Essays on Risk Modeling. Applications to Portfolio and Risk Management (summary section only)

In this thesis we deal with the concept of risk. The objective is to bring together and conclude on some normative information regarding quantitative portfolio management and risk assessment. The first essay concentrates on return dependency. We propose an algorithm for classifying markets into rising and falling. Given the algorithm, we derive a statistic: the Trend Switch Probability, for detection of long-term return dependency in the first moment. The empirical results suggest that the Trend Switch Probability is robust over various volatility specifications. The serial dependency in bear and bull markets behaves however differently. It is strongly positive in rising market whereas in bear markets it is closer to a random walk. Realized volatility, a technique for estimating volatility from high frequency data, is investigated in essays two and three. In the second essay we find, when measuring realized variance on a set of German stocks, that the second moment dependency structure is highly unstable and changes randomly. Results also suggest that volatility is non-stationary from time to time. In the third essay we examine the impact from market microstructure on the error between estimated realized volatility and the volatility of the underlying process. With simulation-based techniques we show that autocorrelation in returns leads to biased variance estimates and that lower sampling frequency and non-constant volatility increases the error variation between the estimated variance and the variance of the underlying process. From these essays we can conclude that volatility is not easily estimated, even from high frequency data. It is neither very well behaved in terms of stability nor dependency over time. Based on these observations, we would recommend the use of simple, transparent methods that are likely to be more robust over differing volatility regimes than models with a complex parameter universe. In analyzing long-term return dependency in the first moment we find that the Trend Switch Probability is a robust estimator. This is an interesting area for further research, with important implications for active asset allocation.

Intraday Seasonalities and Macroeconomic News Announcements

Using a data set consisting of three years of 5-minute intraday stock index returns for major European stock indices and U.S. macroeconomic surprises, the conditional mean and volatility behaviors in European market were investigated. The findings suggested that the opening of the U.S market significantly raised the level of volatility in Europe, and that all markets respond in an identical fashion. Furthermore, the U.S. macroeconomic surprises exerted an immediate and major impact on both European stock markets’ returns and volatilities. Thus, high frequency data appear to be critical for the identification of news that impacted the markets.

Merkel cell carcinoma : Epidemiological study with special reference to polyomavirus and vascular factors in pathogenesis

Merkel cell carcinoma (MCC) is a rare cutaneous malignancy that occurs predominantly on sun exposed skin areas. A new polyomavirus (MCPyV) was identified in MCC tumor tissues in 2008 suggesting that a viral infection might be an etiological factor. A typical MCC is a rapidly growing painless purple nodule. In its early stage it can be misjudged by its appearance as a cyst or abscess. Recurrences are common and approximately half of the patients will develop lymph node metastases and third of the patents will have distant metastases. It affects mostly elderly persons at an average age of 70 at the time of diagnosis. MCC was first described in 1972 and the first MCC patient in Finland was identified in 1983. MCC has been poorly recognized, but increased awareness and better diagnostic accuracy has increased the incidence since the early years. In this study, all cases with a notation of MCC during 1979 2008 were obtained from the Finnish Cancer Registry. Based on this data, the incidence is 0.11 for men and 0.12 for women. It is similar than that of other Nordic countries, but lower than in the USA. For clinical series, the files of patients diagnosed with MCC during 1983 2004 were reviewed, and the tissue samples were re-evaluated, if available (n=181). Third of the patients were men, and the most common site of the primary tumor was the head and neck (53%). The majority of the patients (86%) presented with a clinically node-negative (Stage I or II) disease, but the disease recurred in 38% of them. The treatment schemes were heterogeneous. No additional benefit from a wide margin (≥2 cm) was found compared to a margin of 0.1-1.9 cm, but intralesional excision was more often associated with local recurrence. None of the patients with Stage I-II disease who had received postoperative radiotherapy had local recurrence during the follow-up period. The 5-year relative survival ratio for Stage I disease was 68%, for Stage II 67%, for Stage III 16%, and for Stage IV 0%. The relative excess risk of death was significantly lower among women than among men. Some of these tissue samples were further analyzed for vascular invasion (n=126) by immunohistochemistry using vascular endothelial markers CD-31 and D2-40. Vascular invasion was seen in 93% of the samples and it was observed already in very small, <5mm tumors. The tissue samples were also analyzed for the presence of MCPyV by using a polymerase chain reaction (PCR) and quantitative PCR. MCPyV DNA was present in 80% of 114 samples studied. The patients with virus-positive tumors had better overall survival than patients with virus-negative tumors. Immunohistochemical analyses were performed for the expression of VEGFR-2 (n=21) and endostatin (n=19), but they had no prognostic value. Our results support the concept of treating MCC with margin-negative excision and radiotherapy to the tumor bed to reduce local recurrence. The finding of a high frequency of lymphovascular invasion reduces its value as a prognostic factor, but emphasizes the role of sentinel node biopsy even in very small primary MCC.

Tonically Active Kainate Receptors (tKARs) : A Novel Mechanism Regulating Neuronal Function in the Brain

Fast excitatory transmission between neurons in the central nervous system is mainly mediated by L-glutamate acting on ligand gated (ionotropic) receptors. These are further categorized according to their pharmacological properties to AMPA (2-amino-3-(5-methyl-3-oxo-1,2- oxazol-4-yl)propanoic acid), NMDA (N-Methyl-D-aspartic acid) and kainate (KAR) subclasses. In the rat and the mouse hippocampus, development of glutamatergic transmission is most dynamic during the first postnatal weeks. This coincides with the declining developmental expression of the GluK1 subunit-containing KARs. However, the function of KARs during early development of the brain is poorly understood. The present study reveals novel types of tonically active KARs (hereafter referred to as tKARs) which play a central role in functional development of the hippocampal CA3-CA1 network. The study shows for the first time how concomitant pre- and postsynaptic KAR function contributes to development of CA3-CA1 circuitry by regulating transmitter release and interneuron excitability. Moreover, the tKAR-dependent regulation of transmitter release provides a novel mechanism for silencing and unsilencing early synapses and thus shaping the early synaptic connectivity. The role of GluK1-containing KARs was studied in area CA3 of the neonatal hippocampus. The data demonstrate that presynaptic KARs in excitatory synapses to both pyramidal cells and interneurons are tonically activated by ambient glutamate and that they regulate glutamate release differentially, depending on target cell type. At synapses to pyramidal cells these tKARs inhibit glutamate release in a G-protein dependent manner but in contrast, at synapses to interneurons, tKARs facilitate glutamate release. On the network level these mechanisms act together upregulating activity of GABAergic microcircuits and promoting endogenous hippocampal network oscillations. By virtue of this, tKARs are likely to have an instrumental role in the functional development of the hippocampal circuitry. The next step was to investigate the role of GluK1 -containing receptors in the regulation of interneuron excitability. The spontaneous firing of interneurons in the CA3 stratum lucidum is markedly decreased during development. The shift involves tKARs that inhibit medium-duration afterhyperpolarization (mAHP) in these neurons during the first postnatal week. This promotes burst spiking of interneurons and thereby increases GABAergic activity in the network synergistically with the tKAR-mediated facilitation of their excitatory drive. During development the amplitude of evoked medium afterhyperpolarizing current (ImAHP) is dramatically increased due to decoupling tKAR activation and ImAHP modulation. These changes take place at the same time when the endogeneous network oscillations disappear. These tKAR-driven mechanisms in the CA3 area regulate both GABAergic and glutamatergic transmission and thus gate the feedforward excitatory drive to the area CA1. Here presynaptic tKARs to CA1 pyramidal cells suppress glutamate release and enable strong facilitation in response to high-frequency input. Therefore, CA1 synapses are finely tuned to high-frequency transmission; an activity pattern that is common in neonatal CA3-CA1 circuitry both in vivo and in vitro. The tKAR-regulated release probability acts as a novel presynaptic silencing mechanism that can be unsilenced in response to Hebbian activity. The present results shed new light on the mechanisms modulating the early network activity that paves the way for oscillations lying behind cognitive tasks such as learning and memory. Kainate receptor antagonists are already being developed for therapeutic use for instance against pain and migraine. Because of these modulatory actions, tKARs also represent an attractive candidate for therapeutic treatment of developmentally related complications such as learning disabilities.