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.

Monetary policy rules and estimated reaction functions for the European Central Bank

This thesis studies the interest-rate policy of the ECB by estimating monetary policy rules using real-time data and central bank forecasts. The aim of the estimations is to try to characterize a decade of common monetary policy and to look at how different models perform at this task.The estimated rules include: contemporary Taylor rules, forward-looking Taylor rules, nonlinearrules and forecast-based rules. The nonlinear models allow for the possibility of zone-like preferences and an asymmetric response to key variables. The models therefore encompass the most popular sub-group of simple models used for policy analysis as well as the more unusual non-linear approach. In addition to the empirical work, this thesis also contains a more general discussion of monetary policy rules mostly from a New Keynesian perspective. This discussion includes an overview of some notable related studies, optimal policy, policy gradualism and several other related subjects. The regression estimations are performed with either least squares or the generalized method of moments depending on the requirements of the estimations. The estimations use data from both the Euro Area Real-Time Database and the central bank forecasts published in ECB Monthly Bulletins. These data sources represent some of the best data that is available for this kind of analysis. The main results of this thesis are that forward-looking behavior appears highly prevalent, but that standard forward-looking Taylor rules offer only ambivalent results with regard to inflation. Nonlinear models are shown to work, but on the other hand do not have a strong rationale over a simpler linear formulation. However, the forecasts appear to be highly useful in characterizing policy and may offer the most accurate depiction of a predominantly forward-looking central bank. In particular the inflation response appears much stronger while the output response becomes highly forward-looking as well.

A new method for modulating the activity of parvalbumin-positive neurons and cerebellar Purkinje cells in vivo

Neurons can be divided into various classes according to their location, morphology, neurochemical identity and electrical properties. They form complex interconnected networks with precise roles for each cell type. GABAergic neurons expressing the calcium-binding protein parvalbumin (Pv) are mainly interneurons, which serve a coordinating function. Pv-cells modulate the activity of principal cells with high temporal precision. Abnormalities of Pv-interneuron activity in cortical areas have been linked to neuropsychiatric illnesses such as schizophrenia. Cerebellar Purkinje cells are known to be central to motor learning. They are the sole output from the layered cerebellar cortex to deep cerebellar nuclei. There are still many open questions about the precise role of Pv-neurons and Purkinje cells, many of which could be answered if one could achieve rapid, reversible cell-type specific modulation of the activity of these neurons and observe the subsequent changes at the whole-animal level. The aim of these studies was to develop a novel method for the modulation of Pv-neurons and Purkinje cells in vivo and to use this method to investigate the significance of inhibition in these neuronal types with a variety of behavioral experiments in addition to tissue autoradiography, electrophysiology and immunohistochemistry. The GABA(A) receptor γ2 subunit was ablated from Pv-neurons and Purkinje cells in four separate mouse lines. Pv-Δγ2 mice had wide-ranging behavioral alterations and increased GABA-insensitive binding indicative of an altered GABA(A) receptor composition, particularly in midbrain areas. PC-Δγ2 mice experienced little or no motor impairment despite the lack of inhibition in Purkinje cells. In Pv-Δγ2-partial rescue mice, a reversal of motor and cognitive deficits was observed in addition to restoration of the wild-type γ2F77 subunit to the reticular nucleus of thalamus and the cerebellar molecular layer. In PC-Δγ2-swap mice, zolpidem sensitivity was restored to Purkinje cells and the administration of systemic zolpidem evoked a transient motor impairment. On the basis of these results, it is concluded that this new method of cell-type specific modulation is a feasible way to modulate the activity of selected neuronal types. The importance of Purkinje cells to motor control supports previous studies, and the crucial involvement of Pv-neurons in a range of behavioral modalities is confirmed.