Evaluating the Predictability of the Volatility Smile Using Return Distributions

In this paper, we examine the predictability of observed volatility smiles in three major European index options markets, utilising the historical return distributions of the respective underlying assets. The analysis involves an application of the Black (1976) pricing model adjusted in accordance with the Jarrow-Rudd methodology as proposed in 1982. Thereby we adjust the expected future returns for the third and fourth central moments as these represent deviations from normality in the distributions of observed returns. Thus, they are considered one possible explanation to the existence of the smile. The obtained results indicate that the inclusion of the higher moments in the pricing model to some extent reduces the volatility smile, compared with the unadjusted Black-76 model. However, as the smile is partly a function of supply, demand, and liquidity, and as such intricate to model, this modification does not appear sufficient to fully capture the characteristics of the smile.

The Influence of World Factors on Finnish Stock Market Volatility

This paper investigates to what extent the volatility of Finnish stock portfolios is transmitted through the "world volatility". We operationalize the volatility processes of Finnish leverage, industry, and size portfolio returns by asymmetric GARCH specifications according to Glosten et al. (1993). We use daily return data for January, 2, 1987 to December 30, 1998. We find that the world shock significantly enters the domestic models, and that the impact has increased over time. This applies also for the variance ratios, and the correlations to the world. The larger the firm, the larger is the world impact. The conditional variance is higher during recessions. The asymmetry parameter is surprisingly non-significant, and the leverage hypothesis cannot be verified. The return generating process of the domestic portfolio returns does usually not include the world information set, thus indicating that the returns are generated by a segmented conditional asset pricing model.

Intraday Linkages across International Equity Markets

Utilizing concurrent 5-minute returns, the intraday dynamics and inter-market dependencies in international equity markets were investigated. A strong intraday cyclical autocorrelation structure in the volatility process was observed to be caused by the diurnal pattern. A major rise in contemporaneous cross correlation among European stock markets was also noticed to follow the opening of the New York Stock Exchange. Furthermore, the results indicated that the returns for UK and Germany responded to each other’s innovations, both in terms of the first and second moment dependencies. In contrast to earlier research, the US stock market did not cause significant volatility spillover to the European markets.

On the Importance of Mutual Fund Families in Emerging Markets

This study contributes to the mutual fund literature by looking at performance persistence on a fund family level, allowing for individual equity, bond and balanced funds to be included under single family umbrellas. The study is conducted on the emerging Finnish mutual fund market, an environment in which the importance of superior fund family teams is likely to be accentuated. Using both non–parametric and parametric tests we find robust evidence of performance persistence for the fund families. Persistence is particularly strong in the first half of the investigation period, which highlights the importance of fund families at early stages of market development.

Effects of gender, and SLCO1B1 and CYP7A1 polymorphisms on plasma bile acids in humans and the pharmacokinetics of therapeutic ursodeoxycholic acid

Bile acids are important steroid-derived molecules essential for fat absorption in the small intestine. They are produced in the liver and secreted into the bile. Bile acids are transported by bile flow to the small intestine, where they aid the digestion of lipids. Most bile acids are reabsorbed in the small intestine and return to the liver through the portal vein. The whole recycling process is referred to as the enterohepatic circulation, during which only a small amount of bile acids are removed from the body via faeces. The enterohepatic circulation of bile acids involves the delicate coordination of a number of bile acid transporters expressed in the liver and the small intestine. Organic anion transporting polypeptide 1B1 (OATP1B1), encoded by the solute carrier organic anion transporter family, member 1B1 (SLCO1B1) gene, mediates the sodium independent hepatocellular uptake of bile acids. Two common SNPs in the SLCO1B1 gene are well known to affect the transport activity of OATP1B1. Moreover, bile acid synthesis is an important elimination route for cholesterol. Cholesterol 7α-hydroxylase (CYP7A1) is the rate-limiting enzyme of bile acid production. The aim of this thesis was to investigate the effects of SLCO1B1 polymorphism on the fasting plasma levels of individual endogenous bile acids and a bile acid synthesis marker, and the pharmacokinetics of exogenously administered ursodeoxycholic acid (UDCA). Furthermore, the effects of CYP7A1 genetic polymorphism and gender on the fasting plasma concentrations of individual endogenous bile acids and the bile acid synthesis marker were evaluated. Firstly, a high performance liquid chromatography-tandem mass spectrometry (HPLC-MS/MS) method for the determination of bile acids was developed (Study I). A retrospective study examined the effects of SLCO1B1 genetic polymorphism on the fasting plasma concentrations of individual bile acids and a bile acid synthesis marker in 65 healthy subjects (Study II). In another retrospective study with 143 healthy individuals, the effects of CYP7A1 genetic polymorphism and gender as well as SLCO1B1 polymorphism on the fasting plasma levels of individual bile acids and the bile acid synthesis marker were investigated (Study III). The effects of SLCO1B1 polymorphism on the pharmacokinetics of exogenously administered UDCA were evaluated in a prospective genotype panel study including 27 healthy volunteers (Study IV). A robust, sensitive and simple HPLC-MS/MS method was developed for the simultaneous determination of 16 individual bile acids in human plasma. The method validation parameters for all the analytes met the requirements of the FDA (Food and Drug Administration) bioanalytical guidelines. This HPLC-MS/MS method was applied in Studies II-IV. In Study II, the fasting plasma concentrations of several bile acids and the bile acid synthesis marker seemed to be affected by SLCO1B1 genetic polymorphism, but these findings were not replicated in Study III with a larger sample size. Moreover, SLCO1B1 polymorphism had no effect on the pharmacokinetic parameters of exogenously administered UDCA. Furthermore, no consistent association was observed between CYP7A1 genetic polymorphism and the fasting plasma concentrations of individual bile acids or the bile acid synthesis marker. In contrast, gender had a major effect on the fasting plasma concentrations of several bile acids and also total bile acids. In conclusion, gender, but not SLCO1B1 or CYP7A1 polymorphisms, has a major effect on the fasting plasma concentrations of individual bile acids. Moreover, the common genetic polymorphism of CYP7A1 is unlikely to influence the activity of CYP7A1 under normal physiological conditions. OATP1B1 does not play an important role in the in vivo disposition of exogenously administered UDCA.