Modeling Multivariate Interest Rates Using Time-Varying Copulas and Reducible Nonlinear Stochastic Differential Equations

We propose a new approach for modeling nonlinear multivariate interest rate processes based on time-varying copulas and reducible stochastic differential equations (SDEs). In the modeling of the marginal processes, we consider a class of nonlinear SDEs that are reducible to Ornstein--Uhlenbeck (OU) process or Cox, Ingersoll, and Ross (1985) (CIR) process. The reducibility is achieved via a nonlinear transformation function. The main advantage of this approach is that these SDEs can account for nonlinear features, observed in short-term interest rate series, while at the same time leading to exact discretization and closed-form likelihood functions. Although a rich set of specifications may be entertained, our exposition focuses on a couple of nonlinear constant elasticity volatility (CEV) processes, denoted as OU-CEV and CIR-CEV, respectively. These two processes encompass a number of existing models that have closed-form likelihood functions. The transition density, the conditional distribution function, and the steady-state density function are derived in closed form as well as the conditional and unconditional moments for both processes. In order to obtain a more flexible functional form over time, we allow the transformation function to be time varying. Results from our study of U.S. and UK short-term interest rates suggest that the new models outperform existing parametric models with closed-form likelihood functions. We also find the time-varying effects in the transformation functions statistically significant. To examine the joint behavior of interest rate series, we propose flexible nonlinear multivariate models by joining univariate nonlinear processes via appropriate copulas. We study the conditional dependence structure of the two rates using Patton (2006a) time-varying symmetrized Joe--Clayton copula. We find evidence of asymmetric dependence between the two rates, and that the level of dependence is positively related to the level of the two rates. (JEL: C13, C32, G12) Copyright The Author 2010. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org, Oxford University Press.

Reducible Diffusions with Time-Varying Transformations with Application to Short-Term Interest Rates

Reducible diffusions (RDs) are nonlinear transformations of analytically solvable Basic Diffusions (BDs). Hence, by construction RDs are analytically tractable and flexible diffusion processes. Existing literature on RDs has mostly focused on time-homogeneous transformations, which to a significant extent fail to explore the full potential of RDs from both theoretical and practical points of view. In this paper, we propose flexible and economically justifiable time variations to the transformations of RDs. Concentrating on the Constant Elasticity Variance (CEV) RDs, we consider nonlinear dynamics for our time-varying transformations with both deterministic and stochastic designs. Such time variations can greatly enhance the flexibility of RDs while maintaining sufficient tractability of the resulting models. In the meantime, our modeling approach enjoys the benefits of classical inferential techniques such as the Maximum Likelihood (ML). Our application to the UK and the US short-term interest rates suggests that from an empirical point of view time-varying transformations are highly relevant and statistically significant. We expect that the proposed models can describe more truthfully the dynamic time-varying behavior of economic and financial variables and potentially improve out-of-sample forecasts significantly.

Volatile and persistent real exchange rates with or without sticky prices

The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Two methodologies are employed to explore this model's ability to generate volatile and persistent exchange rates. In the first, actual data is used for the exogenous driving processes. In the second, the model is simulated using estimated forcing processes. The theory, in both cases, is capable of explaining the high volatility and persistence of real and nominal exchange rates as well as the high correlation between real and nominal rates. © 2007 Elsevier B.V. All rights reserved.

Optimal Credit Rationing in Not-For-Profit Financial Institutions

We examine the dynamic optimization problem for not-for-profit financial institutions (NFPs) that maximize consumer surplus, not profits. We characterize the optimal dynamic policy and find that it involves credit rationing. Interest rates set by mature NFPs will typically be more favorable to customers than market rates, as any surplus is distributed in the form of interest rate subsidies, with credit rationing being required to prevent these subsidies from distorting loan volumes from their optimal levels. Rationing overcomes a fundamental problem in NFPs; it allows them to distribute the surplus without distorting the volume of activity from the efficient level.

Solving exchange rate puzzles with neither sticky prices nor trade costs

We present a simple framework in which both the exchange rate disconnect and forward bias puzzles are simultaneously resolved. The flexible-price two-country monetary model is extended to include a consumption externality with habit persistence. Habitpersistence is modeled using Campbell Cochrane preferences with ‘deep’ habits along the lines of the work of Ravn, Schmitt-Grohe and Uribe. By deep habits, we mean habits defined over goods rather than countries. The model is simulated using the artificial economy methodology. It offers a neo-classical explanation of the Meese–Rogoff puzzle and mimics the failure of fundamentals to explain nominal exchange rates in a linear setting. Finally, the model naturally generates the negative slope in the standard forward market regression.

Information disclosure and depositor discipline in the Chinese banking sector

We investigate the relationship between information disclosure and depositor behaviour in the Chinese banking sector. Specifically, we enquire whether enhanced information disclosure enables investors to more effectively infer a banking institution's risk profile, thereby influencing their deposit decisions. Utilising an unbalanced panel, incorporating financial data from 169 Chinese banks over the 1998–2009 period, we employ generalised-method-of-moments (GMM) estimation procedures to control for potential endogeneity, unobserved heterogeneity, and persistence in the dependent variable. We uncover evidence that: (i) the growth rate of deposits is sensitive to bank fundamentals after controlling for macroeconomic factors, diversity in ownership structure, and government intervention; (ii) a bank publicly disclosing more transparent information in its financial reports, is more likely to experience growth in its deposit base; and (iii) banks characterised by high information transparency, well-capitalised and adopted international accounting standards, are more able to attract funds by offering higher interest rates.

The G20 and Monetary Policy Stasis

Since the financial crash of 2008 monetary policy has been in a state of stasis – a condition in which things are not changing, moving, or progressing, but rather appear frozen. Interest rates have been frozen at low levels for a considerable period time. Inflation targets have consistently been missed, through phases of both overshooting and undershooting. At the same time, a variety of unconventional monetary policies involving asset purchases and liquidity provision have been pursued. Questions have been raised from a variety of sources, including various international organizations, covering distinct BIS and IMF positions about the continuing validity and sustainability of existing monetary policy frameworks, not least because inflation targeting has ceased to act as reliable guide for policy for over six years. Despite this central banks have been reluctant to debate moving to a new formal policy framework. This article argues that as an apex policy forum only the G20 leaders’ summits has the necessary political authority to call their central banks to account and initiate a wide ranging debate on the future of monetary policy. A case is made for convening a monetary policy working group to discuss a range of positions, including those of the BIS and IMF, and to make recommendations, because the G20 has been most effective in displaying international financial leadership, when leaders have convened and made use of specialist working groups.

This Time is Different: Causes and Consequences of British Banking Instability over the Long Run

This paper addresses three questions: (1) How severe were the episodes of banking instability
experienced by the UK over the past two centuries? (2) What have been the macroeconomic
indicators of UK banking instability? and (3) What have been the consequences of UK banking
instability for the cost of credit? Using a unique dataset of bank share prices from 1830 to 2010
to assess the stability of the UK banking system, we find that banking instability has grown more
severe since the 1970s. We also find that interest rates, inflation, lending growth, and equity
prices are consistent macroeconomic indicators of UK banking instability over the long run.
Furthermore, utilising a unique dataset of corporate-bond yields for the period 1860 to 2010, we
find that there is a significant long-run relationship between banking instability and the creditrisk
premium faced by businesses.

The effect of sperm DNA fragmentation on miscarriage rates: a systematic review and meta-analysis

STUDY QUESTION Is there an association between high levels of sperm DNA damage and miscarriage?SUMMARY ANSWERMiscarriage rates are positively correlated with sperm DNA damage levels.WHAT IS KNOWN ALREADYMost ejaculates contain a subpopulation of sperm with DNA damage, also referred to as DNA fragmentation, in the form of double or single-strand breaks which have been induced in the DNA prior to or following ejaculation. This DNA damage may be particularly elevated in some subfertile men, hence several studies have examined the link between sperm DNA damage levels and conception and miscarriage rates.STUDY DESIGN, SIZE, DURATIONA systematic review and meta-analysis of studies which examined the effect of sperm DNA damage on miscarriage rates was performed. Searches were conducted on MEDLINE, EMBASE and the Cochrane Library without any language restrictions from database inception to January 2012.PARTICIPANTS/MATERIALS, SETTING, METHODSWe used the terms 'DNA damage' or 'DNA fragmentation' combined with 'miscarriage', 'abortion' or 'pregnancy' to generate a set of relevant citations. Data extraction was performed by two reviewers. Study quality was assessed using the Newcastle-Ottawa Scale. Meta-analysis of relative risks of miscarriage was performed with a random effects model. Subgroup analyses were performed by the type of DNA damage test, whether the sperm examined were prepared or from raw semen and for pregnancies resulting from IVF or ICSI treatment.MAIN RESULTS AND THE ROLE OF CHANCEWe identified 16 cohort studies (2969 couples), 14 of which were prospective. Eight studies used acridine orange-based assays, six the TUNEL assay and two the COMET assay. Meta-analysis showed a significant increase in miscarriage in patients with high DNA damage compared with those with low DNA damage [risk ratio (RR) = 2.16 (1.54, 3.03), P <0.00001)]. A subgroup analysis showed that the miscarriage association is strongest for the TUNEL assay (RR = 3.94 (2.45, 6.32), P <0.00001).LIMITATIONS, REASONS FOR CAUTIONThere is some variation in study characteristics, including the use of different assays and different thresholds for DNA damage and the definition of pregnancy loss.WIDER IMPLICATIONS OF THE FINDINGSThe use of methods which select sperm without DNA damage for use in assisted conception treatment may reduce the risk of miscarriage. This finding indicates that assays detecting DNA damage could be considered in those suffering from recurrent pregnancy loss. Further research is necessary to study the mechanisms of DNA damage and the potential therapeutic effects of antioxidant therapy.STUDY FUNDING/COMPETING INTEREST(S)None.

Radiobiology at ultra-high dose rates employing laser-driven ions

The potential that laser based particle accelerators offer to solve sizing and cost issues arising with conventional proton therapy has generated great interest in the understanding and development of laser ion acceleration, and in investigating the radiobiological effects induced by laser accelerated ions. Laser-driven ions are produced in bursts of ultra-short duration resulting in ultra-high dose rates, and an investigation at Queen's University Belfast was carried out to investigate this virtually unexplored regime of cell rdaiobiology. This employed the TARANIS terawatt laser producing protons in the MeV range for proton irradiation, with dose rates exceeding 10 Gys on a single exposure. A clonogenic assay was implemented to analyse the biological effect of proton irradiation on V79 cells, which, when compared to data obtained with the same cell line irradiated with conventionally accelerated protons, was found to show no significant difference. A Relative Biological effectiveness of 1.4±0.2 at 10 % Survival Fraction was estimated from a comparison with a 225 kVp X-ray source. © 2013 SPIE.

The effects of transportation stress and barnacle fouling on predation rates of starfish (Asterias rubens) on mussels (Mytilus edulis).

The starfish, Asterias rubens, is widely distributed throughout the northern hemisphere and is an important predator on benthic mussel (Mytilus edulis) beds. Whilst several studies have examined how the size of individuals determines this predator–prey relationship, less is known about how the physiological condition of the prey (mussels) and the extent of their fouling may alter these relationships. Such issues are of particular interest to those working within the benthic mussel cultivation industry to inform best management practice and to help minimise losses during the aquaculture process. The potential role of starfish in the removal of epibiotic barnacles from mussels, the presence of which increases processing costs within the industry, is also of interest. We tested whether stressing mussels by aerial exposure for 48 h and whether the extent of barnacle fouling on mussels affected the feeding rates of three different size classes of starfish feeding on two different size classes of mussels. Feeding rates on stressed and unstressed mussels were similar for each starfish–mussel size combination. Barnacle fouling reduced the feeding rate of medium-sized starfish on larger-sized mussels. We also observed starfish, of all size classes, preying directly on the epibiotic barnacles on mussels, however, feeding rates were low and considered unlikely to reduce the extent of fouling on mussels. Our findings show that the predator–prey relationship between starfish and mussels does not differ between unstressed mussels and those experimentally stressed by aerial exposure for 48 h so that this level of stress is unlikely to affect predation rates by A. rubens following relaying in commercial operations. Whilst barnacle fouling suppressed predation rates in one of our experimental treatments, it does not appear that fouling by barnacles would provide a significant refuge from predation for the majority of mussels in benthic aquaculture stocks. Instead we found the size relationship between starfish and mussels was more important in determining predation rates. Starfish are also unlikely to help reduce barnacle fouling on cultured mussels by preying solely on fouling barnacles and the need to control starfish predation during culture remains.

Characterisation of a two-dimensional liquid-filled ion chamber detector array using flattened and unflattened beams for small fields, small MUs and high dose-rates

In this study, the PTW 1000SRS array with Octavius 4D phantom was characterised for FF and FFF beams. MU linearity, field size, dose rate, dose per pulse (DPP) response and dynamic conformal arc treatment accuracy of the 1000SRS array were assessed for 6MV, 6FFF and 10FFF beams using a Varian TrueBeam STx linac. The measurements were compared with a pinpoint IC, microdiamond IC and EBT3 Gafchromic film. Measured dose profiles and FWHMs were compared with film measurements. Verification of FFF volumetric modulated arc therapy (VMAT) clinical plans were assessed using gamma analysis with 3%/3 mm and 2%/2 mm tolerances (10% threshold). To assess the effect of cross calibration dose rate, clinical plans with different dose rates were delivered and analysed. Output factors agreed with film measurements to within 4.5% for fields between 0.5 and 1 cm and within 2.7% for field sizes between 1.5 and 10 cm and were highly correlated with the microdiamond IC detector. Field sizes measured with the 1000SRS array were within 0.5 mm of film measurements. A drop in response of up to 1.8%, 2.4% and 5.2% for 6MV, 6FFF and 10FFF beams respectively was observed with increasing nominal dose rate. With an increase in DPP, a drop of up to 1.7%, 2.4% and 4.2% was observed in 6MV, 6FFF and 10FFF respectively. The differences in dose following dynamic conformal arc deliveries were less than 1% (all energies) from calculated. Delivered VMAT plans showed an average pass percentage of 99.5(±0.8)% and 98.4(±3.4)% with 2%/2 mm criteria for 6FFF and 10FFF respectively. A drop to 97.7(±2.2)% and 88.4(±9.6)% were observed for 6FFF and 10FFF respectively when plans were delivered at the minimum dose rate and calibrated at the maximum dose rate. Calibration using a beam with the average dose rate of the plan may be an efficient method to overcome the dose rate effects observed by the 1000SRS array.