Three essays on asset pricing

In this dissertation, I investigate three related topics on asset pricing: the consumption-based asset pricing under long-run risks and fat tails, the pricing of VIX (CBOE Volatility Index) options and the market price of risk embedded in stock returns and stock options. These three topics are fully explored in Chapter II through IV. Chapter V summarizes the main conclusions. In Chapter II, I explore the effects of fat tails on the equilibrium implications of the long run risks model of asset pricing by introducing innovations with dampened power law to consumption and dividends growth processes. I estimate the structural parameters of the proposed model by maximum likelihood. I find that the stochastic volatility model with fat tails can, without resorting to high risk aversion, generate implied risk premium, expected risk free rate and their volatilities comparable to the magnitudes observed in data. In Chapter III, I examine the pricing performance of VIX option models. The contention that simpler-is-better is supported by the empirical evidence using actual VIX option market data. I find that no model has small pricing errors over the entire range of strike prices and times to expiration. In general, Whaley’s Black-like option model produces the best overall results, supporting the simpler-is-better contention. However, the Whaley model does under/overprice out-of-the-money call/put VIX options, which is contrary to the behavior of stock index option pricing models. In Chapter IV, I explore risk pricing through a model of time-changed Lvy processes based on the joint evidence from individual stock options and underlying stocks. I specify a pricing kernel that prices idiosyncratic and systematic risks. This approach to examining risk premia on stocks deviates from existing studies. The empirical results show that the market pays positive premia for idiosyncratic and market jump-diffusion risk, and idiosyncratic volatility risk. However, there is no consensus on the premium for market volatility risk. It can be positive or negative. The positive premium on idiosyncratic risk runs contrary to the implications of traditional capital asset pricing theory.

In vivo tissue diagnosis for myocardial infarction using optical spectroscopy with novel spectral interpretation algorithms

In recent decades, the rapid development of optical spectroscopy for tissue diagnosis has been indicative of its high clinical value. The goal of this research is to prove the feasibility of using diffuse reflectance spectroscopy and fluorescence spectroscopy to assess myocardial infarction (MI) in vivo. The proposed optical technique was designed to be an intra-operative guidance tool that can provide useful information about the condition of an infarct for surgeons and researchers. ^ In order to gain insight into the pathophysiological characteristics of an infarct, two novel spectral analysis algorithms were developed to interpret diffuse reflectance spectra. The algorithms were developed based on the unique absorption properties of hemoglobin for the purpose of retrieving regional hemoglobin oxygenation saturation and concentration data in tissue from diffuse reflectance spectra. The algorithms were evaluated and validated using simulated data and actual experimental data. ^ Finally, the hypothesis of the study was validated using a rabbit model of MI. The mechanism by which the MI was induced was the ligation of a major coronary artery of the left ventricle. Three to four weeks after the MI was induced, the extent of myocardial tissue injury and the evolution of the wound healing process were investigated using the proposed spectroscopic methodology as well as histology. The correlations between spectral alterations and histopathological features of the MI were analyzed statistically. ^ The results of this PhD study demonstrate the applicability of the proposed optical methodology for assessing myocardial tissue damage induced by MI in vivo. The results of the spectral analysis suggest that connective tissue proliferation induced by MI significantly alter the characteristics of diffuse reflectance and fluorescence spectra. The magnitudes of the alterations could be quantitatively related to the severity and extensiveness of connective tissue proliferation.^

Linking Ecology and Economics for Ecosystem Management

This article outlines an approach, based on ecosystem services, for assessing the trade-offs inherent in managing humans embedded in ecological systems. Evaluating these trade-offs requires an understanding of the biophysical magnitudes of the changes in ecosystem services that result from human actions, and of the impact of these changes on human welfare. We summarize the state of the art of ecosystem services-based management and the information needs for applying it. Three case studies of Long Term Ecological Research (LTER) sites--coastal, urban, and agricultural-- illustrate the usefulness, information needs, quantification possibilities, and methods for this approach. One example of the application of this approach, with rigorously established service changes and valuations taken from the literature, is used to illustrate the potential for full economic valuation of several agricultural landscape management options, including managing for water quality, biodiversity, and crop productivity.

Predator–prey naïveté, antipredator behavior, and the ecology of predator invasions

We present a framework for explaining variation in predator invasion success and predator impacts on native prey that integrates information about predator–prey naïveté, predator and prey behavioral responses to each other, consumptive and non-consumptive effects of predators on prey, and interacting effects of multiple species interactions. We begin with the ‘naïve prey’ hypothesis that posits that naïve, native prey that lack evolutionary history with non-native predators suffer heavy predation because they exhibit ineffective antipredator responses to novel predators. Not all naïve prey, however, show ineffective antipredator responses to novel predators. To explain variation in prey response to novel predators, we focus on the interaction between prey use of general versus specific cues and responses, and the functional similarity of non-native and native predators. Effective antipredator responses reduce predation rates (reduce consumptive effects of predators, CEs), but often also carry costs that result in non-consumptive effects (NCEs) of predators. We contrast expected CEs versus NCEs for non-native versus native predators, and discuss how differences in the relative magnitudes of CEs and NCEs might influence invasion dynamics. Going beyond the effects of naïve prey, we discuss how the ‘naïve prey’, ‘enemy release’ and ‘evolution of increased competitive ability’ (EICA) hypotheses are inter-related, and how the importance of all three might be mediated by prey and predator naïveté. These ideas hinge on the notion that non-native predators enjoy a ‘novelty advantage’ associated with the naïveté of native prey and top predators. However, non-native predators could instead suffer from a novelty disadvantage because they are also naïve to their new prey and potential predators. We hypothesize that patterns of community similarity and evolution might explain the variation in novelty advantage that can underlie variation in invasion outcomes. Finally, we discuss management implications of our framework, including suggestions for managing invasive predators, predator reintroductions and biological control.

Responsiveness of voltage-gated calcium channels in SH-SY5Y human neuroblastoma cells on quasi-three-dimensional micropatterns formed with poly (l-lactic acid)

Introduction: In this study, quasi-three-dimensional (3D) microwell patterns were fabricated with poly (l-lactic acid) for the development of cell-based assays, targeting voltage-gated calcium channels (VGCCs). Methods and materials: SH-SY5Y human neuroblastoma cells were interfaced with the microwell patterns and found to grow as two dimensional (2D), 3D, and near two dimensional (N2D), categorized on the basis of the cells’ location in the pattern. The capability of the microwell patterns to support 3D cell growth was evaluated in terms of the percentage of the cells in each growth category. Cell spreading was analyzed in terms of projection areas under light microscopy. SH-SY5Y cells’ VGCC responsiveness was evaluated with confocal microscopy and a calcium fluorescent indicator, Calcium GreenTM-1. The expression of L-type calcium channels was evaluated using immunofluorescence staining with DM-BODIPY. Results: It was found that cells within the microwells, either N2D or 3D, showed more rounded shapes and less projection areas than 2D cells on flat poly (l-lactic acid) substrates. Also, cells in microwells showed a significantly lower VGCC responsiveness than cells on flat substrates, in terms of both response magnitudes and percentages of responsive cells, upon depolarization with 50 mM K+. This lower VGCC responsiveness could not be explained by the difference in L-type calcium channel expression. For the two patterns addressed in this study, N2D cells consistently exhibited an intermediate value of either projection areas or VGCC responsiveness between those for 2D and 3D cells, suggesting a correlative relation between cell morphology and VGCC responsiveness. Conclusion: These results suggest that the pattern structure and therefore the cell growth characteristics were critical factors in determining cell VGCC responsiveness and thus provide an approach for engineering cell functionality in cell-based assay systems and tissue engineering scaffolds.

Movement Effects on the Flow Physics and Nutrient Delivery in Engineered Valvular Tissues

Mechanical conditioning has been shown to promote tissue formation in a wide variety of tissue engineering efforts. However the underlying mechanisms by which external mechanical stimuli regulate cells and tissues are not known. This is particularly relevant in the area of heart valve tissue engineering (HVTE) owing to the intense hemodynamic environments that surround native valves. Some studies suggest that oscillatory shear stress (OSS) caused by steady flow and scaffold flexure play a critical role in engineered tissue formation derived from bone marrow derived stem cells (BMSCs). In addition, scaffold flexure may enhance nutrient (e.g. oxygen, glucose) transport. In this study, we computationally quantified the i) magnitude of fluid-induced shear stresses; ii) the extent of temporal fluid oscillations in the flow field using the oscillatory shear index (OSI) parameter, and iii) glucose and oxygen mass transport profiles. Noting that sample cyclic flexure induces a high degree of oscillatory shear stress (OSS), we incorporated moving boundary computational fluid dynamic simulations of samples housed within a bioreactor to consider the effects of: 1) no flow, no flexure (control group), 2) steady flow-alone, 3) cyclic flexure-alone and 4) combined steady flow and cyclic flexure environments. We also coupled a diffusion and convention mass transport equation to the simulated system. We found that the coexistence of both OSS and appreciable shear stress magnitudes, described by the newly introduced parameter OSI-t , explained the high levels of engineered collagen previously observed from combining cyclic flexure and steady flow states. On the other hand, each of these metrics on its own showed no association. This finding suggests that cyclic flexure and steady flow synergistically promote engineered heart valve tissue production via OSS, so long as the oscillations are accompanied by a critical magnitude of shear stress. In addition, our simulations showed that mass transport of glucose and oxygen is enhanced by sample movement at low sample porosities, but did not play a role in highly porous scaffolds. Preliminary in-house in vitro experiments showed that cell proliferation and phenotype is enhanced in OSI-t environments.

Regulation of Bone Marrow Stem Cells through Oscillatory Shear Stresses - A Heart Valve Tissue Engineering Perspective

Heart valve disease occurs in adults as well as in pediatric population due to age-related changes, rheumatic fever, infection or congenital condition. Current treatment options are limited to mechanical heart valve (MHV) or bio-prosthetic heart valve (BHV) replacements. Lifelong anti-coagulant medication in case of MHV and calcification, durability in case of BHV are major setbacks for both treatments. Lack of somatic growth of these implants require multiple surgical interventions in case of pediatric patients. Advent of stem cell research and regenerative therapy propose an alternative and potential tissue engineered heart valves (TEHV) treatment approach to treat this life threatening condition. TEHV has the potential to promote tissue growth by replacing and regenerating a functional native valve. Hemodynamics play a crucial role in heart valve tissue formation and sustained performance. The focus of this study was to understand the role of physiological shear stress and flexure effects on de novo HV tissue formation as well as resulting gene and protein expression. A bioreactor system was used to generate physiological shear stress and cyclic flexure. Human bone marrow mesenchymal stem cell derived tissue constructs were exposed to native valve-like physiological condition. Responses of these tissue constructs to the valve-relevant stress states along with gene and protein expression were investigated after 22 days of tissue culture. We conclude that the combination of steady flow and cyclic flexure helps support engineered tissue formation by the co-existence of both OSS and appreciable shear stress magnitudes, and potentially augment valvular gene and protein expression when both parameters are in the physiological range.

Three Essays on Asset Pricing

In this dissertation, I investigate three related topics on asset pricing: the consumption-based asset pricing under long-run risks and fat tails, the pricing of VIX (CBOE Volatility Index) options and the market price of risk embedded in stock returns and stock options. These three topics are fully explored in Chapter II through IV. Chapter V summarizes the main conclusions. In Chapter II, I explore the effects of fat tails on the equilibrium implications of the long run risks model of asset pricing by introducing innovations with dampened power law to consumption and dividends growth processes. I estimate the structural parameters of the proposed model by maximum likelihood. I find that the stochastic volatility model with fat tails can, without resorting to high risk aversion, generate implied risk premium, expected risk free rate and their volatilities comparable to the magnitudes observed in data. In Chapter III, I examine the pricing performance of VIX option models. The contention that simpler-is-better is supported by the empirical evidence using actual VIX option market data. I find that no model has small pricing errors over the entire range of strike prices and times to expiration. In general, Whaley’s Black-like option model produces the best overall results, supporting the simpler-is-better contention. However, the Whaley model does under/overprice out-of-the-money call/put VIX options, which is contrary to the behavior of stock index option pricing models. In Chapter IV, I explore risk pricing through a model of time-changed Lévy processes based on the joint evidence from individual stock options and underlying stocks. I specify a pricing kernel that prices idiosyncratic and systematic risks. This approach to examining risk premia on stocks deviates from existing studies. The empirical results show that the market pays positive premia for idiosyncratic and market jump-diffusion risk, and idiosyncratic volatility risk. However, there is no consensus on the premium for market volatility risk. It can be positive or negative. The positive premium on idiosyncratic risk runs contrary to the implications of traditional capital asset pricing theory.

Broadband RF current detector

The problems to be solved in this thesis were 1) development of a broadband RF preamplifier to be used with non-ferrous current probes so that the amplified signal exceeds the errors due to cable pickup, no detection is needed in this application, and 2) development of a self-contained device that amplifies and detects the output from a nonferrous current probe, providing a digital readout of the current. These instruments have been completed and are being tested for use by the National Institutes of Occupational Safety and Health (NIOSH). The self-contained current meter operates at frequencies up to 600 MHz, and detects currents as low as 8 mA . At these current magnitudes, the probe (pick-up coil) will output a voltage of 500μV (-53 dBm on 50Ω) which will have to be raised above 0 dBm. The final circuit uses a RF mixer as a variable attenuator in order to increase the dynamic range, two Monolithic Microwave Integrated Circuits (MMIC) for preamplification, a final broadband amplifier to raise the output compression point, a Schottky diode detector, a sample and hold circuit, and a liquid crystal digital panel meter.

Regulation of bone marrow stem cells through oscillatory shear stresses - A heart valve tissue engineering perspective

Heart valve disease occurs in adults as well as in pediatric population due to age-related changes, rheumatic fever, infection or congenital condition. Current treatment options are limited to mechanical heart valve (MHV) or bio-prosthetic heart valve (BHV) replacements. Lifelong anti-coagulant medication in case of MHV and calcification, durability in case of BHV are major setbacks for both treatments. Lack of somatic growth of these implants require multiple surgical interventions in case of pediatric patients. Advent of stem cell research and regenerative therapy propose an alternative and potential tissue engineered heart valves (TEHV) treatment approach to treat this life threatening condition. TEHV has the potential to promote tissue growth by replacing and regenerating a functional native valve. Hemodynamics play a crucial role in heart valve tissue formation and sustained performance. The focus of this study was to understand the role of physiological shear stress and flexure effects on de novo HV tissue formation as well as resulting gene and protein expression. A bioreactor system was used to generate physiological shear stress and cyclic flexure. Human bone marrow mesenchymal stem cell derived tissue constructs were exposed to native valve-like physiological condition. Responses of these tissue constructs to the valve-relevant stress states along with gene and protein expression were investigated after 22 days of tissue culture. We conclude that the combination of steady flow and cyclic flexure helps support engineered tissue formation by the co-existence of both OSS and appreciable shear stress magnitudes, and potentially augment valvular gene and protein expression when both parameters are in the physiological range. ^

Movement effects on the flow physics and nutrient delivery in engineered valvular tissues

Mechanical conditioning has been shown to promote tissue formation in a wide variety of tissue engineering efforts. However the underlying mechanisms by which external mechanical stimuli regulate cells and tissues are not known. This is particularly relevant in the area of heart valve tissue engineering (HVTE) owing to the intense hemodynamic environments that surround native valves. Some studies suggest that oscillatory shear stress (OSS) caused by steady flow and scaffold flexure play a critical role in engineered tissue formation derived from bone marrow derived stem cells (BMSCs). In addition, scaffold flexure may enhance nutrient (e.g. oxygen, glucose) transport. In this study, we computationally quantified the i) magnitude of fluid-induced shear stresses; ii) the extent of temporal fluid oscillations in the flow field using the oscillatory shear index (OSI) parameter, and iii) glucose and oxygen mass transport profiles. Noting that sample cyclic flexure induces a high degree of oscillatory shear stress (OSS), we incorporated moving boundary computational fluid dynamic simulations of samples housed within a bioreactor to consider the effects of: 1) no flow, no flexure (control group), 2) steady flow-alone, 3) cyclic flexure-alone and 4) combined steady flow and cyclic flexure environments. We also coupled a diffusion and convention mass transport equation to the simulated system. We found that the coexistence of both OSS and appreciable shear stress magnitudes, described by the newly introduced parameter OSI-:τ: explained the high levels of engineered collagen previously observed from combining cyclic flexure and steady flow states. On the other hand, each of these metrics on its own showed no association. This finding suggests that cyclic flexure and steady flow synergistically promote engineered heart valve tissue production via OSS, so long as the oscillations are accompanied by a critical magnitude of shear stress. In addition, our simulations showed that mass transport of glucose and oxygen is enhanced by sample movement at low sample porosities, but did not play a role in highly porous scaffolds. Preliminary in-house in vitro experiments showed that cell proliferation and phenotype is enhanced in OSI-:τ: environments.^