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.

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.

Hydrologic processes on tree islands in the Everglades (Florida, USA): tracking the effects of tree establishment and growth

The hydrodynamics of tree islands during the growth of newly planted trees has been found to be influenced by both vegetation biomass and geologic conditions. From July 2007 through June 2009, groundwater and surface-water levels were monitored on eight recently planted tree islands at the Loxahatchee Impoundment Landscape Assessment (LILA) facility in Boynton Beach, Florida, USA. Over the 2-year study, stand development coincided with the development of a water-table depression in the center of each of the islands that was bounded by a hydraulic divide along the edges. The water-table depression was greater in islands composed of limestone as compared to those composed of peat. The findings of this study suggest that groundwater evapotranspiration by trees on tree islands creates complex hydrologic interactions between the shallow groundwater in tree islands and the surrounding surface water and groundwater bodies.

Continuous property measurement techniques and physics based mathematical model for frost growth control

The development of a new set of frost property measurement techniques to be used in the control of frost growth and defrosting processes in refrigeration systems was investigated. Holographic interferometry and infrared thermometry were used to measure the temperature of the frost-air interface, while a beam element load sensor was used to obtain the weight of a deposited frost layer. The proposed measurement techniques were tested for the cases of natural and forced convection, and the characteristic charts were obtained for a set of operational conditions. ^ An improvement of existing frost growth mathematical models was also investigated. The early stage of frost nucleation was commonly not considered in these models and instead an initial value of layer thickness and porosity was regularly assumed. A nucleation model to obtain the droplet diameter and surface porosity at the end of the early frosting period was developed. The drop-wise early condensation in a cold flat plate under natural convection to a hot (room temperature) and humid air was modeled. A nucleation rate was found, and the relation of heat to mass transfer (Lewis number) was obtained. It was found that the Lewis number was much smaller than unity, which is the standard value usually assumed for most frosting numerical models. The nucleation model was validated against available experimental data for the early nucleation and full growth stages of the frosting process. ^ The combination of frost top temperature and weight variation signals can now be used to control the defrosting timing and the developed early nucleation model can now be used to simulate the entire process of frost growth in any surface material. ^

Regional processes in mangrove ecosystems: spatial scaling relationships, biomass, and turnover rates following catastrophic disturbance

Physiological processes and local-scale structural dynamics of mangroves are relatively well studied. Regional-scale processes, however, are not as well understood. Here we provide long-term data on trends in structure and forest turnover at a large scale, following hurricane damage in mangrove ecosystems of South Florida, U.S.A. Twelve mangrove vegetation plots were monitored at periodic intervals, between October 1992 and March 2005. Mangrove forests of this region are defined by a −1.5 scaling relationship between mean stem diameter and stem density, mirroring self-thinning theory for mono-specific stands. This relationship is reflected in tree size frequency scaling exponents which, through time, have exhibited trends toward a community average that is indicative of full spatial resource utilization. These trends, together with an asymptotic standing biomass accumulation, indicate that coastal mangrove ecosystems do adhere to size-structured organizing principles as described for upland tree communities. Regenerative dynamics are different between areas inside and outside of the primary wind-path of Hurricane Andrew which occurred in 1992. Forest dynamic turnover rates, however, are steady through time. This suggests that ecological, more-so than structural factors, control forest productivity. In agreement, the relative mean rate of biomass growth exhibits an inverse relationship with the seasonal range of porewater salinities. The ecosystem average in forest scaling relationships may provide a useful investigative tool of mangrove community biomass relationships, as well as offer a robust indicator of general ecosystem health for use in mangrove forest ecosystem management and restoration.

Reactive Oxygen Species via Redox Signaling to PI3K/AKT Pathway Contribute to the Malignant Growth of 4-Hydroxy Estradiol-Transformed Mammary Epithelial Cells

The purpose of this study was to investigate the effects of 17-β-estradiol (E2)-induced reactive oxygen species (ROS) on the induction of mammary tumorigenesis. We found that ROS-induced by repeated exposures to 4-hydroxy-estradiol (4-OH-E2), a predominant catechol metabolite of E2, caused transformation of normal human mammary epithelial MCF-10A cells with malignant growth in nude mice. This was evident from inhibition of estrogen-induced breast tumor formation in the xenograft model by both overexpression of catalase as well as by co-treatment with Ebselen. To understand how 4-OH-E2 induces this malignant phenotype through ROS, we investigated the effects of 4-OH-E2 on redox-sensitive signal transduction pathways. During the malignant transformation process we observed that 4-OH-E2 treatment increased AKT phosphorylation through PI3K activation. The PI3K-mediated phosphorylation of AKT in 4-OH-E2-treated cells was inhibited by ROS modifiers as well as by silencing of AKT expression. RNA interference of AKT markedly inhibited 4-OH-E2-induced in vitro tumor formation. The expression of cell cycle genes, cdc2, PRC1 and PCNA and one of transcription factors that control the expression of these genes – nuclear respiratory factor-1 (NRF-1) was significantly up-regulated during the 4-OH-E2-mediated malignant transformation process. The increased expression of these genes was inhibited by ROS modifiers as well as by silencing of AKT expression. These results indicate that 4-OH-E2-induced cell transformation may be mediated, in part, through redox-sensitive AKT signal transduction pathways by up-regulating the expression of cell cycle genes cdc2, PRC1 and PCNA, and the transcription factor – NRF-1. In summary, our study has demonstrated that: (i) 4-OH-E2 is one of the main estrogen metabolites that induce mammary tumorigenesis and (ii) ROS-mediated signaling leading to the activation of PI3K/AKT pathway plays an important role in the generation of 4-OH-E2-induced malignant phenotype of breast epithelial cells. In conclusion, ROS are important signaling molecules in the development of estrogen-induced malignant breast lesions.

Investigating group processes in a positive youth development program for multi -problem youth

This study investigated group processes as potential mediators or moderators of positive development outcome and negative reduction intervention response by evaluating the utility of a group measure modified from a widely known measure of group impact found in the group therapy research literature. Four group processes were of primary interest, (1) Group Impact; (2) Facilitator Impact; (3) Skills Impact; and (4) Exploration Impact as assessed by the Session Evaluation Form (SEF). Outcome measures included the Personally Expressive Activities Questionnaire (PEAQ), Erikson Psycho-Social Index (EPSI) and the Zill Behavior Items, Behavior Problem Index (ZBI (BPI)). The sample consisted of 121 multi-ethnic participants drawn from four alternative high schools from the Miami-Dade County Public School system. Utilizing a Latent Growth Curve Modeling approach with Structural Equation Modeling (SEM) statistics, preliminary analyses were conducted to evaluate the psychometric properties of the SEF and its role in the mediation or moderation of intervention outcome. Preliminary results revealed evidence of a single higher order factor representing a "General" global reaction, which was hypothesized to be a "Positive Group Climate" construct to the program as opposed to the four distinct group processes that were initially hypothesized to affect outcomes. The results of the evaluation of the mediation or moderation role of intervention outcome of the single "General" global latent factor ("Positive Group Climate" construct) did not significantly predict treatment response on any of the outcome variables. Nevertheless, the evidence of an underlying "General" global latent factor ("Positive Group Climate" construct) has important future directions for research on positive youth development programs as well as in group therapy research.