Essays on volatility and liquidity in financial markets

The price formation of financial assets is a complex process. It extends beyond the standard economic paradigm of supply and demand to the understanding of the dynamic behavior of price variability, the price impact of information, and the implications of trading behavior of market participants on prices. In this thesis, I study aggregate market and individual assets volatility, liquidity dimensions, and causes of mispricing for US equities over a recent sample period. How volatility forecasts are modeled, what determines intradaily jumps and causes changes in intradaily volatility and what drives the premium of traded equity indexes? Are they induced, for example, by the information content of lagged volatility and return parameters or by macroeconomic news, changes in liquidity and volatility? Besides satisfying our intellectual curiosity, answers to these questions are of direct importance to investors developing trading strategies, policy makers evaluating macroeconomic policies and to arbitrageurs exploiting mispricing in exchange-traded funds. Results show that the leverage effect and lagged absolute returns improve forecasts of continuous components of daily realized volatility as well as jumps. Implied volatility does not subsume the information content of lagged returns in forecasting realized volatility and its components. The reported results are linked to the heterogeneous market hypothesis and demonstrate the validity of extending the hypothesis to returns. Depth shocks, signed order flow, the number of trades, and resiliency are the most important determinants of intradaily volatility. In contrast, spread shock and resiliency are predictive of signed intradaily jumps. There are fewer macroeconomic news announcement surprises that cause extreme price movements or jumps than those that elevate intradaily volatility. Finally, the premium of exchange-traded funds is significantly associated with momentum in net asset value and a number of liquidity parameters including the spread, traded volume, and illiquidity. The mispricing of industry exchange traded funds suggest that limits to arbitrage are driven by potential illiquidity.

Deposition of hydrocarbon molecules on diamond (001) surfaces : atomic scale modeling

The impact induced chemisorption of hydrocarbon molecules (CH3 and CH2) on H-terminated diamond (001)-(2x1) surface was investigated by molecular dynamics simulation using the many-body Brenner potential. The deposition dynamics of the CH3 radical at impact energies of 0.1-50 eV per molecule was studied and the energy threshold for chemisorption was calculated. The impact-induced decomposition of hydrogen atoms and the dimer opening mechanism on the surface was investigated. Furthermore, the probability for dimer opening event induced by chemisorption of CH, was simulated by randomly varying the impact position as well as the orientation of the molecule relative to the surface. Finally, the energetic hydrocarbons were modeled, slowing down one after the other to simulate the initial fabrication of diamond-like carbon (DLC) films. The structure characteristic in synthesized films with different hydrogen flux was studied. Our results indicate that CH3, CH2 and H are highly reactive and important species in diamond growth. Especially, the fraction of C-atoms in the film having sp(3) hybridization will be enhanced in the presence of H atoms, which is in good agreement with experimental observations. (C) 2002 Elsevier Science B.V. All rights reserved.

The benefit of modeling jumps in realized volatility for risk prediction : evidence from Chinese mainland stocks

Recent literature has focused on realized volatility models to predict financial risk. This paper studies the benefit of explicitly modeling jumps in this class of models for value at risk (VaR) prediction. Several popular realized volatility models are compared in terms of their VaR forecasting performances through a Monte Carlo study and an analysis based on empirical data of eight Chinese stocks. The results suggest that careful modeling of jumps in realized volatility models can largely improve VaR prediction, especially for emerging markets where jumps play a stronger role than those in developed markets.

An analysis of the KEEP CLEAR pavement markings effects on queuing vehicles dynamic performance at urban signalised intersections

KEEP CLEAR pavement markings are widely used at urban signalised intersections to indicate to drivers to avoid entering blocked intersections. For example, ‘Box junctions’ are most widely used in the United Kingdom and other European countries. However, in Australia, KEEP CLEAR markings are mostly used to improve access from side roads onto a main road, especially when the side road is very close to a signalised intersection. This paper aims to reveal how the KEEP CLEAR markings affect the dynamic performance of the queuing vehicles on the main road, where the side road access is near a signalised intersection. Raw traffic field data was collected from an intersection at the Gold Coast, Australia, and the Kanade–Lucas–Tomasi (KLT) feature tracker approach was used to extract dynamic vehicle data from the raw video footage. The data analysis reveals that the KEEP CLEAR markings generate positive effects on the queuing vehicles in discharge on the main road. This finding refutes the traditional viewpoint that the KEEP CLEAR pavement markings will cause delay for the queuing vehicles’ departure due to the enlarged queue spacing. Further studies are suggested in this paper as well.

Computer modeling of diffusion in biological tissues

Molecular-level computer simulations of restricted water diffusion can be used to develop models for relating diffusion tensor imaging measurements of anisotropic tissue to microstructural tissue characteristics. The diffusion tensors resulting from these simulations can then be analyzed in terms of their relationship to the structural anisotropy of the model used. As the translational motion of water molecules is essentially random, their dynamics can be effectively simulated using computers. In addition to modeling water dynamics and water-tissue interactions, the simulation software of the present study was developed to automatically generate collagen fiber networks from user-defined parameters. This flexibility provides the opportunity for further investigations of the relationship between the diffusion tensor of water and morphologically different models representing different anisotropic tissues.

Business process variability modeling : A survey

It is common for organizations to maintain multiple variants of a given business process, such as multiple sales processes for different products or multiple bookkeeping processes for different countries. Conventional business process modeling languages do not explicitly support the representation of such families of process variants. This gap triggered significant research efforts over the past decade leading to an array of approaches to business process variability modeling. This survey examines existing approaches in this field based on a common set of criteria and illustrates their key concepts using a running example. The analysis shows that existing approaches are characterized by the fact that they extend a conventional process mod- eling language with constructs that make it able to capture customizable process models. A customizable process model represents a family of process variants in a way that each variant can be derived by adding or deleting fragments according to configuration parameters or according to a domain model. The survey puts into evidence an abundance of customizable process modeling languages, embodying a diverse set of con- structs. In contrast, there is comparatively little tool support for analyzing and constructing customizable process models, as well as a scarcity of empirical evaluations of languages in the field.

Monitoring of complex systems of interacting dynamic systems

Increases in functionality, power and intelligence of modern engineered systems led to complex systems with a large number of interconnected dynamic subsystems. In such machines, faults in one subsystem can cascade and affect the behavior of numerous other subsystems. This complicates the traditional fault monitoring procedures because of the need to train models of the faults that the monitoring system needs to detect and recognize. Unavoidable design defects, quality variations and different usage patterns make it infeasible to foresee all possible faults, resulting in limited diagnostic coverage that can only deal with previously anticipated and modeled failures. This leads to missed detections and costly blind swapping of acceptable components because of one’s inability to accurately isolate the source of previously unseen anomalies. To circumvent these difficulties, a new paradigm for diagnostic systems is proposed and discussed in this paper. Its feasibility is demonstrated through application examples in automotive engine diagnostics.

Dynamic robot path planning using an enhanced simulated annealing approach

Evolutionary computation is an effective tool for solving optimization problems. However, its significant computational demand has limited its real-time and on-line applications, especially in embedded systems with limited computing resources, e.g., mobile robots. Heuristic methods such as the genetic algorithm (GA) based approaches have been investigated for robot path planning in dynamic environments. However, research on the simulated annealing (SA) algorithm, another popular evolutionary computation algorithm, for dynamic path planning is still limited mainly due to its high computational demand. An enhanced SA approach, which integrates two additional mathematical operators and initial path selection heuristics into the standard SA, is developed in this work for robot path planning in dynamic environments with both static and dynamic obstacles. It improves the computing performance of the standard SA significantly while giving an optimal or near-optimal robot path solution, making its real-time and on-line applications possible. Using the classic and deterministic Dijkstra algorithm as a benchmark, comprehensive case studies are carried out to demonstrate the performance of the enhanced SA and other SA algorithms in various dynamic path planning scenarios.

Shear-critical impact response of biaxially loaded reinforced concrete circular columns

A study on the vulnerability of biaxially loaded reinforced concrete (RC) circular columns in multi-story buildings under low- to medium-velocity impacts at shear-critical locations is presented. The study is based on a previously validated nonlinear explicit dynamic finite element (FE) modeling technique developed by the authors. The impact is simulated using force pulses generated from full-scale vehicle impact tests abundantly found in the literature with a view to quantifying the sensitivity of the design parameters of the RC columns under the typical impacts that are representative of the general vehicle population. The design parameters considered include the diameter and height of the column, the vertical steel ratio, the concrete grade, and the confinement effects. From the results of the simulations, empirical equations to quantify the critical impulses for the simplified design of the short, circular RC columns under the risk of shear-critical impacts are developed.

Modeling obligations with event-calculus

Time plays an important role in norms. In this paper we start from our previously proposed classification of obligations, and point out some shortcomings of Event Calculus (EC) to represent obligations. We proposed an extension of EC that avoids such shortcomings and we show how to use it to model the various types of obligations.

Modeling the cumulative genetic risk for multiple sclerosis from genome-wide association data

Background: Multiple sclerosis (MS) is the most common cause of chronic neurologic disability beginning in early to middle adult life. Results from recent genome-wide association studies (GWAS) have substantially lengthened the list of disease loci and provide convincing evidence supporting a multifactorial and polygenic model of inheritance. Nevertheless, the knowledge of MS genetics remains incomplete, with many risk alleles still to be revealed. Methods: We used a discovery GWAS dataset (8,844 samples, 2,124 cases and 6,720 controls) and a multi-step logistic regression protocol to identify novel genetic associations. The emerging genetic profile included 350 independent markers and was used to calculate and estimate the cumulative genetic risk in an independent validation dataset (3,606 samples). Analysis of covariance (ANCOVA) was implemented to compare clinical characteristics of individuals with various degrees of genetic risk. Gene ontology and pathway enrichment analysis was done using the DAVID functional annotation tool, the GO Tree Machine, and the Pathway-Express profiling tool. Results: In the discovery dataset, the median cumulative genetic risk (P-Hat) was 0.903 and 0.007 in the case and control groups, respectively, together with 79.9% classification sensitivity and 95.8% specificity. The identified profile shows a significant enrichment of genes involved in the immune response, cell adhesion, cell communication/ signaling, nervous system development, and neuronal signaling, including ionotropic glutamate receptors, which have been implicated in the pathological mechanism driving neurodegeneration. In the validation dataset, the median cumulative genetic risk was 0.59 and 0.32 in the case and control groups, respectively, with classification sensitivity 62.3% and specificity 75.9%. No differences in disease progression or T2-lesion volumes were observed among four levels of predicted genetic risk groups (high, medium, low, misclassified). On the other hand, a significant difference (F = 2.75, P = 0.04) was detected for age of disease onset between the affected misclassified as controls (mean = 36 years) and the other three groups (high, 33.5 years; medium, 33.4 years; low, 33.1 years). Conclusions: The results are consistent with the polygenic model of inheritance. The cumulative genetic risk established using currently available genome-wide association data provides important insights into disease heterogeneity and completeness of current knowledge in MS genetics.

Modeling electricity price events as point processes

Energy prices are highly volatile and often feature unexpected spikes. It is the aim of this paper to examine whether the occurrence of these extreme price events displays any regularities that can be captured using an econometric model. Here we treat these price events as point processes and apply Hawkes and Poisson autoregressive models to model the dynamics in the intensity of this process.We use load and meteorological information to model the time variation in the intensity of the process. The models are applied to data from the Australian wholesale electricity market, and a forecasting exercise illustrates both the usefulness of these models and their limitations when attempting to forecast the occurrence of extreme price events.

Understanding the actualization of affordances: A study in the process modeling context

The affordances concept describes the possibilities for goal-oriented action that technical objects offer to specified users. This notion has received growing attention from IS researchers. However, few studies have gone beyond contextualizing parts of the concept to a specific setting – the tip of the iceberg. In this research-in-progress paper, we report on our efforts to further develop the IS discipline’s understanding of affordances from informational objects. Specifically, we seek to extend extant theory on the origin and actualization of affordances. We develop a model that describes the process by which affordances are perceived and actualized and their dependence on information and actualization effort. We illustrate our emergent theory in the context of conceptual process models used by analysts for purposes of information systems analysis and design. We offer suggestions for operationalizing and testing this model empirically, and provide details about our design of a mixed-methods study currently in progress.

Modeling the co-precipitation of silica and calcium oxalate in sugar solutions

Solution chemistry plays a significant role in the rate and type of foulant formed on heated industrial surfaces. This paper describes the effect of sucrose, silica (SiO2), Ca2+ and Mg2+ ions, and trans-aconitic acid on the kinetics and solubility of SiO2 and calcium oxalate monohydrate (COM) in mixed salt solutions containing sucrose and refines models previously proposed. The developed SiO2 models show that sucrose and SiO2 concentrations are the main parameters that determine apparent order (n) and apparent rate of reaction (k) and SiO2 solubility over a 24 h period. The calcium oxalate solubility model shows that while increasing [Mg2+] increases COM solubility, the reverse is so with increasing sucrose concentrations. The role of solution species on COM crystal habit is discussed and the appearance of the uncommon (001) face is explained.