma exceção notável é o caso da Colômbia, onde a memória longa também se encontra nos retornos para o período pós-crise.     

Options for African agriculture in an era of high food and energy prices

In a world of high food and energy prices, Africa has an imperative to do a better job feeding itself and ensuring that its people are food secure. At the same time, there is a new business opportunity to work with the private sector in developing the continent's potential to produce significantly more food, raw materials, and biofuels for regional and world markets. A challenge for African policy makers is to find the right balance between a food security and a business agenda, and to ensure that the business agenda engages with large numbers of small farms. Agricultural development requires many things, but the fundamentals for Africa are developing markets, increasing agricultural productivity, and managing volatility. This cannot happen at sufficient scale and speed without strong public sector leadership, enabling policies and investments, and well‐focused implementation strategies.     

Exchange rate volatility and United Kingdom trade: evidence from Canada,Japan and New Zealand

This paper investigates the influence of exchange rate volatility on the real imports of the United Kingdom from Canada, Japan and New Zealand during the period 1980–2003. The Johansen multivariate cointegration method and the constrained error correction (general-to-specific) method are applied to study the relationship between real imports and its determinants (including exchange rate volatility). Conditional variance from the GARCH(1,1) model is applied as exchange rate volatility. Both nominal and real exchange rates are employed in the empirical study. Results indicate a significant effect of the exchange rate volatility on real imports. These exchange rate volatility effects are mostly positive. The author thanks an anonymous referee, the editor and Myles Wallace for several useful comments and suggestions. Any remaining errors and omissions are the author’s responsibility alone.     

What drives idiosyncratic volatility over time?

We document the patterns of market-wide and firm-specific volatility in the Portuguese stock market over the 1991–2005 period and test several explanations for the behavior of firm-level idiosyncratic volatility. Unlike previous studies we find no evidence of a statistically significant rise in firm-specific volatility. On the contrary, the ratio of firm-specific risk to total risk slightly decreases. We show that this result stems from new listings of large privatized companies that display lower firm-specific risk. Our findings are consistent with the idea that changes in idiosyncratic volatility are related to changes in the composition of the market.

基于利益相关者理论的企业社会责任评价指标构建

笔者认为,企业不仅应履行对股东的受托责任,同时应履行对其他利益相关者,如员工、消费者、社区、商业伙伴、政府等的社会责任。本文从利益相关者理论出发,构建企业社会责任评价指标体系,以期更科学、更全面地评价企业的业绩。