Estimation of jump-diffusion processes via empirical characteristic functions

Preface The starting point for this work and eventually the subject of the whole thesis was the question: how to estimate parameters of the affine stochastic volatility jump-diffusion models. These models are very important for contingent claim pricing. Their major advantage, availability T of analytical solutions for characteristic functions, made them the models of choice for many theoretical constructions and practical applications. At the same time, estimation of parameters of stochastic volatility jump-diffusion models is not a straightforward task. The problem is coming from the variance process, which is non-observable. There are several estimation methodologies that deal with estimation problems of latent variables. One appeared to be particularly interesting. It proposes the estimator that in contrast to the other methods requires neither discretization nor simulation of the process: the Continuous Empirical Characteristic function estimator (EGF) based on the unconditional characteristic function. However, the procedure was derived only for the stochastic volatility models without jumps. Thus, it has become the subject of my research. This thesis consists of three parts. Each one is written as independent and self contained article. At the same time, questions that are answered by the second and third parts of this Work arise naturally from the issues investigated and results obtained in the first one. The first chapter is the theoretical foundation of the thesis. It proposes an estimation procedure for the stochastic volatility models with jumps both in the asset price and variance processes. The estimation procedure is based on the joint unconditional characteristic function for the stochastic process. The major analytical result of this part as well as of the whole thesis is the closed form expression for the joint unconditional characteristic function for the stochastic volatility jump-diffusion models. The empirical part of the chapter suggests that besides a stochastic volatility, jumps both in the mean and the volatility equation are relevant for modelling returns of the S&P500 index, which has been chosen as a general representative of the stock asset class. Hence, the next question is: what jump process to use to model returns of the S&P500. The decision about the jump process in the framework of the affine jump- diffusion models boils down to defining the intensity of the compound Poisson process, a constant or some function of state variables, and to choosing the distribution of the jump size. While the jump in the variance process is usually assumed to be exponential, there are at least three distributions of the jump size which are currently used for the asset log-prices: normal, exponential and double exponential. The second part of this thesis shows that normal jumps in the asset log-returns should be used if we are to model S&P500 index by a stochastic volatility jump-diffusion model. This is a surprising result. Exponential distribution has fatter tails and for this reason either exponential or double exponential jump size was expected to provide the best it of the stochastic volatility jump-diffusion models to the data. The idea of testing the efficiency of the Continuous ECF estimator on the simulated data has already appeared when the first estimation results of the first chapter were obtained. In the absence of a benchmark or any ground for comparison it is unreasonable to be sure that our parameter estimates and the true parameters of the models coincide. The conclusion of the second chapter provides one more reason to do that kind of test. Thus, the third part of this thesis concentrates on the estimation of parameters of stochastic volatility jump- diffusion models on the basis of the asset price time-series simulated from various "true" parameter sets. The goal is to show that the Continuous ECF estimator based on the joint unconditional characteristic function is capable of finding the true parameters. And, the third chapter proves that our estimator indeed has the ability to do so. Once it is clear that the Continuous ECF estimator based on the unconditional characteristic function is working, the next question does not wait to appear. The question is whether the computation effort can be reduced without affecting the efficiency of the estimator, or whether the efficiency of the estimator can be improved without dramatically increasing the computational burden. The efficiency of the Continuous ECF estimator depends on the number of dimensions of the joint unconditional characteristic function which is used for its construction. Theoretically, the more dimensions there are, the more efficient is the estimation procedure. In practice, however, this relationship is not so straightforward due to the increasing computational difficulties. The second chapter, for example, in addition to the choice of the jump process, discusses the possibility of using the marginal, i.e. one-dimensional, unconditional characteristic function in the estimation instead of the joint, bi-dimensional, unconditional characteristic function. As result, the preference for one or the other depends on the model to be estimated. Thus, the computational effort can be reduced in some cases without affecting the efficiency of the estimator. The improvement of the estimator s efficiency by increasing its dimensionality faces more difficulties. The third chapter of this thesis, in addition to what was discussed above, compares the performance of the estimators with bi- and three-dimensional unconditional characteristic functions on the simulated data. It shows that the theoretical efficiency of the Continuous ECF estimator based on the three-dimensional unconditional characteristic function is not attainable in practice, at least for the moment, due to the limitations on the computer power and optimization toolboxes available to the general public. Thus, the Continuous ECF estimator based on the joint, bi-dimensional, unconditional characteristic function has all the reasons to exist and to be used for the estimation of parameters of the stochastic volatility jump-diffusion models.

Three essays in incomplete contracts

General Introduction These three chapters, while fairly independent from each other, study economic situations in incomplete contract settings. They are the product of both the academic freedom my advisors granted me, and in this sense reflect my personal interests, and of their interested feedback. The content of each chapter can be summarized as follows: Chapter 1: Inefficient durable-goods monopolies In this chapter we study the efficiency of an infinite-horizon durable-goods monopoly model with a fmite number of buyers. We find that, while all pure-strategy Markov Perfect Equilibria (MPE) are efficient, there also exist previously unstudied inefficient MPE where high valuation buyers randomize their purchase decision while trying to benefit from low prices which are offered once a critical mass has purchased. Real time delay, an unusual monopoly distortion, is the result of this attrition behavior. We conclude that neither technological constraints nor concern for reputation are necessary to explain inefficiency in monopolized durable-goods markets. Chapter 2: Downstream mergers and producer's capacity choice: why bake a larger pie when getting a smaller slice? In this chapter we study the effect of downstream horizontal mergers on the upstream producer's capacity choice. Contrary to conventional wisdom, we find anon-monotonic relationship: horizontal mergers induce a higher upstream capacity if the cost of capacity is low, and a lower upstream capacity if this cost is high. We explain this result by decomposing the total effect into two competing effects: a change in hold-up and a change in bargaining erosion. Chapter 3: Contract bargaining with multiple agents In this chapter we study a bargaining game between a principal and N agents when the utility of each agent depends on all agents' trades with the principal. We show, using the Potential, that equilibria payoffs coincide with the Shapley value of the underlying coalitional game with an appropriately defined characteristic function, which under common assumptions coincides with the principal's equilibrium profit in the offer game. Since the problem accounts for differences in information and agents' conjectures, the outcome can be either efficient (e.g. public contracting) or inefficient (e.g. passive beliefs).

Extracellular matrix and platelet function in patients with musculocontractural Ehlers-Danlos syndrome caused by mutations in the CHST14 gene.

We report on a consanguineous, Afghani family with two sisters affected with characteristic facial features, multiple contractures, progressive joint and skin laxity, hemorrhagic diathesis following minor trauma and multisystem fragility-related manifestations suggestive of a diagnosis of musculocontractural Ehlers-Danlos syndrome (EDS). This novel form of connective tissue disorder was recently reported in patients of Japanese, Turkish, and Indian descent who were formerly classified as having EDS type VIB and has now been recognized to be a part of spectrum including patients previously classified as having adducted thumb-clubfoot syndrome. We identified a previously unreported mutation in the CHST14 gene, which codes for the enzyme dermatan 4-O-sulfotransferase. We discuss the prenatal presentation, detailed clinical manifestations, and neurological findings in two sisters with this newly described musculocontractural EDS-CHST14 type. We demonstrate that fibroblasts from one of our patients produce more chondroitin sulfate than normal and show lower than normal deposition of collagens I and II and fibrillin 1-containing microfibrills. These findings suggest that the imbalance in the glycosaminoglycan content in developing tissues might interfere with normal deposition of other extracellular matrix components and ultimately contribute to the development of the phenotype observed in these patients. Furthermore, we ruled out the contribution of intrinsic platelet factors to the bleeding diathesis observed in some affected individuals. © 2012 Wiley Periodicals, Inc.

The extended GLUT-family of sugar/polyol transport facilitators: nomenclature, sequence characteristics, and potential function of its novel members (review).

During the last 2 years, several novel genes that encode glucose transporter-like proteins have been identified and characterized. Because of their sequence similarity with GLUT1, these genes appear to belong to the family of solute carriers 2A (SLC2A, protein symbol GLUT). Sequence comparisons of all 13 family members allow the definition of characteristic sugar/polyol transporter signatures: (1) the presence of 12 membrane-spanning helices, (2) seven conserved glycine residues in the helices, (3) several basic and acidic residues at the intracellular surface of the proteins, (4) two conserved tryptophan residues, and (5) two conserved tyrosine residues. On the basis of sequence similarities and characteristic elements, the extended GLUT family can be divided into three subfamilies, namely class I (the previously known glucose transporters GLUT1-4), class II (the previously known fructose transporter GLUT5, the GLUT7, GLUT9 and GLUT11), and class III (GLUT6, 8, 10, 12, and the myo-inositol transporter HMIT1). Functional characteristics have been reported for some of the novel GLUTs. Like GLUT1-4, they exhibit a tissue/cell-specific expression (GLUT6, leukocytes, brain; GLUT8, testis, blastocysts, brain, muscle, adipocytes; GLUT9, liver, kidney; GLUT10, liver, pancreas; GLUT11, heart, skeletal muscle). GLUT6 and GLUT8 appear to be regulated by sub-cellular redistribution, because they are targeted to intra-cellular compartments by dileucine motifs in a dynamin dependent manner. Sugar transport has been reported for GLUT6, 8, and 11; HMIT1 has been shown to be a H+/myo-inositol co-transporter. Thus, the members of the extended GLUT family exhibit a surprisingly diverse substrate specificity, and the definition of sequence elements determining this substrate specificity will require a full functional characterization of all members.

Proteomic analysis of membrane rafts of melanoma cells identifies protein patterns characteristic of the tumor progression stage.

The molecular mechanisms controlling the progression of melanoma from a localized tumor to an invasive and metastatic disease are poorly understood. In the attempt to start defining a functional protein profile of melanoma progression, we have analyzed by LC-MS/MS the proteins associated with detergent resistant membranes (DRMs), which are enriched in cholesterol/sphingolipids-containing membrane rafts, of melanoma cell lines derived from tumors at different stages of progression. Since membrane rafts are involved in several biological processes, including signal transduction and protein trafficking, we hypothesized that the association of proteins with rafts can be regulated during melanoma development and affect protein function and disease progression. We have identified a total of 177 proteins in the DRMs of the cell lines examined. Among these, we have found groups of proteins preferentially associated with DRMs of either less malignant radial growth phase/vertical growth phase (VGP) cells, or aggressive VGP and metastatic cells suggesting that melanoma cells with different degrees of malignancy have different DRM profiles. Moreover, some proteins were found in DRMs of only some cell lines despite being expressed at similar levels in all the cell lines examined, suggesting the existence of mechanisms controlling their association with DRMs. We expect that understanding the mechanisms regulating DRM targeting and the activity of the proteins differentially associated with DRMs in relation to cell malignancy will help identify new molecular determinants of melanoma progression.

Is it the grain size or the characteristic pore size that controls the induced polarization relaxation time of clean sands and sandstones?

There is a wide range of evidence to suggest that permeability can be constrained through of induced polarization measurements. For clean sands and sandstones, current mechanistic models of induced polarization predict a relationship between the low-frequency time constant inferred from induced polarization measurements and the grain diameter. A number of observations do, however, disagree with this and indicate that the observed relaxation behavior is rather governed by the so-called dynamic pore radius L. To test this hypothesis, we have developed a set of new scaling relationships, which allow the relaxation time to be computed from the pore size and the permeability to be computed from both the Cole-Cole time constant and the formation factor. Moreover, these new scaling relationships can be also used to predict the dependence of the Cole-Cole time constant as a function of the water saturation under unsaturated conditions. Comparative tests of the proposed new relationships with regard to various published experimental results for saturated clean sands and sandstones as well as for partially saturated clean sandstones, do indeed confirm that the dynamic pore radius L is a much more reliable indicator of the observed relaxation behavior than grain-size-based models.

An immunomodulatory function for neutrophils during the induction of a CD4+ Th2 response in BALB/c mice infected with Leishmania major.

The possible immunomodulatory role of polymorphonuclear leukocytes (PMN) in CD4+ T lymphocyte differentiation in mice was examined by studying the effect of transient depletion of PMN during the early phase after Leishmania major delivery. A single injection of the PMN-depleting NIMP-R14 mAb 6 h before infection with L. major prevented the early burst of IL-4 mRNA transcription otherwise occurring in the draining lymph node of susceptible BALB/c mice. Since this early burst of IL-4 mRNA transcripts had previously been shown to instruct Th2 differentiation in mice from this strain, we examined the effect of PMN depletion on Th subset differentiation at later time points after infection. The transient depletion of PMN in BALB/c mice was sufficient to inhibit Th2 cell development otherwise occurring after L. major infection. Decreased Th2 responses were paralleled with partial resolution of the footpad lesions induced by L. major. Furthermore, draining lymph node-derived CD4+ T cells from PMN-depleted mice remained responsive to IL-12 after L. major infection, unlike those of infected BALB/c mice receiving control Ab. PMN depletion had no effect when the NIMP-R14 mAb was injected 24 h postinfection. The protective effect of PMN depletion was shown to be IL-12 dependent, as concomitant neutralization of IL-12 reversed the protective effect of PMN depletion. These results suggest a role for an early wave of PMN in the development of the Th2 response characteristic of mice susceptible to infection with L. major.

Coronary vasomotor responses to isometric handgrip exercise are primarily mediated by nitric oxide: a noninvasive MRI test of coronary endothelial function.

Endothelial cell release of nitric oxide (NO) is a defining characteristic of nondiseased arteries, and abnormal endothelial NO release is both a marker of early atherosclerosis and a predictor of its progression and future events. Healthy coronaries respond to endothelial-dependent stressors with vasodilatation and increased coronary blood flow (CBF), but those with endothelial dysfunction respond with paradoxical vasoconstriction and reduced CBF. Recently, coronary MRI and isometric handgrip exercise (IHE) were reported to noninvasively quantify coronary endothelial function (CEF). However, it is not known whether the coronary response to IHE is actually mediated by NO and/or whether it is reproducible over weeks. To determine the contribution of NO, we studied the coronary response to IHE before and during infusion of N(G)-monomethyl-l-arginine (l-NMMA, 0.3 mg·kg(-1)·min(-1)), a NO-synthase inhibitor, in healthy volunteers. For reproducibility, we performed two MRI-IHE studies ∼8 wk apart in healthy subjects and patients with coronary artery disease (CAD). Changes from rest to IHE in coronary cross-sectional area (%CSA) and diastolic CBF (%CBF) were quantified. l-NMMA completely blocked normal coronary vasodilation during IHE [%CSA, 12.9 ± 2.5 (mean ± SE, placebo) vs. -0.3 ± 1.6% (l-NMMA); P < 0.001] and significantly blunted the increase in flow [%CBF, 47.7 ± 6.4 (placebo) vs. 10.6 ± 4.6% (l-NMMA); P < 0.001]. MRI-IHE measures obtained weeks apart strongly correlated for CSA (P < 0.0001) and CBF (P < 0.01). In conclusion, the normal human coronary vasoactive response to IHE is primarily mediated by NO. This noninvasive, reproducible MRI-IHE exam of NO-mediated CEF promises to be useful for studying CAD pathogenesis in low-risk populations and for evaluating translational strategies designed to alter CAD in patients.

Effect on renal function of tenofovir co-administered with either efavirenz or boosted lopinavir or boosted atazanavir: the Swiss HIV Cohort Study

Reduced re'nal function has been reported with tenofovir disoproxil fumarate (TDF). It is not clear whether TDF co-administered with a boosted protease inhibitor (PI) leads to a greater decline in renal function than TDF co-administered with a non-nucleoside reverse transcriptase inhibitor (NNRTI).Methods: We selected ail antiretroviral therapy-naive patients in the Swiss HIV Cohort Study (SHCS) with calibrated or corrected serum creatinine measurements starting antiretroviral therapy with TDF and either efavirenz (EFV) or the ritonavir-boosted PIs, lopinavir (LPV/r) or atazanavir (ATV/r). As a measure of renal function, we used the Chronic Kidney Disease Epidemiology Collaboration (CKD-EPI) equation to estimate the glomerular filtration rate (eGFR). We calculated the difference in eGFR over time between two therapies using a marginal model for repeated measures. In weighted analyses, observations were weighted by the product of their point of treatment and censoring weights to adjust for differences both in the sort of patients starting each therapy and in the sort of patients remaining on each therapy over time.Results: By March 2011, 940 patients with at least one creatinine measurement on a first therapy with either TDF and EFV (n=484), TDF and LPVlr (n=269) or TDF and ATV/r (n=187) had been followed for a median of 1. 7, 1.2 and 1.3 years, respectively. Table 1 shows the difference in average estimated GFR (eGFR) over time since starting cART for two marginal models. The first model was not adjusted for potential confounders; the second mode! used weights to adjust for confounders. The results suggest a greater decline in renal function during the first 6 months if TDF is used with a PI rather than with an NNRTI, but no further difference between these therapies after the first 6 months. TDF and ATV/r may lead to a greater decline in the first 6 months than TDF and LPVlr.Conclusions: TDF co-administered with a boosted PI leads to a greater de cline in renal function over the first 6 months of therapy than TDF co-administered with an NNRTI; this decline may be worse with ATV/r than with LPV/r.

Altered NKG2D function in NK cells induced by chronic exposure to NKG2D ligand-expressing tumor cells.

NKG2D is an activation receptor that allows natural killer (NK) cells to detect diseased host cells. The engagement of NKG2D with corresponding ligand results in surface modulation of the receptor and reduced function upon subsequent receptor engagement. However, it is not clear whether in addition to modulation the NKG2D receptor complex and/or its signaling capacity is preserved. We show here that the prolonged encounter with tumor cell-bound, but not soluble, ligand can completely uncouple the NKG2D receptor from the intracellular mobilization of calcium and the exertion of cell-mediated cytolysis. However, cytolytic effector function is intact since NKG2D ligand-exposed NK cells can be activated via the Ly49D receptor. While NKG2D-dependent cytotoxicity is impaired, prolonged ligand exposure results in constitutive interferon gamma (IFNgamma) production, suggesting sustained signaling. The functional changes are associated with a reduced presence of the relevant signal transducing adaptors DNAX-activating protein of 10 kDa (DAP-10) and killer cell activating receptor-associated protein/DNAX-activating protein of 12 kDa (KARAP/DAP-12). That is likely the consequence of constitutive NKG2D engagement and signaling, since NKG2D function and adaptor expression is restored to normal when the stimulating tumor cells are removed. Thus, the chronic exposure to tumor cells expressing NKG2D ligand alters NKG2D signaling and may facilitate the evasion of tumor cells from NK cell reactions.

Differential effects of two anti-apo-cytochrome c-specific monoclonal antibodies on the function of apo-cytochrome c-specific murine T cell clones.

A murine monoclonal antibody (SJL 2-4) specific for the antigen apo-cytochrome c was shown to inhibit both antigen-induced proliferation and lymphokine secretion by an apo-cytochrome c-specific BALB/c helper T cell clone. The inhibition was specific because additional apo-cytochrome c-specific T cell clones were not inhibited by the same monoclonal antibody. Time course studies of the inhibition indicated that the initial 8 hr of contact between T cell clones and antigen-presenting cells were critical for activation of the T cell clones. Inhibition of T cell functions by antigen-specific antibodies appeared to correlate with the antibody-antigen binding constant because a second monoclonal antibody (Cyt-1-59), with identical specificity but with a lower affinity constant for apo-cytochrome c, had very little inhibitory effect on the proliferation or lymphokine secretion of apo-cytochrome c-specific T cell clones.

Structure-function relationships of the alpha1b-adrenergic receptor.

The alpha1b-adrenergic receptor (AR) is a member of the large superfamily of seven transmembrane domain (TMD) G protein-coupled receptors (GPCR). Combining site-directed mutagenesis of the alpha1b-AR with computational simulations of receptor dynamics, we have explored the conformational changes underlying the process of receptor activation, i.e. the transition between the inactive and active states. Our findings suggest that the structural constraint stabilizing the alpha1b-AR in the inactive form is a network of H-bonding interactions amongst conserved residues forming a polar pocket and R143 of the DRY sequence at the end of TMDIII. We have recently reported that point mutations of D142, of the DRY sequence and of A293 in the distal portion of the third intracellular loop resulted in ligand-independent (constitutive) activation of the alpha1b-AR. These constitutively activating mutations could induce perturbations resulting in the shift of R143 out of the polar pocket. The main role of R143 may be to mediate receptor activation by triggering the exposure of several basic amino acids of the intracellular loops towards the G protein. Our investigation has been extended also to the biochemical events involved in the desensitization process of alpha1b-AR. Our results indicate that immediately following agonist-induced activation, the alpha1b-AR can undergo rapid agonist-induced phosphorylation and desensitization. Different members of the G protein coupled receptor kinase family can play a role in agonist-induced regulation of the alpha1b-AR. In addition, constitutively active alpha1b-AR mutants display different phosphorylation and internalization features. The future goal is to further elucidate the molecular mechanism underlying the complex equilibrium between activation and inactivation of the alpha1b-AR and its regulation by pharmacological substances. These findings can help to elucidate the mechanism of action of various agents displaying properties of agonists or inverse agonists at the adrenergic system.

Connexin-36 contributes to control function of insulin-producing cells.

Connexin-36 (Cx36) is a gap junction protein expressed by the insulin-producing beta-cells. We investigated the contribution of this protein in normal beta-cell function by using a viral gene transfer approach to alter Cx36 content in the insulin-producing line of INS-1E cells and rat pancreatic islets. Transcripts for Cx43, Cx45, and Cx36 were detected by reverse transcriptase-PCR in freshly isolated pancreatic islets, whereas only a transcript for Cx36 was detected in INS-1E cells. After infection with a sense viral vector, which induced de novo Cx36 expression in the Cx-defective HeLa cells we used to control the transgene expression, Western blot, immunofluorescence, and freeze-fracture analysis showed a large increase of Cx36 within INS-1E cell membranes. In contrast, after infection with an antisense vector, Cx36 content was decreased by 80%. Glucose-induced insulin release and insulin content were decreased, whether infected INS-1E cells expressed Cx36 levels that were largely higher or lower than those observed in wild-type control cells. In both cases, basal insulin secretion was unaffected. Comparable observations on basal secretion and insulin content were made in freshly isolated rat pancreatic islets. The data indicate that large changes in Cx36 alter insulin content and, at least in INS-1E cells, also affect glucose-induced insulin release.

In vitro engineering of human stratified urothelium: analysis of its morphology and function.

PURPOSE: Gastric or intestinal patches, commonly used for reconstructive cystoplasty, may induce severe metabolic complications. The use of bladder tissues reconstructed in vitro could avoid these complications. We compared cellular differentiation and permeability characteristics of human native with in vitro cultured stratified urothelium. MATERIALS AND METHODS: Human stratified urothelium was induced in vitro. Morphology was studied with light and electron microscopy and expression of key cellular proteins was assessed using immunohistochemistry. Permeability coefficients were determined by measuring water, urea, ammonia and proton fluxes across the urothelium. RESULTS: As in native urothelium the stratified urothelial construct consisted of basal membrane and basal, intermediate and superficial cell layers. The apical membrane of superficial cells formed villi and glycocalices, and tight junctions and desmosomes were developed. Immunohistochemistry showed similarities and differences in the expression of cytokeratins, integrin and cellular adhesion proteins. In the cultured urothelium cytokeratin 20 and integrin subunits alpha6 and beta4 were absent, and symplekin was expressed diffusely in all layers. Uroplakins were clearly expressed in the superficial umbrella cells of the urothelial constructs, however, they were also present in intermediate and basal cells. Symplekin and uroplakins were expressed only in the superficial cells of native bladder tissue. The urothelial constructs showed excellent viability, and functionally their permeabilities for water, urea and ammonia were no different from those measured in native human urothelium. Proton permeability was even lower in the constructs compared to that of native urothelium. CONCLUSIONS: Although the in vitro cultured human stratified urothelium did not show complete terminal differentiation of its superficial cells, it retained the same barrier characteristics against the principal urine components. These results indicate that such in vitro cultured urothelium, after being grown on a compliant degradable support or in coculture with smooth muscle cells, is suitable for reconstructive cystoplasty.