Pricing of Liquidity Risks in London Stock Exchange

This thesis aims to investigate pricing of liquidity risks in London Stock Exchange. Liquidity Adjusted Capital Asset Pricing Model i.e. LCAPM developed by Acharya and Pedersen (2005) is being applied to test the influence of various liquidity risks on stock returns in London Stock Exchange. The Liquidity Adjusted Capital Asset Pricing model provides a unified framework for the testing of liquidity risks. All the common stocks listed and delisted for the period of 2000 to 2014 are included in the data sample. The study has incorporated three different measures of liquidity – Percent Quoted Spread, Amihud (2002) and Turnover. The reason behind the application of three different liquidity measures is the multi-dimensional nature of liquidity. Firm fixed effects panel regression is applied for the estimation of LCAPM. However, the results are robust according to Fama-Macbeth regressions. The results of the study indicates that liquidity risks in the form of (i) level of liquidity, (ii) commonality in liquidity (iii) flight to liquidity, (iv) depressed wealth effect and market return as well as aggregate liquidity risk are priced at London Stock Exchange. However, the results are sensitive to the choice of liquidity measures.

The Pricing of Customized Industrial Products

The main objective of this study was to examine the pricing of customized industrial products in international markets, and to understand what pricing decision making consists of. Another purpose of the study was to identify the main factors that affect the pricing decisions of industrial companies, as well as the different pricing strategies industrial companies may choose when pricing customized products. The research was conducted as a qualitative single case study, and a Finnish industrial company specializing in indoor environment solutions, Halton Marine Oy, was used as the case company in the study. The primary data was collected through semi-structured theme interviews with the key management personnel of the company, and the results were discussed and analyzed in the light of the existing literature. The results of this study indicate that the pricing of customized industrial products consists of several dimensions, and is influenced by a large variety of factors that are both internal and external to the firm. In addition, it was found that the choice of a pricing strategy is largely dependent on the chosen segment, the product category, and the stage in the product life cycle. The results also suggest that customizing companies should consider using the value-based pricing orientation, since customization is closely linked to customer value.

Contract between John Cronyn and Nelson Forsyth, December 16, 1854.

John Cronyn (1827-1898) emigrated to Canada from Ireland in 1837. He studied medicine at the University of Toronto, but was not granted his degree upon completion of the requirements. He refused to take the test oaths meant to exclude Catholics from the profession and was not granted his degree until several years later, when the discriminatory laws were rescinded. In 1850, he married Elizabeth Willoughby of Toronto. They settled in Fort Erie and he established a successful medical practice there. He was active in the community, serving as Superintendent of schools and one term as Reeve. In 1859 he relocated to Buffalo and continued to practice medicine there. Cronyn was instrumental in the establishment of a medical department at Niagara University, where he was a professor and president of faculty. Nelson Forsyth was the son of William Forsyth (1771-1841), a prominent businessman in Niagara who owned and operated the Pavilion Hotel (later known as Forsyth’s Inn). Nelson was also a businessman and lived in Fort Erie with his wife Archange Warren.

Contract signed by Robert Duffin of Grantham Township

Contract signed by Robert Duffin of the Township of Grantham Labourers to break stone for the proposed road from Queenston to St. Davids, 1838.

Memorandum of material furnished for superstructure on the line of the Port Dalhousie Thorold Railway by contract

Memorandum of material furnished for superstructure on the line of the Port Dalhousie Thorold Railway by contract. This document includes: Bills of timber, memorandums of planking, fencing, ties, track laying, masonry and bolts and spikes. There are also diagrams of culverts. One of the pages is loose and the outer pages are somewhat discoloured (32 pages, handwritten and bound with ribbon, n.d.

Second copy of the memorandum respecting differences between the approximate and final estimate but this one has “memorandum of extras of Brown and McDonall contract” written on the outer page

Second copy of the memorandum respecting differences between the approximate and final estimate but this one has “memorandum of extras of Brown and McDonall contract” written on the outer page (3 pages, handwritten), n.d.

Memo to the warden and councilors for the County of Welland in council assembled regarding the contract of Edward Henderson

Memo to the warden and councilors for the County of Welland in council assembled regarding the contract of Edward Henderson. The terms of the contract have not been exceeded. This note is not signed, n.d.

The law and economics of good faith in the civil law of contract

Good faith plays a central role in most legal systems, yet appears to be an intractable concept. This article proposes to analyse it economically as the absence of opportunism in circumstances which lend themselves to it. One of the objectives underlying the law of contract on an economic view is to curtail opportunism. In spelling out what this means, the paper proposes a three-step test: bad faith is present where a substantial informational or other asymmetry exists between the parties, which one of them turns into an undue advantage, considered against the gains both parties could normally expect to realise through the contract, and where loss to the disadvantaged party is so serious as to provoke recourse to expensive self-protection, which significantly raises transactions costs in the market. The three-step test is then used to analyse a set of recent decisions in international commercial transactions and three concepts derived from good faith: fraud, warranty for latent defects and lesion.

Comparing Predictive Accuracy of Real Estate Pricing Models: An Applied Study for the City of Montreal.

Rapport de recherche

Empirical Assessment of an Intertemporal Option Pricing Model with Latent variables

This paper assesses the empirical performance of an intertemporal option pricing model with latent variables which generalizes the Hull-White stochastic volatility formula. Using this generalized formula in an ad-hoc fashion to extract two implicit parameters and forecast next day S&P 500 option prices, we obtain similar pricing errors than with implied volatility alone as in the Hull-White case. When we specialize this model to an equilibrium recursive utility model, we show through simulations that option prices are more informative than stock prices about the structural parameters of the model. We also show that a simple method of moments with a panel of option prices provides good estimates of the parameters of the model. This lays the ground for an empirical assessment of this equilibrium model with S&P 500 option prices in terms of pricing errors.

Tests of Conditional Asset Pricing Models in the Brazilian Stock Market

In this paper, we test a version of the conditional CAPM with respect to a local market portfolio, proxied by the Brazilian stock index during the 1976-1992 period. We also test a conditional APT model by using the difference between the 30-day rate (Cdb) and the overnight rate as a second factor in addition to the market portfolio in order to capture the large inflation risk present during this period. The conditional CAPM and APT models are estimated by the Generalized Method of Moments (GMM) and tested on a set of size portfolios created from a total of 25 securities exchanged on the Brazilian markets. The inclusion of this second factor proves to be crucial for the appropriate pricing of the portfolios.

Risk Aversion, Intertemporal Substitution, and Option Pricing

This paper develops a general stochastic framework and an equilibrium asset pricing model that make clear how attitudes towards intertemporal substitution and risk matter for option pricing. In particular, we show under which statistical conditions option pricing formulas are not preference-free, in other words, when preferences are not hidden in the stock and bond prices as they are in the standard Black and Scholes (BS) or Hull and White (HW) pricing formulas. The dependence of option prices on preference parameters comes from several instantaneous causality effects such as the so-called leverage effect. We also emphasize that the most standard asset pricing models (CAPM for the stock and BS or HW preference-free option pricing) are valid under the same stochastic setting (typically the absence of leverage effect), regardless of preference parameter values. Even though we propose a general non-preference-free option pricing formula, we always keep in mind that the BS formula is dominant both as a theoretical reference model and as a tool for practitioners. Another contribution of the paper is to characterize why the BS formula is such a benchmark. We show that, as soon as we are ready to accept a basic property of option prices, namely their homogeneity of degree one with respect to the pair formed by the underlying stock price and the strike price, the necessary statistical hypotheses for homogeneity provide BS-shaped option prices in equilibrium. This BS-shaped option-pricing formula allows us to derive interesting characterizations of the volatility smile, that is, the pattern of BS implicit volatilities as a function of the option moneyness. First, the asymmetry of the smile is shown to be equivalent to a particular form of asymmetry of the equivalent martingale measure. Second, this asymmetry appears precisely when there is either a premium on an instantaneous interest rate risk or on a generalized leverage effect or both, in other words, whenever the option pricing formula is not preference-free. Therefore, the main conclusion of our analysis for practitioners should be that an asymmetric smile is indicative of the relevance of preference parameters to price options.