Stochastic modelling of financial time series with memory and multifractal scaling

Financial processes may possess long memory and their probability densities may display heavy tails. Many models have been developed to deal with this tail behaviour, which reflects the jumps in the sample paths. On the other hand, the presence of long memory, which contradicts the efficient market hypothesis, is still an issue for further debates. These difficulties present challenges with the problems of memory detection and modelling the co-presence of long memory and heavy tails. This PhD project aims to respond to these challenges. The first part aims to detect memory in a large number of financial time series on stock prices and exchange rates using their scaling properties. Since financial time series often exhibit stochastic trends, a common form of nonstationarity, strong trends in the data can lead to false detection of memory. We will take advantage of a technique known as multifractal detrended fluctuation analysis (MF-DFA) that can systematically eliminate trends of different orders. This method is based on the identification of scaling of the q-th-order moments and is a generalisation of the standard detrended fluctuation analysis (DFA) which uses only the second moment; that is, q = 2. We also consider the rescaled range R/S analysis and the periodogram method to detect memory in financial time series and compare their results with the MF-DFA. An interesting finding is that short memory is detected for stock prices of the American Stock Exchange (AMEX) and long memory is found present in the time series of two exchange rates, namely the French franc and the Deutsche mark. Electricity price series of the five states of Australia are also found to possess long memory. For these electricity price series, heavy tails are also pronounced in their probability densities. The second part of the thesis develops models to represent short-memory and longmemory financial processes as detected in Part I. These models take the form of continuous-time AR(∞) -type equations whose kernel is the Laplace transform of a finite Borel measure. By imposing appropriate conditions on this measure, short memory or long memory in the dynamics of the solution will result. A specific form of the models, which has a good MA(∞) -type representation, is presented for the short memory case. Parameter estimation of this type of models is performed via least squares, and the models are applied to the stock prices in the AMEX, which have been established in Part I to possess short memory. By selecting the kernel in the continuous-time AR(∞) -type equations to have the form of Riemann-Liouville fractional derivative, we obtain a fractional stochastic differential equation driven by Brownian motion. This type of equations is used to represent financial processes with long memory, whose dynamics is described by the fractional derivative in the equation. These models are estimated via quasi-likelihood, namely via a continuoustime version of the Gauss-Whittle method. The models are applied to the exchange rates and the electricity prices of Part I with the aim of confirming their possible long-range dependence established by MF-DFA. The third part of the thesis provides an application of the results established in Parts I and II to characterise and classify financial markets. We will pay attention to the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the NASDAQ Stock Exchange (NASDAQ) and the Toronto Stock Exchange (TSX). The parameters from MF-DFA and those of the short-memory AR(∞) -type models will be employed in this classification. We propose the Fisher discriminant algorithm to find a classifier in the two and three-dimensional spaces of data sets and then provide cross-validation to verify discriminant accuracies. This classification is useful for understanding and predicting the behaviour of different processes within the same market. The fourth part of the thesis investigates the heavy-tailed behaviour of financial processes which may also possess long memory. We consider fractional stochastic differential equations driven by stable noise to model financial processes such as electricity prices. The long memory of electricity prices is represented by a fractional derivative, while the stable noise input models their non-Gaussianity via the tails of their probability density. A method using the empirical densities and MF-DFA will be provided to estimate all the parameters of the model and simulate sample paths of the equation. The method is then applied to analyse daily spot prices for five states of Australia. Comparison with the results obtained from the R/S analysis, periodogram method and MF-DFA are provided. The results from fractional SDEs agree with those from MF-DFA, which are based on multifractal scaling, while those from the periodograms, which are based on the second order, seem to underestimate the long memory dynamics of the process. This highlights the need and usefulness of fractal methods in modelling non-Gaussian financial processes with long memory.

Temperature variation and emergency hospital admissions for stroke in Brisbane, Australia, 1996-2005

Stroke is a leading cause of disability and death. This study evaluated the association between temperature variation and emergency admissions for stroke in Brisbane, Australia. Daily emergency admissions for stroke, meteorologic and air pollution data were obtained for the period of January 1996 to December 2005. The relative risk of emergency admissions for stroke was estimated with a generalized estimating equations (GEE) model. For primary intracerebral hemorrhage (PIH) emergency admissions, the average daily PIH for the group aged < 65 increased by 15% (95% Confidence Interval (CI): 5, 26%) and 12% (95% CI: 2, 22%) for a 1°C increase in daily maximum temperature and minimum temperature in summer, respectively, after controlling for potential confounding effects of humidity and air pollutants. For ischemic stroke (IS) emergency admissions, the average daily IS for the group aged ≥ 65 decreased by 3% (95% CI: -6, 0%) for a 1°C increase in daily maximum temperature in winter after adjustment for confounding factors. Temperature variation was significantly associated with emergency admissions for stroke, and its impact varied with different type of stroke. Health authorities should pay greater attention to possible increasing emergency care for strokes when temperature changes, in both summer and winter.

Numerical and experimental investigation of wedge tip radius effect on wedge plasmons

We report numerical analysis and experimental observation of strongly localized plasmons guided by triangular metal wedges and pay special attention to the effect of smooth (nonzero radius) tips. Dispersion, dissipation, and field structure of such wedge plasmons are analyzed using the compact two-dimensional finite-difference time-domain algorithm. Experimental observation is conducted by the end-fire excitation and near-field scanning optical microscope detection of the predicted plasmons on 40°silver nanowedges with the wedge tip radii of 20, 85, and 125 nm that were fabricated by the focused-ion beam method. The effect of smoothing wedge tips is shown to be similar to that of increasing wedge angle. Increasing wedge angle or wedge tip radius results in increasing propagation distance at the same time as decreasing field localization (decreasing wave number). Quantitative differences between the theoretical and experimental propagation distances are suggested to be due to a contribution of scattered bulk and surface waves near the excitation region as well as the addition of losses due to surface roughness. The theoretical and measured propagation distances are several plasmon wavelengths and are useful for a range of nano-optical applications

To work or not to work? Child development and maternal labor supply

We estimate the effect of early child development on maternal labor force participation. Mothers of poorly developing children may remain at home to care for their children. Alternatively, mothers may enter the labor force to pay for additional educational and health resources. Which action dominates is the empirical question we answer in this paper. We control for the potential endogeneity of child development by using an instrumental variables approach, uniquely exploiting exogenous variation in child development associated with child handedness. We find that a one unit increase in poor child development decreases maternal labor force participation by approximately 10 percentage points.

What shapes player performance in soccer? Empirical findings from a panel analysis

In this article, we investigate the pay-performance relationship of soccer players using individual data from eight seasons of the German soccer league Bundesliga. We find a nonlinear pay-performance relationship, indicating that salary does indeed affect individual performance. The results further show that player performance is affected not only by absolute income level but also by relative income position. An additional analysis of the performance impact of team effects provides evidence of a direct impact of team-mate attributes on individual player performance.

Evaluation of community participation for the development of culture-based fisheries in village reservoirs of Sri Lanka

In this paper an attempt is made to identify the socioeconomic characteristics of a community that influences the development and management of culture-based fisheries in village reservoirs of Sri Lanka. Socioeconomic data were collected from 46 agricultural farming communities associated with 47 village reservoirs in Sri Lanka. Principal component analysis indicated that scores of the first principal component were positively influenced by socioeconomic characteristics that are favorable for making collective decisions. These included leadership of the officers, age of the group, percentage of active members of the group, percentage of kinship of the group, percentage of common interest of the group, and percentage of participation of the group. The size of the group had negative effect on the first principal component. The principal component scores of communication were positively related to willingness to pay (P< 0.001). The communities with socioeconomic characteristics favouring collective decision making were in favor of culture-based fisheries. Homogeneity of group characteristics facilitated successful development of culture-based fisheries.

Behavioural biases and information disclosure laws relating to residential property sales : narrowing the gap between existing laws and calls for future reforms

Market failures involving the sale of complex merchandise, such as residential property, financial products and credit, have principally been attributed to information asymmetries. Existing legislative and regulatory responses were developed having regard to consumer protection policies based on traditional economic theories that focus on the notion of the ‘rational consumer’. Governmental responses therefore seek to impose disclosure obligations on sellers of complex goods or products to ensure that consumers have sufficient information upon which to make a decision. Emergent research, based on behavioural economics, challenges traditional ideas and instead focuses on the actual behaviour of consumers. This approach suggests that consumers as a whole do not necessarily benefit from mandatory disclosure because some, if not most, consumers do not pay attention to the disclosed information before they make a decision to purchase. The need for consumer policies to take consumer characteristics and behaviour into account is being increasingly recognised by governments, and most recently in the policy framework suggested by the Australian Productivity Commission

Empirical Evidence Showing The Relationships Between Three Approaches for Pollution Control

Willingness to pay models have shown the theoretical relationships between the contingent valuation, cost of illness and the avertive behaviour approaches. In this paper, field survey data are used to compare the relationships between these three approaches and to demonstrate that contingent valuation bids exceed the sum of cost of illness and the avertive behaviour approach estimates. The estimates provide a validity check for CV bids and further support the claim that contingent valuation studies are theoretically consistent.

Tax morale and conditional cooperation

Why so many people pay their taxes, even though fines and audit probability are low, is a central question in the tax compliance literature. Positing a homo oeconomicus having a refined motivation structure sheds light on this puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 West and East European countries. We find a high correlation between perceived tax evasion and tax morale. The results remain robust after exploiting endogeneity and conducting several robustness tests. We also observe a strong positive correlation between institutional quality and tax mmorale. Keywords: Tax morale; Tax compliance; Tax evasion; Pro-social behavior; Institutions

A Knight without a Sword? The Effects of Audit Courts on Tax Morale

The intention of this paper is to analyse how audit courts affect tax morale, controlling in a multivariate analysis for a broad variety of potential factors. Switzerland, with its variety of audit-court competence among the cantons, has been analysed. With data from the ISSP [1998] (Swiss data 1999), evidence has been found that higher audit-court competence has a significantly positive effect on tax morale. Thus, the results in Switzerland suggest that in the cantons where audit courts are not just knights without swords; they help improve taxpayers' tax morale and thus citizens' intrinsic motivation to pay taxes.

Sourcing business and software services

With the advancement of Service-Oriented Architecture in the technical and business domain, the management & engineering of services requires a thorough and systematic understanding of the service lifecycle for both business and software services. However, while service-oriented approaches acknowledge the importance of the service ecosystem, service lifecycle models are typically internally focused, paying limited attention to processes related to offering services to or using services from other actors. In this paper, we address this need by discussing the relations between a comprehensive service lifecycle approach for service management & engineering and the sourcing & purchasing of services. In particular we pay attention to the similarities and differences between sourcing business and software services, the alignment between service management & engineering and sourcing & purchasing, the role of sourcing in the transformation of an organization towards a service-oriented paradigm, the role of architectural approaches to sourcing in this transformation, and the sourcing of specific services at different levels of granularity.

An identification of factors influencing police workplace motivation

Police work tasks are diverse and require the ability to take command, demonstrate leadership, make serious decisions and be self directed (Beck, 1999; Brunetto & Farr-Wharton, 2002; Howard, Donofrio & Boles, 2002). This work is usually performed in pairs or sometimes by an officer working alone. Operational police work is seldom performed under the watchful eyes of a supervisor and a great amount of reliance is placed on the high levels of motivation and professionalism of individual officers. Research has shown that highly motivated workers produce better outcomes (Whisenand & Rush, 1998; Herzberg, 2003). It is therefore important that Queensland police officers are highly motivated to provide a quality service to the Queensland community. This research aims to identify factors which motivate Queensland police to perform quality work. Researchers acknowledge that there is a lack of research and knowledge in regard to the factors which motivate police (Beck, 1999; Bragg, 1998; Howard, Donofrio & Boles, 2002; McHugh & Verner, 1998). The motivational factors were identified in regard to the demographic variables of; age, sex, rank, tenure and education. The model for this research is Herzberg’s two-factor theory of workplace motivation (1959). Herzberg found that there are two broad types of workplace motivational factors; those driven by a need to prevent loss or harm and those driven by a need to gain personal satisfaction or achievement. His study identified 16 basic sub-factors that operate in the workplace. The research utilised a questionnaire instrument based on the sub-factors identified by Herzberg (1959). The questionnaire format consists of an initial section which sought demographic information about the participant and is followed by 51 Likert scale questions. The instrument is an expanded version of an instrument previously used in doctoral studies to identify sources of police motivation (Holden, 1980; Chiou, 2004). The questionnaire was forwarded to approximately 960 police in the Brisbane, Metropolitan North Region. The data were analysed using Factor Analysis, MANOVAs, ANOVAs and multiple regression analysis to identify the key sources of police motivation and to determine the relationships between demographic variables such as: age, rank, educational level, tenure, generation cohort and motivational factors. A total of 484 officers responded to the questionnaire from the sample population of 960. Factor analysis revealed five broad Prime Motivational Factors that motivate police in their work. The Prime Motivational Factors are: Feeling Valued, Achievement, Workplace Relationships, the Work Itself and Pay and Conditions. The factor Feeling Valued highlighted the importance of positive supportive leaders in motivating officers. Many officers commented that supervisors who only provided negative feedback diminished their sense of feeling valued and were a key source of de-motivation. Officers also frequently commented that they were motivated by operational police work itself whilst demonstrating a strong sense of identity with their team and colleagues. The study showed a general need for acceptance by peers and an idealistic motivation to assist members of the community in need and protect victims of crime. Generational cohorts were not found to exert a significant influence on police motivation. The demographic variable with the single greatest influence on police motivation was tenure. Motivation levels were found to drop dramatically during the first two years of an officer’s service and generally not improve significantly until near retirement age. The findings of this research provide the foundation of a number of recommendations in regard to police retirement, training and work allocation that are aimed to improve police motivation levels. The five Prime Motivational Factor model developed in this study is recommended for use as a planning tool by police leaders to improve motivational and job-satisfaction components of police Service policies. The findings of this study also provide a better understanding of the current sources of police motivation. They are expected to have valuable application for Queensland police human resource management when considering policies and procedures in the areas of motivation, stress reduction and attracting suitable staff to specific areas of responsibility.

The domestic kitchen : the weak link in the food chain : is convenience leading to apathy?

To investigate the meaning and understanding of domestic food preparation within the lived experience of the household's main food preparer this ethnographic study used a combination of qualitative and quantitative methodologies. Data were collected from three sources: the literature; an in-store survey of251 food shoppers chosen at random while shopping during both peak and off peak shopping periods at metropolitan supermarkets; and semi-structured interviews with the principal food shopper and food preparer of 15 different Brisbane households. Male and female respondents representing a cross section of socio-economic groupings, ranged in age from 19-79 years and were all from English speaking backgrounds. Changes in paid labour force participation, income and education have increased the value of the respondents' time, instigating massive changes in the way they shop, cook and eat. Much of their food preparation has moved from the domestic kitchen into the kitchens of other food establishments. For both sexes, the dominant motivating force behind these changes is a combination of the their self perceived lack of culinary skill; lack of enjoyment of cooking and lack of motivation to cook. The females in paid employment emphasise all factors, particularly the latter two, significantly more than the non-employed females. All factors are of increasing importance for individuals aged less than 35 years and conversely, of significantly diminished importance to older respondents. Overall, it is the respondents aged less than 25 years who indicate the lowest cooking frequency and/or least cooking ability. Inherent in this latter group is an indifference to the art/practice of preparing food. Increasingly, all respondents want to do less cooking and/or get the cooking over with as quickly as possible. Convenience is a powerful lure by which to spend less time in the kitchen. As well, there is an apparent willingness to pay a premium for convenience. Because children today are increasingly unlikely to be taught to cook, addressing the food skills deficit and encouraging individuals to cook for themselves are significant issues confronting health educators. These issues are suggested as appropriate subjects of future research.

Algebraic attacks on clock-controlled stream ciphers

Stream ciphers are encryption algorithms used for ensuring the privacy of digital telecommunications. They have been widely used for encrypting military communications, satellite communications, pay TV encryption and for voice encryption of both fixed lined and wireless networks. The current multi year European project eSTREAM, which aims to select stream ciphers suitable for widespread adoptation, reflects the importance of this area of research. Stream ciphers consist of a keystream generator and an output function. Keystream generators produce a sequence that appears to be random, which is combined with the plaintext message using the output function. Most commonly, the output function is binary addition modulo two. Cryptanalysis of these ciphers focuses largely on analysis of the keystream generators and of relationships between the generator and the keystream it produces. Linear feedback shift registers are widely used components in building keystream generators, as the sequences they produce are well understood. Many types of attack have been proposed for breaking various LFSR based stream ciphers. A recent attack type is known as an algebraic attack. Algebraic attacks transform the problem of recovering the key into a problem of solving multivariate system of equations, which eventually recover the internal state bits or the key bits. This type of attack has been shown to be effective on a number of regularly clocked LFSR based stream ciphers. In this thesis, algebraic attacks are extended to a number of well known stream ciphers where at least one LFSR in the system is irregularly clocked. Applying algebriac attacks to these ciphers has only been discussed previously in the open literature for LILI-128. In this thesis, algebraic attacks are first applied to keystream generators using stop-and go clocking. Four ciphers belonging to this group are investigated: the Beth-Piper stop-and-go generator, the alternating step generator, the Gollmann cascade generator and the eSTREAM candidate: the Pomaranch cipher. It is shown that algebraic attacks are very effective on the first three of these ciphers. Although no effective algebraic attack was found for Pomaranch, the algebraic analysis lead to some interesting findings including weaknesses that may be exploited in future attacks. Algebraic attacks are then applied to keystream generators using (p; q) clocking. Two well known examples of such ciphers, the step1/step2 generator and the self decimated generator are investigated. Algebraic attacks are shown to be very powerful attack in recovering the internal state of these generators. A more complex clocking mechanism than either stop-and-go or the (p; q) clocking keystream generators is known as mutual clock control. In mutual clock control generators, the LFSRs control the clocking of each other. Four well known stream ciphers belonging to this group are investigated with respect to algebraic attacks: the Bilateral-stop-and-go generator, A5/1 stream cipher, Alpha 1 stream cipher, and the more recent eSTREAM proposal, the MICKEY stream ciphers. Some theoretical results with regards to the complexity of algebraic attacks on these ciphers are presented. The algebraic analysis of these ciphers showed that generally, it is hard to generate the system of equations required for an algebraic attack on these ciphers. As the algebraic attack could not be applied directly on these ciphers, a different approach was used, namely guessing some bits of the internal state, in order to reduce the degree of the equations. Finally, an algebraic attack on Alpha 1 that requires only 128 bits of keystream to recover the 128 internal state bits is presented. An essential process associated with stream cipher proposals is key initialization. Many recently proposed stream ciphers use an algorithm to initialize the large internal state with a smaller key and possibly publicly known initialization vectors. The effect of key initialization on the performance of algebraic attacks is also investigated in this thesis. The relationships between the two have not been investigated before in the open literature. The investigation is conducted on Trivium and Grain-128, two eSTREAM ciphers. It is shown that the key initialization process has an effect on the success of algebraic attacks, unlike other conventional attacks. In particular, the key initialization process allows an attacker to firstly generate a small number of equations of low degree and then perform an algebraic attack using multiple keystreams. The effect of the number of iterations performed during key initialization is investigated. It is shown that both the number of iterations and the maximum number of initialization vectors to be used with one key should be carefully chosen. Some experimental results on Trivium and Grain-128 are then presented. Finally, the security with respect to algebraic attacks of the well known LILI family of stream ciphers, including the unbroken LILI-II, is investigated. These are irregularly clock- controlled nonlinear filtered generators. While the structure is defined for the LILI family, a particular paramater choice defines a specific instance. Two well known such instances are LILI-128 and LILI-II. The security of these and other instances is investigated to identify which instances are vulnerable to algebraic attacks. The feasibility of recovering the key bits using algebraic attacks is then investigated for both LILI- 128 and LILI-II. Algebraic attacks which recover the internal state with less effort than exhaustive key search are possible for LILI-128 but not for LILI-II. Given the internal state at some point in time, the feasibility of recovering the key bits is also investigated, showing that the parameters used in the key initialization process, if poorly chosen, can lead to a key recovery using algebraic attacks.

Learning power and language expressiveness

The topic of the present work is to study the relationship between the power of the learning algorithms on the one hand, and the expressive power of the logical language which is used to represent the problems to be learned on the other hand. The central question is whether enriching the language results in more learning power. In order to make the question relevant and nontrivial, it is required that both texts (sequences of data) and hypotheses (guesses) be translatable from the “rich” language into the “poor” one. The issue is considered for several logical languages suitable to describe structures whose domain is the set of natural numbers. It is shown that enriching the language does not give any advantage for those languages which define a monadic second-order language being decidable in the following sense: there is a fixed interpretation in the structure of natural numbers such that the set of sentences of this extended language true in that structure is decidable. But enriching the original language even by only one constant gives an advantage if this language contains a binary function symbol (which will be interpreted as addition). Furthermore, it is shown that behaviourally correct learning has exactly the same power as learning in the limit for those languages which define a monadic second-order language with the property given above, but has more power in case of languages containing a binary function symbol. Adding the natural requirement that the set of all structures to be learned is recursively enumerable, it is shown that it pays o6 to enrich the language of arithmetics for both finite learning and learning in the limit, but it does not pay off to enrich the language for behaviourally correct learning.