University of Technology Sydney

Displaying 1-40 of 59 results

  • White Papers // May 2011

    Exact Simulation Of The 3/2 Model

    This paper discusses the exact simulation of the stock price process underlying the 3/2 model. Using a result derived by Craddock and Lennox using Lie Symmetry Analysis, the authors adapt the Broadie-Kaya algorithm for the simulation of affine processes to the 3/2 model. They also discuss variance reduction techniques and...

    Provided By University of Technology Sydney

  • White Papers // Oct 2010

    Adaptive Forecasting Of Exchange Rates With Panel Data

    This paper investigates the statistical and economic implications of adaptive forecasting of exchange rates with panel data and alternative predictors. The candidate exchange rate predictors are drawn from macroeconomic 'Fundamentals', return/volatility of asset markets and cyclical and confidence indices. Exchange rate forecasts at various horizons are obtained from each of...

    Provided By University of Technology Sydney

  • White Papers // Oct 2010

    Markovian Defaultable HJM Term Structure Models With Unspanned Stochastic Volatility

    This paper presents a class of defaultable term structure models within the HJM framework with stochastic volatility. Under certain volatility specifications, the model admits finite dimensional Markovian structures and consequently provides tractable solutions for defaultable bond prices. Furthermore, a bond pricing formula is obtained in terms of market observable quantities,...

    Provided By University of Technology Sydney

  • White Papers // Oct 2010

    Securing Data Transfer in the Cloud Through Introducing Identification Packet and UDT -Authentication Option Field: A Characterization

    The emergence of various technologies has since pushed researchers to develop new protocols that support high density data transmissions in Wide Area Networks. Many of these protocols are TCP protocol variants, which have demonstrated better performance in simulation and several limited network experiments but have limited practical applications because of...

    Provided By University of Technology Sydney

  • White Papers // Oct 2010

    Hedge Fund Excess Returns Under Time-Varying Beta

    The authors construct a time-varying factor model of hedge fund returns that accounts for market risk, leverage, and illiquidity and tail events. Prior to analysis they investigate database biases arising from voluntary self-reporting and suggest how to minimize these biases. Using a constant beta model, they find that between 1994...

    Provided By University of Technology Sydney

  • White Papers // Sep 2010

    The Economic Costs Of US Stock Mispricing

    The USAGE model for the United States is used to quantify economic costs due to stock mispricing, made operational by shocking Tobin's q. The simulations quantify a potentially large impact even in the most favorable environment, where export demand holds up, and, the dollar is pro-cyclical. A two-year investment boom...

    Provided By University of Technology Sydney

  • White Papers // Aug 2010

    Using Dynamic Copulae For Modeling Dependency In Currency Denominations Of A Diversifed World Stock Index

    This aim of this paper is to model the dependency among log-returns when security account prices are expressed in units of a well diversified world stock index. The paper uses the equi-weighted index EWI104s, calculated as the average of 104 world industry sector indices. The log-returns of its denominations in...

    Provided By University of Technology Sydney

  • White Papers // Aug 2010

    Simulation Of Diversified Portfolios In A Continuous Financial Market

    The paper analyzes the simulated long-term behavior of well diversified portfolios in continuous financial markets. It focuses on the equi-weighted index and the market portfolio. The paper illustrates that the equally weighted portfolio constitutes a good proxy of the growth optimal portfolio, which maximizes expected logarithmic utility. The multi-asset market...

    Provided By University of Technology Sydney

  • White Papers // Jul 2010

    Applying Shape And Phase Restrictions In Generalized Dynamic Categorical Models Of The Business Cycle

    To match the NBER business cycle features it is necessary to employ Generalised Dynamic Categorical (GDC) models that impose certain phase restrictions and permit multiple indexes. Theory suggests additional shape restrictions in the form of monotonicity and boundedness of certain transition probabilities. Maximum likelihood and constraint weighted bootstrap estimators are...

    Provided By University of Technology Sydney

  • White Papers // Jul 2010

    M6 - On Minimal Market Models And Minimal Martingale Measures

    The well-known absence-of-arbitrage condition NFLVR from the fundamental theorem of asset pricing splits into two conditions, called NA and NUPBR. The authors give a literature overview of several equivalent reformulations of NUPBR; these include existence of a growth-optimal portfolio, existence of the numeraire portfolio, and for continuous asset prices the...

    Provided By University of Technology Sydney

  • White Papers // Jul 2010

    Examining Requirements Change Rework Effort: A Study

    Although software managers are generally good at new project estimation, their experience of scheduling rework tends to be poor. Inconsistent or incorrect effort estimation can increase the risk that the completion time for a project will be problematic. To continually alter software maintenance schedules during software maintenance is a daunting...

    Provided By University of Technology Sydney

  • White Papers // Jun 2010

    The Demand For Private Health Insurance: Do Waiting Lists Or Waiting Times Matter?

    Besley, Hall, and Preston (1999) estimated a model of the demand for private health insurance in Britain as a function of regional waiting lists and found that increases in the number of people waiting for more than 12 months (the long-term waiting list) increased the probability of insurance purchase. In...

    Provided By University of Technology Sydney

  • White Papers // Jun 2010

    The Economic Plausibility Of Strict Local Martingales In Financial Modelling

    The context for this paper is a continuous financial market consisting of a risk-free savings account and a single non-dividend-paying risky security. The authors present two concrete models for this market, in which strict local martingales play decisive roles. The first admits an equivalent risk-neutral probability measure under which the...

    Provided By University of Technology Sydney

  • White Papers // May 2010

    Waiting Times And The Decision To Buy Private Health Insurance

    Over 45% of Australians buy health insurance for private treatment in hospital. This is despite having access to universal and free public hospital treatment. Anecdotal evidence suggests that one possible explanation for the high rate of insurance coverage is to avoid long waiting times for public hospital treatment. In this...

    Provided By University of Technology Sydney

  • White Papers // May 2010

    Small Traders In Currency Futures Markets Format

    This paper examines the interrelation between small traders' open interest and large hedging and speculation in the Canadian dollar, Swiss franc, British pound, and Japanese yen futures markets. The results, based on Granger-causality tests and vector autoregressive models, suggest that small traders' open interest is closely related to large speculators'...

    Provided By University of Technology Sydney

  • White Papers // May 2010

    A Survey Of Non-linear Methods For No-arbitrage Bond Pricing

    This survey paper studies two methods: a moment approximation method and Kimmel's method, to solve bond prices based on no-arbitrage interest models. It is well-known in the finance literature that once an interest rate model deviates from the classical affine term structure model, tractable analytical solutions for bond prices are...

    Provided By University of Technology Sydney

  • White Papers // May 2010

    Time-varying Beta: A Boundedly Rational Equilibrium Approach

    By taking into account conditional expectations and the dependence of the systematic risk of asset returns on micro- and macro-economic factors, the conditional CAPM with time-varying betas displays superiority in explaining the cross section of returns and anomalies in a number of empirical studies. Most of the paper on time-varying...

    Provided By University of Technology Sydney

  • White Papers // Apr 2010

    Asset Price Regulators Unite: You Have Macroeconomic Stability To Win And The Microeconomic Losses Are Second-Order

    The Global Financial Crisis (GFC) has rekindled debate about the desirability of governmental interference in asset markets - either through the operation of policy levers, or, through the chosen institutional setup. In this paper the authors quantify economic costs due to mispricing of real assets in the USAGE model of...

    Provided By University of Technology Sydney

  • White Papers // Apr 2010

    The Market Response To Exploration, Resource And Reserve Announcements By Mining Companies: Australian Data

    This paper is the first to conduct an event study on the market response to exploration, resource and reserve announcements made by mining firms. Results from an event study using a matched firm approach that suggest that markets react positively to both the exploration and the resource announcements at the...

    Provided By University of Technology Sydney

  • White Papers // Apr 2010

    How Do Investors React Under Uncertainty?

    In this paper the authors use Australian data to also examine the impact of uncertainty on the market response to earnings announcements. One important difference in the findings to those of Williams is that it is not only changes in VIX but also the level of VIX that influence how...

    Provided By University of Technology Sydney

  • White Papers // Mar 2010

    The Financial Instability Hypothesis: A Stochastic Microfoundation Framework

    This paper examines the dynamics of financial distress and in particular the mechanism of transmission of shocks from the financial sector to the real economy. The analysis is performed by representing the linkages between microeconomic financial variables and the aggregate performance of the economy by means of a microfounded model...

    Provided By University of Technology Sydney

  • White Papers // Mar 2010

    The Evaluation Of Barrier Option Prices Under Stochastic Volatility

    This paper considers the problem of numerically evaluating barrier option prices when the dynamics of the underlying are driven by stochastic volatility following the square root process of Heston (1993). The authors develop a method of lines approach to evaluate the price as well as the delta and gamma of...

    Provided By University of Technology Sydney

  • White Papers // Feb 2010

    Joiners And Leavers Stayers And Abstainers: Private Health Insurance Choices In Australia

    The percentage of Australians taking up Private Health Insurance (PHI) was in decline following the introduction of Medicare in 1984 (PHIAC). To arrest this decline the Australian Government introduced a suite of policies, between 1997 and 2000, to create incentives for Australians to purchase private health insurance. These policies include...

    Provided By University of Technology Sydney

  • White Papers // Feb 2010

    Optimal Investment Strategies Under Stochastic Volatility - Estimation And Applications

    This paper studies the impact of Stochastic Volatility (SV) on optimal investment decisions. The authors consider three different SV models: an extended Stein/Stein model, the Heston Model and an extended Heston Model with a Constant Elasticity Variance (CEV) process and derive the long-term optimal investment strategies under each of these...

    Provided By University of Technology Sydney

  • White Papers // Feb 2010

    Differences In Opinion And Risk Premium

    When people agree to disagree, this paper examines the impact of the disagreement among agents on market equilibrium and equity premium. Within the standard mean variance framework, the authors consider a market of two risky assets, a riskless asset and two (and then a continuum of) agents who have different...

    Provided By University of Technology Sydney

  • White Papers // Jan 2010

    Equity-linked Pension Schemes With Guarantees

    This paper analyses the relationship between the level of a return guarantee in an equity-linked pension scheme and the proportion of an investor's contribution needed to finance this guarantee. Three types of schemes are considered: investment guarantee, contribution guarantee and participation surplus. The evaluation of each scheme involves pricing an...

    Provided By University of Technology Sydney

  • White Papers // Jan 2010

    The British Russian Option

    Following the economic rationale of [10] and [11] the authors present a new class of lookback options (by first studying the canonical 'Russian' variant) where the holder enjoys the early exercise feature of American options whereupon his payoff (deliverable immediately) is the 'Best prediction' of the European payoff under the...

    Provided By University of Technology Sydney

  • White Papers // Jan 2010

    Dynamics Of Moving Average Rules In A Continuous-time Financial Market Model

    Within a continuous-time framework, this paper proposes a stochastic Heterogeneous Agent Model (HAM) of financial markets with time delays to unify various moving average rules used in discrete-time HAMs. The time delay represents a memory length of a moving average rule in discrete-time HAMs. Intuitive conditions for the stability of...

    Provided By University of Technology Sydney

  • White Papers // Jan 2010

    Financialization, Crisis And Commodity Correlation Dynamics

    The authors study bi-variate conditional volatility and correlation dynamics for individual commodity futures and financial assets from May 1990-July 2009 using DSTCC- GARCH (Silvennoinen and Ter?svirta 2009). These models allow correlation to vary smoothly between extreme states via transition functions driven by indicators of market conditions. Expected stock volatility and...

    Provided By University of Technology Sydney

  • White Papers // Jan 2010

    Institutional Ownership And IPO Performance: Australian Evidence

    The duo IPO anomalies of underpricing and long run underperformance have inspired a plethora of studies. Yet few have examined the impact of majority investors in IPOs, namely institutional investors. Consistent with previous studies, the authors found large underpricing which was greatest in those issuers with the highest initial institutional...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    Overview of WiMAX Cellular Technology

    High cost of ICT (Information and Communication Technology) infrastructure leads to a gap between the developed countries and the least developed countries in terms of the access to information, known as "Digital Divides". Hence people in the countries with less financial resources lack the access to the digital information world,...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    A Hybrid Commodity And Interest Rate

    A joint model of commodity price and interest rate risk is constructed analogously to the multi-currency LIBOR Market Model (LMM). Going beyond a simple "Re-interpretation" of the multi-currency LMM, issues arising in the application of the model to actual commodity market data are specifically addressed. Firstly, liquid market prices are...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    On Fair Pricing Of Emission-related Derivatives

    The climate rescue is on the top of many agendas. In this context, emission trading schemes are considered as promising tools. The regulatory framework of an emission trading scheme introduces a market for emission allowances and creates need for risk management by appropriate financial contracts. In this paper, the authors...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    The Representation Of American Options Prices Under Stochastic Volatility And Jump-diffusion Dynamics

    This paper considers the problem of pricing American options when the dynamics of the underlying are driven by both stochastic volatility following a square root process as used by Heston (1993), and by a Poisson jump process as introduced by Merton (1976). Probability arguments are invoked to find a representation...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    Modelling The Evolution Of Credit Spreads Using The Cox Process Within The HJM Framework A CDS Option Pricing Model

    In this paper a simulation approach for defaultable yield curves is developed within the Heath et al. (1992) framework. The default event is modeled using the Cox process where the stochastic intensity represents the credit spread. The forward credit spread volatility function is affected by the entire credit spread term...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    Real World Pricing Of Long Term Contracts

    Long dated contingent claims are relevant in insurance, pension fund management and derivative pricing. This paper proposes a paradigm shift in the valuation of long term contracts, away from classical no-arbitrage pricing towards pricing under the real world probability measure. In contrast to risk neutral pricing, the long term excess...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    A Visual Criterion For Identifying Ito Diffusions As Martingalesor Strict Local Martingales

    It is often important, in applications of stochastic calculus to financial modeling, to know whether a given local martingale is a martingale or a strict local martingale. The authors address this problem in the context of a time-homogenous diffusion process with a finite lower boundary, presented as the solution of...

    Provided By University of Technology Sydney

  • White Papers // Oct 2009

    Cloud Computing: Highly-Scalable Remote Computing for Small and Medium Businesses

    This paper has mainly looked at the marketing details for different cloud businesses, and how beneficial it would be for startups to take up these clouds based infrastructures. After looking at all the different statistics and costs of the various parameters offered, the authors' concluded that each cloud has its...

    Provided By University of Technology Sydney

  • White Papers // Sep 2009

    Modelling Co-movements And Tail Dependency In The International Stock Market Via Copulae

    This paper examines international equity market co-movements using time-varying copulae. The authors examine distributions from the class of Symmetric Generalized Hyperbolic (SGH) distributions for modeling univariate marginals of equity index returns. They show based on the goodness-of-fit testing that the SGH class outperforms the normal distribution, and that the Student-t...

    Provided By University of Technology Sydney

  • White Papers // Sep 2009

    A Framework For CAPM With Heterogenous Beliefs

    The authors introduce heterogeneous beliefs into the mean-variance framework of the standard CAPM, in contrast to the standard approach which assumes homogeneous beliefs. By assuming that agents form optimal portfolios based upon their heterogeneous beliefs about conditional means and covariances of the risky asset returns, they set up a framework...

    Provided By University of Technology Sydney

  • White Papers // May 2011

    Exact Simulation Of The 3/2 Model

    This paper discusses the exact simulation of the stock price process underlying the 3/2 model. Using a result derived by Craddock and Lennox using Lie Symmetry Analysis, the authors adapt the Broadie-Kaya algorithm for the simulation of affine processes to the 3/2 model. They also discuss variance reduction techniques and...

    Provided By University of Technology Sydney

  • White Papers // May 2010

    Waiting Times And The Decision To Buy Private Health Insurance

    Over 45% of Australians buy health insurance for private treatment in hospital. This is despite having access to universal and free public hospital treatment. Anecdotal evidence suggests that one possible explanation for the high rate of insurance coverage is to avoid long waiting times for public hospital treatment. In this...

    Provided By University of Technology Sydney

  • White Papers // Feb 2010

    Joiners And Leavers Stayers And Abstainers: Private Health Insurance Choices In Australia

    The percentage of Australians taking up Private Health Insurance (PHI) was in decline following the introduction of Medicare in 1984 (PHIAC). To arrest this decline the Australian Government introduced a suite of policies, between 1997 and 2000, to create incentives for Australians to purchase private health insurance. These policies include...

    Provided By University of Technology Sydney

  • White Papers // Jun 2010

    The Demand For Private Health Insurance: Do Waiting Lists Or Waiting Times Matter?

    Besley, Hall, and Preston (1999) estimated a model of the demand for private health insurance in Britain as a function of regional waiting lists and found that increases in the number of people waiting for more than 12 months (the long-term waiting list) increased the probability of insurance purchase. In...

    Provided By University of Technology Sydney

  • White Papers // Jan 2009

    A Longitudinal Study Of Financial Risk Tolerance

    Academics are divided as to whether risk tolerance is a genetic and enduring personality trait and as a consequence is less likely to change over the life of an individual or, as with some personality traits such as attitudes and emotions, can indeed change over time as it is influenced...

    Provided By University of Technology Sydney

  • White Papers // Mar 2009

    The Credit Channel And Monetary Transmission In Brazil And Chile: A Structured VAR Approach

    The authors use an expectation-augmented SVAR representation of an open economy New Keynesian model to study monetary transmission in Brazil and Chile. The underlying structural model incorporates key structural features of Emerging Market economies, notably the role of a bank-credit channel. They find that interest rate changes have swifter effects...

    Provided By University of Technology Sydney

  • White Papers // Dec 2008

    Using Laptop PCs for Laboratory Work in a Postgraduate Wireless Technology Subject

    This paper presents the experiences in a UTS LTPF and HP funded project to enhance the learning outcomes of postgraduate students in Engineering Courses at University of Technology Sydney. The intended impact is that it provides learning experiences that simulate authentic professional practice and address development of students' technical knowledge...

    Provided By University of Technology Sydney

  • White Papers // Oct 2009

    Cloud Computing: Highly-Scalable Remote Computing for Small and Medium Businesses

    This paper has mainly looked at the marketing details for different cloud businesses, and how beneficial it would be for startups to take up these clouds based infrastructures. After looking at all the different statistics and costs of the various parameters offered, the authors' concluded that each cloud has its...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    Overview of WiMAX Cellular Technology

    High cost of ICT (Information and Communication Technology) infrastructure leads to a gap between the developed countries and the least developed countries in terms of the access to information, known as "Digital Divides". Hence people in the countries with less financial resources lack the access to the digital information world,...

    Provided By University of Technology Sydney

  • White Papers // Oct 2010

    Securing Data Transfer in the Cloud Through Introducing Identification Packet and UDT -Authentication Option Field: A Characterization

    The emergence of various technologies has since pushed researchers to develop new protocols that support high density data transmissions in Wide Area Networks. Many of these protocols are TCP protocol variants, which have demonstrated better performance in simulation and several limited network experiments but have limited practical applications because of...

    Provided By University of Technology Sydney

  • White Papers // Apr 2010

    Asset Price Regulators Unite: You Have Macroeconomic Stability To Win And The Microeconomic Losses Are Second-Order

    The Global Financial Crisis (GFC) has rekindled debate about the desirability of governmental interference in asset markets - either through the operation of policy levers, or, through the chosen institutional setup. In this paper the authors quantify economic costs due to mispricing of real assets in the USAGE model of...

    Provided By University of Technology Sydney

  • White Papers // Apr 2010

    The Market Response To Exploration, Resource And Reserve Announcements By Mining Companies: Australian Data

    This paper is the first to conduct an event study on the market response to exploration, resource and reserve announcements made by mining firms. Results from an event study using a matched firm approach that suggest that markets react positively to both the exploration and the resource announcements at the...

    Provided By University of Technology Sydney

  • White Papers // Apr 2010

    How Do Investors React Under Uncertainty?

    In this paper the authors use Australian data to also examine the impact of uncertainty on the market response to earnings announcements. One important difference in the findings to those of Williams is that it is not only changes in VIX but also the level of VIX that influence how...

    Provided By University of Technology Sydney

  • White Papers // Oct 2010

    Hedge Fund Excess Returns Under Time-Varying Beta

    The authors construct a time-varying factor model of hedge fund returns that accounts for market risk, leverage, and illiquidity and tail events. Prior to analysis they investigate database biases arising from voluntary self-reporting and suggest how to minimize these biases. Using a constant beta model, they find that between 1994...

    Provided By University of Technology Sydney

  • White Papers // Feb 2009

    The Impact On The Pricing Process Of Costly Active Management And Performance Chasing Clients

    One of the necessary features of markets to produce efficient pricing is competition between information-based investors who quickly impound new information into price. However, a significant proportion of funds invested in today's equity markets are in the hands of managers who pursue a style that utilizes little or none of...

    Provided By University of Technology Sydney

  • White Papers // Sep 2010

    The Economic Costs Of US Stock Mispricing

    The USAGE model for the United States is used to quantify economic costs due to stock mispricing, made operational by shocking Tobin's q. The simulations quantify a potentially large impact even in the most favorable environment, where export demand holds up, and, the dollar is pro-cyclical. A two-year investment boom...

    Provided By University of Technology Sydney

  • White Papers // Oct 2010

    Adaptive Forecasting Of Exchange Rates With Panel Data

    This paper investigates the statistical and economic implications of adaptive forecasting of exchange rates with panel data and alternative predictors. The candidate exchange rate predictors are drawn from macroeconomic 'Fundamentals', return/volatility of asset markets and cyclical and confidence indices. Exchange rate forecasts at various horizons are obtained from each of...

    Provided By University of Technology Sydney

  • White Papers // Aug 2010

    Using Dynamic Copulae For Modeling Dependency In Currency Denominations Of A Diversifed World Stock Index

    This aim of this paper is to model the dependency among log-returns when security account prices are expressed in units of a well diversified world stock index. The paper uses the equi-weighted index EWI104s, calculated as the average of 104 world industry sector indices. The log-returns of its denominations in...

    Provided By University of Technology Sydney

  • White Papers // Oct 2010

    Markovian Defaultable HJM Term Structure Models With Unspanned Stochastic Volatility

    This paper presents a class of defaultable term structure models within the HJM framework with stochastic volatility. Under certain volatility specifications, the model admits finite dimensional Markovian structures and consequently provides tractable solutions for defaultable bond prices. Furthermore, a bond pricing formula is obtained in terms of market observable quantities,...

    Provided By University of Technology Sydney

  • White Papers // Aug 2010

    Simulation Of Diversified Portfolios In A Continuous Financial Market

    The paper analyzes the simulated long-term behavior of well diversified portfolios in continuous financial markets. It focuses on the equi-weighted index and the market portfolio. The paper illustrates that the equally weighted portfolio constitutes a good proxy of the growth optimal portfolio, which maximizes expected logarithmic utility. The multi-asset market...

    Provided By University of Technology Sydney

  • White Papers // Jul 2010

    M6 - On Minimal Market Models And Minimal Martingale Measures

    The well-known absence-of-arbitrage condition NFLVR from the fundamental theorem of asset pricing splits into two conditions, called NA and NUPBR. The authors give a literature overview of several equivalent reformulations of NUPBR; these include existence of a growth-optimal portfolio, existence of the numeraire portfolio, and for continuous asset prices the...

    Provided By University of Technology Sydney

  • White Papers // Jun 2010

    The Economic Plausibility Of Strict Local Martingales In Financial Modelling

    The context for this paper is a continuous financial market consisting of a risk-free savings account and a single non-dividend-paying risky security. The authors present two concrete models for this market, in which strict local martingales play decisive roles. The first admits an equivalent risk-neutral probability measure under which the...

    Provided By University of Technology Sydney

  • White Papers // May 2010

    Small Traders In Currency Futures Markets Format

    This paper examines the interrelation between small traders' open interest and large hedging and speculation in the Canadian dollar, Swiss franc, British pound, and Japanese yen futures markets. The results, based on Granger-causality tests and vector autoregressive models, suggest that small traders' open interest is closely related to large speculators'...

    Provided By University of Technology Sydney

  • White Papers // May 2010

    A Survey Of Non-linear Methods For No-arbitrage Bond Pricing

    This survey paper studies two methods: a moment approximation method and Kimmel's method, to solve bond prices based on no-arbitrage interest models. It is well-known in the finance literature that once an interest rate model deviates from the classical affine term structure model, tractable analytical solutions for bond prices are...

    Provided By University of Technology Sydney

  • White Papers // Feb 2010

    Optimal Investment Strategies Under Stochastic Volatility - Estimation And Applications

    This paper studies the impact of Stochastic Volatility (SV) on optimal investment decisions. The authors consider three different SV models: an extended Stein/Stein model, the Heston Model and an extended Heston Model with a Constant Elasticity Variance (CEV) process and derive the long-term optimal investment strategies under each of these...

    Provided By University of Technology Sydney

  • White Papers // May 2010

    Time-varying Beta: A Boundedly Rational Equilibrium Approach

    By taking into account conditional expectations and the dependence of the systematic risk of asset returns on micro- and macro-economic factors, the conditional CAPM with time-varying betas displays superiority in explaining the cross section of returns and anomalies in a number of empirical studies. Most of the paper on time-varying...

    Provided By University of Technology Sydney

  • White Papers // Mar 2010

    The Financial Instability Hypothesis: A Stochastic Microfoundation Framework

    This paper examines the dynamics of financial distress and in particular the mechanism of transmission of shocks from the financial sector to the real economy. The analysis is performed by representing the linkages between microeconomic financial variables and the aggregate performance of the economy by means of a microfounded model...

    Provided By University of Technology Sydney

  • White Papers // Feb 2010

    Differences In Opinion And Risk Premium

    When people agree to disagree, this paper examines the impact of the disagreement among agents on market equilibrium and equity premium. Within the standard mean variance framework, the authors consider a market of two risky assets, a riskless asset and two (and then a continuum of) agents who have different...

    Provided By University of Technology Sydney

  • White Papers // Jan 2010

    Equity-linked Pension Schemes With Guarantees

    This paper analyses the relationship between the level of a return guarantee in an equity-linked pension scheme and the proportion of an investor's contribution needed to finance this guarantee. Three types of schemes are considered: investment guarantee, contribution guarantee and participation surplus. The evaluation of each scheme involves pricing an...

    Provided By University of Technology Sydney

  • White Papers // Jan 2010

    The British Russian Option

    Following the economic rationale of [10] and [11] the authors present a new class of lookback options (by first studying the canonical 'Russian' variant) where the holder enjoys the early exercise feature of American options whereupon his payoff (deliverable immediately) is the 'Best prediction' of the European payoff under the...

    Provided By University of Technology Sydney

  • White Papers // Jan 2010

    Dynamics Of Moving Average Rules In A Continuous-time Financial Market Model

    Within a continuous-time framework, this paper proposes a stochastic Heterogeneous Agent Model (HAM) of financial markets with time delays to unify various moving average rules used in discrete-time HAMs. The time delay represents a memory length of a moving average rule in discrete-time HAMs. Intuitive conditions for the stability of...

    Provided By University of Technology Sydney

  • White Papers // Jan 2010

    Financialization, Crisis And Commodity Correlation Dynamics

    The authors study bi-variate conditional volatility and correlation dynamics for individual commodity futures and financial assets from May 1990-July 2009 using DSTCC- GARCH (Silvennoinen and Ter?svirta 2009). These models allow correlation to vary smoothly between extreme states via transition functions driven by indicators of market conditions. Expected stock volatility and...

    Provided By University of Technology Sydney

  • White Papers // Mar 2010

    The Evaluation Of Barrier Option Prices Under Stochastic Volatility

    This paper considers the problem of numerically evaluating barrier option prices when the dynamics of the underlying are driven by stochastic volatility following the square root process of Heston (1993). The authors develop a method of lines approach to evaluate the price as well as the delta and gamma of...

    Provided By University of Technology Sydney

  • White Papers // Sep 2009

    Modelling Co-movements And Tail Dependency In The International Stock Market Via Copulae

    This paper examines international equity market co-movements using time-varying copulae. The authors examine distributions from the class of Symmetric Generalized Hyperbolic (SGH) distributions for modeling univariate marginals of equity index returns. They show based on the goodness-of-fit testing that the SGH class outperforms the normal distribution, and that the Student-t...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    A Visual Criterion For Identifying Ito Diffusions As Martingalesor Strict Local Martingales

    It is often important, in applications of stochastic calculus to financial modeling, to know whether a given local martingale is a martingale or a strict local martingale. The authors address this problem in the context of a time-homogenous diffusion process with a finite lower boundary, presented as the solution of...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    Real World Pricing Of Long Term Contracts

    Long dated contingent claims are relevant in insurance, pension fund management and derivative pricing. This paper proposes a paradigm shift in the valuation of long term contracts, away from classical no-arbitrage pricing towards pricing under the real world probability measure. In contrast to risk neutral pricing, the long term excess...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    A Hybrid Commodity And Interest Rate

    A joint model of commodity price and interest rate risk is constructed analogously to the multi-currency LIBOR Market Model (LMM). Going beyond a simple "Re-interpretation" of the multi-currency LMM, issues arising in the application of the model to actual commodity market data are specifically addressed. Firstly, liquid market prices are...

    Provided By University of Technology Sydney

  • White Papers // Jul 2009

    Modelling And Estimating The Forward Price Curve In The Energy Market

    The stochastic or random nature of commodity prices plays a central role in models for valuing financial contingent claims on commodities. In this paper, by enhancing a multi factor framework which is consistent not only with the market observable forward price curve but also the volatilities and correlations of forward...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    On Fair Pricing Of Emission-related Derivatives

    The climate rescue is on the top of many agendas. In this context, emission trading schemes are considered as promising tools. The regulatory framework of an emission trading scheme introduces a market for emission allowances and creates need for risk management by appropriate financial contracts. In this paper, the authors...

    Provided By University of Technology Sydney

  • White Papers // Nov 2009

    The Representation Of American Options Prices Under Stochastic Volatility And Jump-diffusion Dynamics

    This paper considers the problem of pricing American options when the dynamics of the underlying are driven by both stochastic volatility following a square root process as used by Heston (1993), and by a Poisson jump process as introduced by Merton (1976). Probability arguments are invoked to find a representation...

    Provided By University of Technology Sydney