On Option Price Information Content and Extraction of Implied Probability Distributions

In this study we used market settlement prices of European call options on stock index futures to extract implied probability distribution function (PDF). The method used produces a PDF of returns of an underlying asset at expiration date from implied volatility smile. With this method, the assumption of lognormal distribution (Black-Scholes model) is tested. The market view of the asset price dynamics can then be used for various purposes (hedging, speculation). We used the so called smoothing approach for implied PDF extraction presented by Shimko (1993). In our analysis we obtained implied volatility smiles from index futures markets (S&P 500 and DAX indices) and standardized them. The method introduced by Breeden and Litzenberger (1978) was then used on PDF extraction. The results show significant deviations from the assumption of lognormal returns for S&P500 options while DAX options mostly fit the lognormal distribution. A deviant subjective view of PDF can be used to form a strategy as discussed in the last section.

Partnering in the Dynamic Environment: The Role of Trust in Asymmetric Technology Partnership Formation

The purpose of this study was to increase the understanding of the role and nature of trust in asymmetric technology partnership formation. In the knowledge-based "learning race" knowledge is considered as a primary source for competitive advantage. In the emerging ICT sector the high pace of technological change, the convergence of technologies and industries as well as the increasing complexity and uncertainty have forced even the largest players to seek cooperation for complementary knowledge and capabilities. Small technology firms need the complementary resources and legitimacy of the large firms to grow and compete in the global market place. Most of the earlier research indicates, however, that partnerships with asymmetric size, managerial resources and cultures have failed. A basic assumption supported by earlier research was that trust is a critical factor in asymmetric technology partnership formation. Asymmetric technology partnership formation is a dynamic and multi-dimensional process, and consequently a holistic research approach was selected. Research issue was approached from different levels: the individual decision-maker, the firm and the relationship between the parties. Also the impact of the dynamic environment and technology content was analyzed. A multitheoretical approach and a qualitative research method with in-depth interviews in five large ICT companies and eight small ICT companies enabled a holistic and rich view of the research issue. Study contributes on the scarce understanding on the nature and evolution of trust in asymmetric technology partnership formation. It sheds also light on the specific nature of asymmetric technology partnerships. The partnerships were found to be tentative and the diverse strategic intent of small and large technology firms appeared as a major challenge. The role of the boundary spanner was highlighted as a possibility to match the incompatible organizational cultures. A shared vision was found to be a pre-condition for individual-based fast trust leading to intuitive decision-making and experimentation. The relationships were tentative and they were continuously re-evaluated through the key actors' sense making of the technology content, asymmetry and the dynamic environment. A multi-dimensional conceptualization for trust was created and propositions on the role and nature of trust for further research are given. The purpose of this study was to increase the understanding of the role and nature of trust in asymmetric technology partnership formation. In the knowledge-based "learning race" knowledge is considered as a primary source for competitive advantage. In the emerging ICT sector the high pace of technological change, the convergence of technologies and industries as well as the increasing complexity and uncertainty have forced even the largest players to seek cooperation for complementary knowledge and capabilities. Small technology firms need the complementary resources and legitimacy of the large firms to grow and compete in the global market place. Most of the earlier research indicates, however, that partnerships with asymmetric size, managerial resources and cultures have failed. A basic assumption supported by earlier research was that trust is a critical factor in asymmetric technology partnership formation. Asymmetric technology partnership formation is a dynamic and multi-dimensional process, and consequently a holistic research approach was selected. Research issue was approached from different levels: the individual decision-maker, the firm and the relationship between the parties. Also the impact of the dynamic environment and technology content was analyzed. A multitheoretical approach and a qualitative research method with in-depth interviews in five large ICT companies and eight small ICT companies enabled a holistic and rich view of the research issue. Study contributes on the scarce understanding on the nature and evolution of trust in asymmetric technology partnership formation. It sheds also light on the specific nature of asymmetric technology partnerships. The partnerships were found to be tentative and the diverse strategic intent of small and large technology firms appeared as a major challenge. The role of the boundary spanner was highlighted as a possibility to match the incompatible organizational cultures. A shared vision was found to be a pre-condition for individual-based fast trust leading to intuitive decision-making and experimentation. The relationships were tentative and they were continuously re-evaluated through the key actors' sense making of the technology content, asymmetry and the dynamic environment. A multi-dimensional conceptualization for trust was created and propositions on the role and nature of trust for further research are given.

Comovement of stock price risk in strategic alliance — Case: mobile internet

The focus of this study has been comovement of stock price risk level between two companies as they form strategic alliance. Thus the main reason has been to shed more light to possible increased risk level that the stockholder confronts when a company he owns forms a strategic alliance with another company. This study has centralized to interfirm cooperation between mobile and internet companies, which have furthered the development of mobile internet. The study has been divided into theoretical and empirical part. In theoretical part the main concepts riskiness of a stock (volatility), comovement and strategic alliance have been run through. In empirical part seven strategic alliances formed by mobile internet companies have been examined. Based on this, strategic alliance seems to increase comovement of stock price risk in some degree. This comovement seems to be stronger when core businesses or operating environments of cooperating companies differ more from each other.

Essays on pricing of risk and international linkage of Russian stock market

Last two decades have seen a rapid change in the global economic and financial situation; the economic conditions in many small and large underdeveloped countries started to improve and they became recognized as emerging markets. This led to growth in the amounts of global investments in these countries, partly spurred by expectations of higher returns, favorable risk-return opportunities, and better diversification alternatives to global investors. This process, however, has not been without problems and it has emphasized the need for more information on these markets. In particular, the liberalization of financial markets around the world, globalization of trade and companies, recent formation of economic and regional blocks, and the rapid development of underdeveloped countries during the last two decades have brought a major challenge to the financial world and researchers alike. This doctoral dissertation studies one of the largest emerging markets, namely Russia. The motivation why the Russian equity market is worth investigating includes, among other factors, its sheer size, rapid and robust economic growth since the turn of the millennium, future prospect for international investors, and a number of important major financial reforms implemented since the early 1990s. Another interesting feature of the Russian economy, which gives motivation to study Russian market, is Russia’s 1998 financial crisis, considered as one of the worst crisis in recent times, affecting both developed and developing economies. Therefore, special attention has been paid to Russia’s 1998 financial crisis throughout this dissertation. This thesis covers the period from the birth of the modern Russian financial markets to the present day, Special attention is given to the international linkage and the 1998 financial crisis. This study first identifies the risks associated with Russian market and then deals with their pricing issues. Finally some insights about portfolio construction within Russian market are presented. The first research paper of this dissertation considers the linkage of the Russian equity market to the world equity market by examining the international transmission of the Russia’s 1998 financial crisis utilizing the GARCH-BEKK model proposed by Engle and Kroner. Empirical results shows evidence of direct linkage between the Russian equity market and the world market both in regards of returns and volatility. However, the weakness of the linkage suggests that the Russian equity market was only partially integrated into the world market, even though the contagion can be clearly seen during the time of the crisis period. The second and the third paper, co-authored with Mika Vaihekoski, investigate whether global, local and currency risks are priced in the Russian stock market from a US investors’ point of view. Furthermore, the dynamics of these sources of risk are studied, i.e., whether the prices of the global and local risk factors are constant or time-varying over time. We utilize the multivariate GARCH-M framework of De Santis and Gérard (1998). Similar to them we find price of global market risk to be time-varying. Currency risk also found to be priced and highly time varying in the Russian market. Moreover, our results suggest that the Russian market is partially segmented and local risk is also priced in the market. The model also implies that the biggest impact on the US market risk premium is coming from the world risk component whereas the Russian risk premium is on average caused mostly by the local and currency components. The purpose of the fourth paper is to look at the relationship between the stock and the bond market of Russia. The objective is to examine whether the correlations between two classes of assets are time varying by using multivariate conditional volatility models. The Constant Conditional Correlation model by Bollerslev (1990), the Dynamic Conditional Correlation model by Engle (2002), and an asymmetric version of the Dynamic Conditional Correlation model by Cappiello et al. (2006) are used in the analysis. The empirical results do not support the assumption of constant conditional correlation and there was clear evidence of time varying correlations between the Russian stocks and bond market and both asset markets exhibit positive asymmetries. The implications of the results in this dissertation are useful for both companies and international investors who are interested in investing in Russia. Our results give useful insights to those involved in minimising or managing financial risk exposures, such as, portfolio managers, international investors, risk analysts and financial researchers. When portfolio managers aim to optimize the risk-return relationship, the results indicate that at least in the case of Russia, one should account for the local market as well as currency risk when calculating the key inputs for the optimization. In addition, the pricing of exchange rate risk implies that exchange rate exposure is partly non-diversifiable and investors are compensated for bearing the risk. Likewise, international transmission of stock market volatility can profoundly influence corporate capital budgeting decisions, investors’ investment decisions, and other business cycle variables. Finally, the weak integration of the Russian market and low correlations between Russian stock and bond market offers good opportunities to the international investors to diversify their portfolios.

Granulation tissue formation -The effect of hydroxyapatite coating of cellulose on cellular differentiation

Haavan jyväiskudoksen muodostuminen – Hydroksiapatiittipinnoi-tetun selluloosasienen vaikutus solujen erilaistumiseen paranemisprosessin aikana Etsittäessä uusia luun bioyhteensopivia täytemateriaaleja selluloosasieni päällystettiin luun koostumusta muistuttavalla runsaasti piitä sisältävällä hydroksiapatiittikerroksella. Vastoin odotuksia hydroksiapatiittipinnoitettu selluloosa ei parantanut luun kasvua, vaan päinvastoin ylläpiti tulehdusta ja sidekudossolujen hakeutumista vamma-alueelle. Ihon alle implantoituna sama sienimateriaali edisti merkittävästi haavan verekkään jyväiskudoksen kasvua. Tämän löydöksen perusteella hydroksiapatiittipinnoitetun selluloosasienen vaikutusta haavan soluihin paranemisprosessin aikana tutkittiin tarkemmin ja havaittiin, että tulehdussolujen lisäksi sieniin kertyi tavallista enemmän sekä hematopoieettisia että mesenkymaalisia kantasoluja. Hematopoieettiset kantasolut sijaitsevat luuytimessä lähellä luun sisäpintaa. Luun hydroksiapatiitista vapautuu kalsiumioneja luun jatkuvan fysiologisen uudismuodostuksen ja hajottamisen yhteydessä. Kantasolut etsiytyvät luuytimeen kalsiumia aistivien reseptorien välityksellä. Koska luun pintakerrosta muistuttavasta hydroksiapatiittipinnoitteesta vapautuu kalsiumia, tämän ajateltiin toimivan selityksenä sille, että hematopoieettiset kantasolut hakeutuvat runsaslukuisesti juuri hydroksiapatiittipinnoitettuihin selluloosasieniin. Tämän hypoteesin mukaisesti hydroksiapatiittipinnoitettujen selluloosapalkkien läheisyydestä löydettiin suuria määriä kalsiumreseptoreja sisältäviä soluja. Jatkotutkimuksissa todettiin lisäksi, että hematopoieettiset kantasolut pystyivät sienissä erilaistumaan hemoglobiinia tuottaviksi soluiksi. Havaittujen punasolulinjan merkkiaineiden perusteella näyttäisikin siltä, että haavan paranemiskudoksessa tapahtuu paranemisen aikana ekstramedullaarista erytropoieesia. Nämä soluja ohjaavat vaikutukset saattavat olla hyödyllisiä vaikeasti paranevien haavojen hoidossa.

Stress testing and risk evaluation of new capacity payment algorithm proposed by Market Council

In the Russian Wholesale Market, electricity and capacity are traded separately. Capacity is a special good, the sale of which obliges suppliers to keep their generating equipment ready to produce the quantity of electricity indicated by the System Operator. The purpose of the formation of capacity trading was the maintenance of reliable and uninterrupted delivery of electricity in the wholesale market. The price of capacity reflects constant investments in construction, modernization and maintenance of power plants. So, the capacity sale creates favorable conditions to attract investments in the energy sector because it guarantees the investor that his investments will be returned.

Quasi-objects and actors in the web of belief. Formation of a national nuclear waste management system: the case of Finland

Paper presented in ISA RC23 meeting, Gothenburg July 16th 2010

Effect of pulps fractionation on formation and strength properties of laboratory hand sheets

The objectives of the work were to study the effect of dewatering time varying on formation properties of papersheets, to determine the role of fines fraction in creation of paper with good formation and strength properties of papersheets, and also to study the effect of charge modification of fibers fractionations on formation properties of handsheets. The paper formation is one of the most important structural properties of paper. This property has effect on physical and optical characteristics of paper. In thi work the effect of formation on tensile strength was determined. The formation properties were analyzed by using the AMBERTEC Beta Formation Tester. The PAM addition as a f;locculant agent did some changes in the formation of paper. Paper sheets were also made from different furnishes of both birch and pine pulps. The fibers particles as a fines have great effect on drainability changes. Fines fraction played important role in papermaking. The two kinds of pulps (pine and birch pulps) were also used in this work for investigation of fines role. As it was expected the fines fraction gave positive effect on paper formation, but when fines fraction was added above initial fines content the formation of paper was deteriorated. The effect of paper formation on tensile strength was also determined. In many cases the poor formation of paper had negative effect on strength properties of paper..

Formation of polyelectrolyte multilayers and polyelectrolyte complexes in dual polymer treatment of papermaking pulp

The goal of this study was to find a new approach to modify chemically the properties of paper by improving fiber quality. This Master’s thesis includes the multiple polymer treatment in general and themeasurement methods with which the formation of multilayers and complexes can be noticed. The treatment by an oppositely charged dual polymer system is a good approach to increase paper strength. In this work, starch, a cationic polymer, and carboxymethyl cellulose (CMC), an anionic polymer, were used step-by-step to improve paper strength. The adsorption of cationic starch and CMC on cellulose fibers were analyzed via polyelectrolyte titration. The results showed that paper strength was enhanced slightly with a layer-by-layer assembly of the polymers. However, if the washing stage, which was required for layer-by-layer assembly, was eliminated, the starch/CMC complex was deposited on fibers more efficiently, and the paper strength was improved more significantly.

Teollisuuden jäähdytysjärjestelmät. Case: Kaasunerotuslaitteiston evaluointi

Teollisuuden jäähdytysjärjestelmiä tarvitaan prosessien lämpötilan ja paineen hal-litsemiseen. Vesi on käytetyin lämmönsiirtoaine hyvän saatavuutensa, halvan hin-nan ja korkean lämmönsiirtokyvyn ansiosta. Jäähdytysjärjestelmät jaetaan kolmeen päätyyppiin, joita ovat läpivirtausjäähdytys, suljettu ja avoin kiertojäähdytys. Kullakin järjestelmätyypillä on tyypilliset alatyyppinsä. Avoimella kiertojär-jestelmällä on eniten alatyyppejä, joista yleisin on jäähdytystorni. Jäähdytystorneja on kolmea tyyppiä: märkä-, kuiva ja hybriditorni. Kullakin järjestelmätyypillä on ominaiset piirteensä käyttökohteiden, ympäristövaikutusten, ohjattavuuden, investointi- ja käyttökulujen suhteen, joita tässä työssä esitellään. Työssä tutkitaan teollisuuden jäähdytysjärjestelmien esittelyn lisäksi erään ali-painekaasunpoistimen soveltuvuutta suljetun kiertojäähdytysjärjestelmän kaasun-poistoon. Suljettuun kiertojäähdytysjärjestelmään jää ilmaa täyttövaiheessa ja kul-keutuu liuenneena käytettävän jäähdytysveden mukana. Muodostuva ylikylläinen seos synnyttää veden sekaan ilmakuplia, jotka aiheuttavat korroosiota kemiallisesti ja kuluttamalla. Lisäksi kaasukuplat vievät tilavuutta nesteeltä. Tämä pienentää järjestelmän jäähdytystehoa merkittävästi, koska kaasun lämmönsiirtokyky verrat-tuna veden lämmönsiirtokykyyn on pieni. Työssä esitellään myös muita mahdolli-sia suljetun järjestelmän kaasulähteitä ja niiden aiheuttamia ongelmia. Alipainekaasunpoistimen kaasunerotustehokkuutta mitattiin jäähdytysvesinäyttei-den selkeytymisnopeudella ja lämmönsiirtimien tehon paranemisella. Kahden viikon tarkastelujaksolla selkeytymisajat paranivat 36–60 % eri mittauspaikoissa ja lämmönsiirtimien tehot paranivat 6–29 %. Järjestelmään kuitenkin jäi merkittävä määrä kaasua, vaikka laitteen käyttöä jatkettiin tarkastelujakson jälkeen, joten tavoitteisiin ei päästy. Tutkitun alipainekaasunpoistolaitteen ei todettu soveltuvan tehdasympäristöön kestämättömyyden, hankalakäyttöisyyden ja tehottomuuden takia. Tulokset kuitenkin osoittavat, että kaasunerotuksella on merkittävä vaikutus suljetun jäähdytysjärjestelmän toimivuuteen ja saavutettavaan jäähdytystehoon.

Pricing anomalies in the Finnish stock market

The aim of this thesis is to examine whether the pricing anomalies exists in the Finnish stock markets by comparing the performance of quantile portfolios that are formed on the basis of either individual valuation ratios, composite value measures or combined value and momentum indicators. All the research papers included in the thesis show evidence of value anomalies in the Finnish stock markets. In the first paper, the sample of stocks over the 1991-2006 period is divided into quintile portfolios based on four individual valuation ratios (i.e., E/P, EBITDA/EV, B/P, and S/P) and three hybrids of them (i.e. composite value measures). The results show the superiority of composite value measures as selection criterion for value stocks, particularly when EBITDA/EV is employed as earnings multiple. The main focus of the second paper is on the impact of the holding period length on performance of value strategies. As an extension to the first paper, two more individual ratios (i.e. CF/P and D/P) are included in the comparative analysis. The sample of stocks over 1993- 2008 period is divided into tercile portfolios based on six individual valuation ratios and three hybrids of them. The use of either dividend yield criterion or one of three composite value measures being examined results in best value portfolio performance according to all performance metrics used. Parallel to the findings of many international studies, our results from performance comparisons indicate that for the sample data employed, the yearly reformation of portfolios is not necessarily optimal in order to maximally gain from the value premium. Instead, the value investor may extend his holding period up to 5 years without any decrease in long-term portfolio performance. The same holds also for the results of the third paper that examines the applicability of data envelopment analysis (DEA) method in discriminating the undervalued stocks from overvalued ones. The fourth paper examines the added value of combining price momentum with various value strategies. Taking account of the price momentum improves the performance of value portfolios in most cases. The performance improvement is greatest for value portfolios that are formed on the basis of the 3-composite value measure which consists of D/P, B/P and EBITDA/EV ratios. The risk-adjusted performance can be enhanced further by following 130/30 long-short strategy in which the long position of value winner stocks is leveraged by 30 percentages while simultaneously selling short glamour loser stocks by the same amount. Average return of the long-short position proved to be more than double stock market average coupled with the volatility decrease. The fifth paper offers a new approach to combine value and momentum indicators into a single portfolio-formation criterion using different variants of DEA models. The results throughout the 1994-2010 sample period shows that the top-tercile portfolios outperform both the market portfolio and the corresponding bottom-tercile portfolios. In addition, the middle-tercile portfolios also outperform the comparable bottom-tercile portfolios when DEA models are used as a basis for stock classification criteria. To my knowledge, such strong performance differences have not been reported in earlier peer-reviewed studies that have employed the comparable quantile approach of dividing stocks into portfolios. Consistently with the previous literature, the division of the full sample period into bullish and bearish periods reveals that the top-quantile DEA portfolios lose far less of their value during the bearish conditions than do the corresponding bottom portfolios. The sixth paper extends the sample period employed in the fourth paper by one year (i.e. 1993- 2009) covering also the first years of the recent financial crisis. It contributes to the fourth paper by examining the impact of the stock market conditions on the main results. Consistently with the fifth paper, value portfolios lose much less of their value during bearish conditions than do stocks on average. The inclusion of a momentum criterion somewhat adds value to an investor during bullish conditions, but this added value turns to negative during bearish conditions. During bear market periods some of the value loser portfolios perform even better than their value winner counterparts. Furthermore, the results show that the recent financial crisis has reduced the added value of using combinations of momentum and value indicators as portfolio formation criteria. However, since the stock markets have historically been bullish more often than bearish, the combination of the value and momentum criteria has paid off to the investor despite the fact that its added value during bearish periods is negative, on an average.