The Dutch Referendum on the EU-Ukraine Association Agreement: Legal options for navigating a tricky and awkward situation. CEPS Commentary, 8 April 2016

In an advisory referendum held in the Netherlands on April 6th, over 61% of the voters rejected the ratification of the Association Agreement (AA) between the EU and Ukraine. If the Dutch government were to act on the outcome of the referendum, which had a low turnout of 32%, an unprecedented situation would emerge in which an EU international agreement cannot enter into force because a member state is not in a position to ratify it. Although the political character of this referendum and the Dutch Advisory Referendum Act (DRA) and the geopolitical implications of the AA itself have already been the subject of heated discussions in the Netherlands and beyond, the legal implications of this referendum remain unclear.

Electoral Volatility, Political Sophistication, Trust and Efficacy

In this article we investigate voter volatility and analyze the causes and motives of switching vote intentions. We test two main sets of variables linked to volatility in literature; political sophistication and ‘political (dis)satisfaction’. Results show that voters with low levels of political efficacy tend to switch more often, both within a campaign and between elections. In the analysis we differentiate between campaign volatility and inter-election volatility and by doing so show that the dynamics of a campaign have a profound impact on volatility. The campaign period is when the lowly sophisticated switch their vote intention. Those with higher levels of interest in politics have switched their intention before the campaign has started. The data for this analysis are from the three wave PartiRep Belgian Election Study (2009).

Stochastic volatility and the goodness-of-fit of the Heston model

Recently, Drǎgulescu and Yakovenko proposed an analytical formula for computing the probability density function of stock log returns, based on the Heston model, which they tested empirically. Their research design inadvertently favourably biased the fit of the data to the Heston model, thus overstating their empirical results. Furthermore, Drǎgulescu and Yakovenko did not perform any goodness-of-fit statistical tests. This study employs a research design that facilitates statistical tests of the goodness-of-fit of the Heston model to empirical returns. Robustness checks are also performed. In brief, the Heston model outperformed the Gaussian model only at high frequencies and even so does not provide a statistically acceptable fit to the data. The Gaussian model performed (marginally) better at medium and low frequencies, at which points the extra parameters of the Heston model have adverse impacts on the test statistics. © 2005 Taylor & Francis Group Ltd.

Sticky credit spreads, macroeconomic activity and equity market volatility

We uncover high persistence in credit spread series that can obscure the relationship between the theoretical determinants of credit risk and observed credit spreads. We use a Markovswitching model, which also captures the stability (low frequency changes) of credit ratings, to show why credit spreads may continue to respond to past levels of credit risk, even though the state of the economy has changed. A bivariate model of credit spreads and either macroeconomic activity or equity market volatility detects large and significant correlations that are consistent with theory but have not been observed in previous studies. © 2010 Nova Science Publishers, Inc. All rights reserved.

"It's so little money you could make as much at home" - options for work in an impoverished rural region of high unemployment.

Hungary has a higher unemployment rate than the member states of the European Union and even most former socialist countries. This rate for 15-64 year-olds has been around 56% since 1999, as against 66% in the European Union (OECD Employment Database). There is also a high degree of regional unevenness within the country. The situation is worst in North Hungary, an area of multiple economic and social deprivations. Several pieces of research have analysed the causes of long-term unemployment and have highlighted the main social, geographical and institutional factors behind it. People of low educational attainment who live in small villages and members of the Roma minority are particularly likely to have been without jobs for a long time.

Access to better education: The school choice experience of families served by low-performing elementary public schools in Miami-Dade County

Public school choice education policy attempts to create an education marketplace. Although school choice research has focused on the parent role in the school choice process, little is known about parents served by low-performing schools. Following market theory, students attending low-performing schools should be the primary students attempting to use school choice policy to access high performing schools rather than moving to a better school. However, students remain in these low-performing schools. This study took place in Miami-Dade County, which offers a wide variety of school choice options through charter schools, magnet schools, and open-choice schools. ^ This dissertation utilized a mixed-methods design to examine the decision-making process and school choice options utilized by the parents of students served by low-performing elementary schools in Miami-Dade County. Twenty-two semi-structured interviews were conducted with the parents of students served by low-performing schools. Binary logistic regression models were fitted to the data to compare the demographic characteristics, academic achievement and distance from alternative schooling options between transfers and non-transfers. Multinomial logistic regression models were fitted to the data to evaluate how demographic characteristics, distance to transfer school, and transfer school grade influenced the type of school a transfer student chose. A geographic analysis was conducted to determine how many miles students lived from alternative schooling options and the miles transfer students lived away from their transfer school. ^ The findings of the interview data illustrated that parents’ perceived needs are not being adequately addressed by state policy and county programs. The statistical analysis found that students from higher socioeconomic social groups were not more likely to transfer than students from lower socioeconomic social groups. Additionally, students who did transfer were not likely to end up at a high achieving school. The findings of the binary logistic regression demonstrated that transfer students were significantly more likely to live near alternative school options.^

Electoral Volatility, Political Sophistication, Trust and Efficacy

In this article we investigate voter volatility and analyze the causes and motives of switching vote intentions. We test two main sets of variables linked to volatility in literature; political sophistication and ‘political (dis)satisfaction’. Results show that voters with low levels of political efficacy tend to switch more often, both within a campaign and between elections. In the analysis we differentiate between campaign volatility and inter-election volatility and by doing so show that the dynamics of a campaign have a profound impact on volatility. The campaign period is when the lowly sophisticated switch their vote intention. Those with higher levels of interest in politics have switched their intention before the campaign has started. The data for this analysis are from the three wave PartiRep Belgian Election Study (2009).

Access to Better Education: The School Choice Experience of Families Served by Low-Performing Elementary Public Schools in Miami-Dade County

Public school choice education policy attempts to create an education marketplace. Although school choice research has focused on the parent role in the school choice process, little is known about parents served by low-performing schools. Following market theory, students attending low-performing schools should be the primary students attempting to use school choice policy to access high performing schools rather than moving to a better school. However, students remain in these low-performing schools. This study took place in Miami-Dade County, which offers a wide variety of school choice options through charter schools, magnet schools, and open-choice schools. This dissertation utilized a mixed-methods design to examine the decision-making process and school choice options utilized by the parents of students served by low-performing elementary schools in Miami-Dade County. Twenty-two semi-structured interviews were conducted with the parents of students served by low-performing schools. Binary logistic regression models were fitted to the data to compare the demographic characteristics, academic achievement and distance from alternative schooling options between transfers and non-transfers. Multinomial logistic regression models were fitted to the data to evaluate how demographic characteristics, distance to transfer school, and transfer school grade influenced the type of school a transfer student chose. A geographic analysis was conducted to determine how many miles students lived from alternative schooling options and the miles transfer students lived away from their transfer school. The findings of the interview data illustrated that parents’ perceived needs are not being adequately addressed by state policy and county programs. The statistical analysis found that students from higher socioeconomic social groups were not more likely to transfer than students from lower socioeconomic social groups. Additionally, students who did transfer were not likely to end up at a high achieving school. The findings of the binary logistic regression demonstrated that transfer students were significantly more likely to live near alternative school options.

LOTUS: A low cost, ultraviolet spectrograph

We describe the design, construction and commissioning of LOTUS; a simple, low-cost long-slit spectrograph for the Liverpool Telescope. The design is optimized for near-UV and visible wavelengths and uses all transmitting optics. It exploits the instrument focal plane field curvature to partially correct axial chromatic aberration. A stepped slit provides narrow (2.5x95 arcsec) and wide (5x25 arcsec) options that are optimized for spectral resolution and flux calibration respectively. On sky testing shows a wavelength range of 3200-6300 Angstroms with a peak system throughput (including detector quantum efficiency) of 15 per cent and wavelength dependant spectral resolution of R=225-430. By repeated observations of the symbiotic emission line star AG Peg we demonstrate the wavelength stability of the system is less than 2 Angstroms rms and is limited by the positioning of the object in the slit. The spectrograph is now in routine operation monitoring the activity of comet 67P/Churyumov-Gerasimenko during its current post-perihelion apparition.

Measuring, Modeling, and Forecasting Volatility and Correlations from High-Frequency Data

This dissertation contains four essays that all share a common purpose: developing new methodologies to exploit the potential of high-frequency data for the measurement, modeling and forecasting of financial assets volatility and correlations. The first two chapters provide useful tools for univariate applications while the last two chapters develop multivariate methodologies. In chapter 1, we introduce a new class of univariate volatility models named FloGARCH models. FloGARCH models provide a parsimonious joint model for low frequency returns and realized measures, and are sufficiently flexible to capture long memory as well as asymmetries related to leverage effects. We analyze the performances of the models in a realistic numerical study and on the basis of a data set composed of 65 equities. Using more than 10 years of high-frequency transactions, we document significant statistical gains related to the FloGARCH models in terms of in-sample fit, out-of-sample fit and forecasting accuracy compared to classical and Realized GARCH models. In chapter 2, using 12 years of high-frequency transactions for 55 U.S. stocks, we argue that combining low-frequency exogenous economic indicators with high-frequency financial data improves the ability of conditionally heteroskedastic models to forecast the volatility of returns, their full multi-step ahead conditional distribution and the multi-period Value-at-Risk. Using a refined version of the Realized LGARCH model allowing for time-varying intercept and implemented with realized kernels, we document that nominal corporate profits and term spreads have strong long-run predictive ability and generate accurate risk measures forecasts over long-horizon. The results are based on several loss functions and tests, including the Model Confidence Set. Chapter 3 is a joint work with David Veredas. We study the class of disentangled realized estimators for the integrated covariance matrix of Brownian semimartingales with finite activity jumps. These estimators separate correlations and volatilities. We analyze different combinations of quantile- and median-based realized volatilities, and four estimators of realized correlations with three synchronization schemes. Their finite sample properties are studied under four data generating processes, in presence, or not, of microstructure noise, and under synchronous and asynchronous trading. The main finding is that the pre-averaged version of disentangled estimators based on Gaussian ranks (for the correlations) and median deviations (for the volatilities) provide a precise, computationally efficient, and easy alternative to measure integrated covariances on the basis of noisy and asynchronous prices. Along these lines, a minimum variance portfolio application shows the superiority of this disentangled realized estimator in terms of numerous performance metrics. Chapter 4 is co-authored with Niels S. Hansen, Asger Lunde and Kasper V. Olesen, all affiliated with CREATES at Aarhus University. We propose to use the Realized Beta GARCH model to exploit the potential of high-frequency data in commodity markets. The model produces high quality forecasts of pairwise correlations between commodities which can be used to construct a composite covariance matrix. We evaluate the quality of this matrix in a portfolio context and compare it to models used in the industry. We demonstrate significant economic gains in a realistic setting including short selling constraints and transaction costs.

An evaluation of carbon offset supplementation options for beef production systems on coastal speargrass in central Queensland, Australia

In 2014, the Australian Government implemented the Emissions Reduction Fund to offer incentives for businesses to reduce greenhouse gas (GHG) emissions by following approved methods. Beef cattle businesses in northern Australia can participate by applying the 'reducing GHG emissions by feeding nitrates to beef cattle' methodology and the 'beef cattle herd management' methods. The nitrate (NO3) method requires that each baseline area must demonstrate a history of urea use. Projects earn Australian carbon credit units (ACCU) for reducing enteric methane emissions by substituting NO3 for urea at the same amount of fed nitrogen. NO3 must be fed in the form of a lick block because most operations do not have labour or equipment to manage daily supplementation. NO3 concentrations, after a 2-week adaptation period, must not exceed 50 g NO3/adult animal equivalent per day or 7 g NO3/kg dry matter intake per day to reduce the risk of NO3 toxicity. There is also a 'beef cattle herd management' method, approved in 2015, that covers activities that improve the herd emission intensity (emissions per unit of product sold) through change in the diet or management. The present study was conducted to compare the required ACCU or supplement prices for a 2% return on capital when feeding a low or high supplement concentration to breeding stock of either (1) urea, (2) three different forms of NO3 or (3) cottonseed meal (CSM), at N concentrations equivalent to 25 or 50 g urea/animal equivalent, to fasten steer entry to a feedlot (backgrounding), in a typical breeder herd on the coastal speargrass land types in central Queensland. Monte Carlo simulations were run using the software @risk, with probability functions used for (1) urea, NO3 and CSM prices, (2) GHG mitigation, (3) livestock prices and (4) carbon price. Increasing the weight of steers at a set turnoff month by feeding CSM was found to be the most cost-effective option, with or without including the offset income. The required ACCU prices for a 2% return on capital were an order of magnitude higher than were indicative carbon prices in 2015 for the three forms of NO3. The likely costs of participating in ERF projects would reduce the return on capital for all mitigation options. © CSIRO 2016.

Pricing derivatives with stochastic volatility

This Ph.D. thesis contains 4 essays in mathematical finance with a focus on pricing Asian option (Chapter 4), pricing futures and futures option (Chapter 5 and Chapter 6) and time dependent volatility in futures option (Chapter 7). In Chapter 4, the applicability of the Albrecher et al.(2005)'s comonotonicity approach was investigated in the context of various benchmark models for equities and com- modities. Instead of classical Levy models as in Albrecher et al.(2005), the focus is the Heston stochastic volatility model, the constant elasticity of variance (CEV) model and the Schwartz (1997) two-factor model. It is shown that the method delivers rather tight upper bounds for the prices of Asian Options in these models and as a by-product delivers super-hedging strategies which can be easily implemented. In Chapter 5, two types of three-factor models were studied to give the value of com- modities futures contracts, which allow volatility to be stochastic. Both these two models have closed-form solutions for futures contracts price. However, it is shown that Model 2 is better than Model 1 theoretically and also performs very well empiri- cally. Moreover, Model 2 can easily be implemented in practice. In comparison to the Schwartz (1997) two-factor model, it is shown that Model 2 has its unique advantages; hence, it is also a good choice to price the value of commodity futures contracts. Fur- thermore, if these two models are used at the same time, a more accurate price for commodity futures contracts can be obtained in most situations. In Chapter 6, the applicability of the asymptotic approach developed in Fouque et al.(2000b) was investigated for pricing commodity futures options in a Schwartz (1997) multi-factor model, featuring both stochastic convenience yield and stochastic volatility. It is shown that the zero-order term in the expansion coincides with the Schwartz (1997) two-factor term, with averaged volatility, and an explicit expression for the first-order correction term is provided. With empirical data from the natural gas futures market, it is also demonstrated that a significantly better calibration can be achieved by using the correction term as compared to the standard Schwartz (1997) two-factor expression, at virtually no extra effort. In Chapter 7, a new pricing formula is derived for futures options in the Schwartz (1997) two-factor model with time dependent spot volatility. The pricing formula can also be used to find the result of the time dependent spot volatility with futures options prices in the market. Furthermore, the limitations of the method that is used to find the time dependent spot volatility will be explained, and it is also shown how to make sure of its accuracy.

Real options as an alternative methodology to assess investment projects

This paper aims to broaden the applicability of the assessment methodology of investment projects through real options as a key element for investment decision making -- Traditional project valuation methodologies are described and their gaps, which special characteristic is uncertainty, are presented -- A parallel between financial and real options that could be used for valuation is made, using the binomial tree method -- Finally, a case study in the construction sector shows a project valuation using expand and waiting options

Techno-economic analysis of three HVAC retrofitting options

Accounting for around 40% of the total final energy consumption, the building stock is an important area of focus on the way to reaching the energy goals set for the European Union. The relatively small share of new buildings makes renovation of existing buildings possibly the most feasible way of improving the overall energy performance of the building stock. This of course involves improvements on the climate shell, for example by additional insulation or change of window glazing, but also installation of new heating systems, to increase the energy efficiency and to fit the new heat load after renovation. In the choice of systems for heating, ventilation and air conditioning (HVAC), it is important to consider their performance for space heating as well as for domestic hot water (DHW), especially for a renovated house where the DHW share of the total heating consumption is larger. The present study treats the retrofitting of a generic single family house, which was defined as a reference building in a European energy renovation project. Three HVAC retrofitting options were compared from a techno-economic point of view: A) Air-to-water heat pump (AWHP) and mechanical ventilation with heat recovery (MVHR), B) Exhaust air heat pump (EAHP) with low-temperature ventilation radiators, and C) Gas boiler and ventilation with MVHR. The systems were simulated for houses with two levels of heating demand and four different locations: Stockholm, Gdansk, Stuttgart and London. They were then evaluated by means of life cycle cost (LCC) and primary energy consumption. Dynamic simulations were done in TRNSYS 17. In most cases, system C with gas boiler and MVHR was found to be the cheapest retrofitting option from a life cycle perspective. The advantage over the heat pump systems was particularly clear for a house in Germany, due to the large discrepancy between national prices of natural gas and electricity. In Sweden, where the price difference is much smaller, the heat pump systems had almost as low or even lower life cycle costs than the gas boiler system. Considering the limited availability of natural gas in Sweden, systems A and B would be the better options. From a primary energy point of view system A was the best option throughout, while system B often had the highest primary energy consumption. The limited capacity of the EAHP forced it to use more auxiliary heating than the other systems did, which lowered its COP. The AWHP managed the DHW load better due to a higher capacity, but had a lower COP than the EAHP in space heating mode. Systems A and C were notably favoured by the air heat recovery, which significantly reduced the heating demand. It was also seen that the DHW share of the total heating consumption was, as expected, larger for the house with the lower space heating demand. This confirms the supposition that it is important to include DHW in the study of HVAC systems for retrofitting.