Pricing Index Options with Stochastic Volatility

The objective of this paper is to investigate the pricing accuracy under stochastic volatility where the volatility follows a square root process. The theoretical prices are compared with market price data (the German DAX index options market) by using two different techniques of parameter estimation, the method of moments and implicit estimation by inversion. Standard Black & Scholes pricing is used as a benchmark. The results indicate that the stochastic volatility model with parameters estimated by inversion using the available prices on the preceding day, is the most accurate pricing method of the three in this study and can be considered satisfactory. However, as the same model with parameters estimated using a rolling window (the method of moments) proved to be inferior to the benchmark, the importance of stable and correct estimation of the parameters is evident.

The Physical Strenuousness of Work is Slightly Associated with an Upward Trend in the Body Mass Index

This paper explores the relationship between the physical strenuousness of work and the body mass index in Finland, using individual microdata over the period 1972-2002. The data contain self-reported information about the physical strenuousness of a respondent’s current occupation. Our estimates show that the changes in the physical strenuousness of work can explain around 8% at most of the definite increase in BMI observed over the period. The main reason for this appears to be that the quantitative magnitude of the effect of the physical strenuousness of work on BMI is rather moderate. Hence, according to the point estimates, BMI is only around 1.5% lower when one’s current occupation is physically very demanding and involves lifting and carrying heavy objects compared with sedentary job (reference group of the estimations), other things being equal. Accordingly, the changes in eating habits and the amount of physical activity during leisure time must be the most important contributors to the upward trend in BMI in industrialised countries, but not the changes in the labour market structure.

High-precision diode-laser-based temperature measurement for air refractive index compensation

We present a laser-based system to measure the refractive index of air over a long path length. In optical distance measurements it is essential to know the refractive index of air with high accuracy. Commonly, the refractive index of air is calculated from the properties of the ambient air using either Ciddor or Edlén equations, where the dominant uncertainty component is in most cases the air temperature. The method developed in this work utilises direct absorption spectroscopy of oxygen to measure the average temperature of air and of water vapor to measure relative humidity. The method allows measurement of temperature and humidity over the same beam path as in optical distance measurement, providing spatially well matching data. Indoor and outdoor measurements demonstrate the effectiveness of the method. In particular, we demonstrate an effective compensation of the refractive index of air in an interferometric length measurement at a time-variant and spatially non-homogenous temperature over a long time period. Further, we were able to demonstrate 7 mK RMS noise over a 67 m path length using 120 s sample time. To our knowledge, this is the best temperature precision reported for a spectroscopic temperature measurement.