Modeling Nonlinearities and Asymmetries in Asset Pricing

Financial time series tend to behave in a manner that is not directly drawn from a normal distribution. Asymmetries and nonlinearities are usually seen and these characteristics need to be taken into account. To make forecasts and predictions of future return and risk is rather complicated. The existing models for predicting risk are of help to a certain degree, but the complexity in financial time series data makes it difficult. The introduction of nonlinearities and asymmetries for the purpose of better models and forecasts regarding both mean and variance is supported by the essays in this dissertation. Linear and nonlinear models are consequently introduced in this dissertation. The advantages of nonlinear models are that they can take into account asymmetries. Asymmetric patterns usually mean that large negative returns appear more often than positive returns of the same magnitude. This goes hand in hand with the fact that negative returns are associated with higher risk than in the case where positive returns of the same magnitude are observed. The reason why these models are of high importance lies in the ability to make the best possible estimations and predictions of future returns and for predicting risk.

Examining and Modeling the Dynamics of the Volatility Surface

The objective of this paper is to investigate and model the characteristics of the prevailing volatility smiles and surfaces on the DAX- and ESX-index options markets. Continuing on the trend of Implied Volatility Functions, the Standardized Log-Moneyness model is introduced and fitted to historical data. The model replaces the constant volatility parameter of the Black & Scholes pricing model with a matrix of volatilities with respect to moneyness and maturity and is tested out-of-sample. Considering the dynamics, the results show support for the hypotheses put forward in this study, implying that the smile increases in magnitude when maturity and ATM volatility decreases and that there is a negative/positive correlation between a change in the underlying asset/time to maturity and implied ATM volatility. Further, the Standardized Log-Moneyness model indicates an improvement to pricing accuracy compared to previous Implied Volatility Function models, however indicating that the parameters of the models are to be re-estimated continuously for the models to fully capture the changing dynamics of the volatility smiles.

Chemicals risk modeling : toxic effect risks imposed on aquatic organisms by industrial activity

Yhteenveto: Kemikaalien teollisesta käsittelystä vesieliöille aiheutuvien riskien arviointi mallin avulla.

How the development of condensation particle counters is reforming our view on atmospheric nucleation

Aerosol particles deteriorate air quality, atmospheric visibility and our health. They affect the Earth s climate by absorbing and scattering sunlight, forming clouds, and also via several feed-back mechanisms. The net effect on the radiative balance is negative, i.e. cooling, which means that particles counteract the effect of greenhouse gases. However, particles are one of the poorly known pieces in the climate puzzle. Some of the airborne particles are natural, some anthropogenic; some enter the atmosphere in particle form, while others form by gas-to-particle conversion. Unless the sources and dynamical processes shaping the particle population are quantified, they cannot be incorporated into climate models. The molecular level understanding of new particle formation is still inadequate, mainly due to the lack of suitable measurement techniques to detect the smallest particles and their precursors. This thesis has contributed to our ability to measure newly formed particles. Three new condensation particle counter applications for measuring the concentration of nano-particles were developed. The suitability of the methods for detecting both charged and electrically neutral particles and molecular clusters as small as 1 nm in diameter was thoroughly tested both in laboratory and field conditions. It was shown that condensation particle counting has reached the size scale of individual molecules, and besides measuring the concentration they can be used for getting size information. In addition to atmospheric research, the particle counters could have various applications in other fields, especially in nanotechnology. Using the new instruments, the first continuous time series of neutral sub-3 nm particle concentrations were measured at two field sites, which represent two different kinds of environments: the boreal forest and the Atlantic coastline, both of which are known to be hot-spots for new particle formation. The contribution of ions to the total concentrations in this size range was estimated, and it could be concluded that the fraction of ions was usually minor, especially in boreal forest conditions. Since the ionization rate is connected to the amount of cosmic rays entering the atmosphere, the relative contribution of neutral to charged nucleation mechanisms extends beyond academic interest, and links the research directly to current climate debate.

On the charging state of atmospheric aerosols and ion-induced nucleation

Floating in the air that surrounds us is a number of small particles, invisible to the human eye. The mixture of air and particles, liquid or solid, is called an aerosol. Aerosols have significant effects on air quality, visibility and health, and on the Earth's climate. Their effect on the Earth's climate is the least understood of climatically relevant effects. They can scatter the incoming radiation from the Sun, or they can act as seeds onto which cloud droplets are formed. Aerosol particles are created directly, by human activity or natural reasons such as breaking ocean waves or sandstorms. They can also be created indirectly as vapors or very small particles are emitted into the atmosphere and they combine to form small particles that later grow to reach climatically or health relevant sizes. The mechanisms through which those particles are formed is still under scientific discussion, even though this knowledge is crucial to make air quality or climate predictions, or to understand how aerosols will influence and will be influenced by the climate's feedback loops. One of the proposed mechanisms responsible for new particle formation is ion-induced nucleation. This mechanism is based on the idea that newly formed particles were ultimately formed around an electric charge. The amount of available charges in the atmosphere varies depending on radon concentrations in the soil and in the air, as well as incoming ionizing radiation from outer space. In this thesis, ion-induced nucleation is investigated through long-term measurements in two different environments: in the background site of Hyytiälä and in the urban site that is Helsinki. The main conclusion of this thesis is that ion-induced nucleation generally plays a minor role in new particle formation. The fraction of particles formed varies from day to day and from place to place. The relative importance of ion-induced nucleation, i.e. the fraction of particles formed through ion-induced nucleation, is bigger in cleaner areas where the absolute number of particles formed is smaller. Moreover, ion-induced nucleation contributes to a bigger fraction of particles on warmer days, when the sulfuric acid and water vapor saturation ratios are lower. This analysis will help to understand the feedbacks associated with climate change.