Optimal hedging with higher moments

This study proposes a utility-based framework for the determination of optimal hedge ratios (OHRs) that can allow for the impact of higher moments on hedging decisions. We examine the entire hyperbolic absolute risk aversion family of utilities which include quadratic, logarithmic, power, and exponential utility functions. We find that for both moderate and large spot (commodity) exposures, the performance of out-of-sample hedges constructed allowing for nonzero higher moments is better than the performance of the simpler OLS hedge ratio. The picture is, however, not uniform throughout our seven spot commodities as there is one instance (cotton) for which the modeling of higher moments decreases welfare out-of-sample relative to the simpler OLS. We support our empirical findings by a theoretical analysis of optimal hedging decisions and we uncover a novel link between OHRs and the minimax hedge ratio, that is the ratio which minimizes the largest loss of the hedged position. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark

Hedging effectiveness of total returns swaps: application to the Japanese market

The development of the real estate swap market offers many opportunities for investors to adjust the exposure of their portfolios to real estate. A number of OTC transactions have been observed in markets around the world. In this paper we examine the Japanese commercial real estate market from the point of view of an investor holding a portfolio of properties seeking to reduce the portfolio exposure to the real estate market by swapping an index of real estate for LIBOR. This paper explores the practicalities of hedging portfolios comprising small numbers of individual properties against an appropriate index. We use the returns from 74 properties owned by Japanese Real Estate Investment Trusts over the period up to September 2007. The paper also discusses and applies the appropriate stochastic processes required to model real estate returns in this application and presents alternative ways of reporting hedging effectiveness. We find that the development of the derivative does provide the capacity for hedging market risk but that the effectiveness of the hedge varies considerably over time. We explore the factors that cause this variability.

Pricing and hedging short sterling options using artificial neural networks

This paper compares the performance of artificial neural networks (ANNs) with that of the modified Black model in both pricing and hedging Short Sterling options. Using high frequency data, standard and hybrid ANNs are trained to generate option prices. The hybrid ANN is significantly superior to both the modified Black model and the standard ANN in pricing call and put options. Hedge ratios for hedging Short Sterling options positions using Short Sterling futures are produced using the standard and hybrid ANN pricing models, the modified Black model, and also standard and hybrid ANNs trained directly on the hedge ratios. The performance of hedge ratios from ANNs directly trained on actual hedge ratios is significantly superior to those based on a pricing model, and to the modified Black model.

The (de)merits of minimum-variance hedging: application to the crack spread

We study the empirical performance of the classical minimum-variance hedging strategy, comparing several econometric models for estimating hedge ratios of crude oil, gasoline and heating oil crack spreads. Given the great variability and large jumps in both spot and futures prices, considerable care is required when processing the relevant data and accounting for the costs of maintaining and re-balancing the hedge position. We find that the variance reduction produced by all models is statistically and economically indistinguishable from the one-for-one “naïve” hedge. However, minimum-variance hedging models, especially those based on GARCH, generate much greater margin and transaction costs than the naïve hedge. Therefore we encourage hedgers to use a naïve hedging strategy on the crack spread bundles now offered by the exchange; this strategy is the cheapest and easiest to implement. Our conclusion contradicts the majority of the existing literature, which favours the implementation of GARCH-based hedging strategies.

Contrasting the responses of three different ground-based instruments to energetic electron precipitation

In order to make best use of the opportunities provided by space missions such as the Radiation Belt Storm Probes, we determine the response of complementary subionospheric radiowave propagation measurements (VLF), riometer absorption measurements (CNA), and GPS-produced total electron content (vTEC) to different energetic electron precipitation (EEP). We model the relative sensitivity and responses of these instruments to idealised monoenergetic beams of precipitating electrons, and more realistic EEP spectra chosen to represent radiation belts and substorm precipitation. In the monoenergetic beam case, we find riometers are more sensitive to the same EEP event occurring during the day than during the night, while subionospheric VLF shows the opposite relationship, and the change in vTEC is independent. In general, the subionospheric VLF measurements are much more sensitive than the other two techniques for EEP over 200 keV, responding to flux magnitudes two-three orders of magnitude smaller than detectable by a riometer. Detectable TEC changes only occur for extreme monoenergetic fluxes. For the radiation belt EEP case, clearly detectable subionospheric VLF responses are produced by daytime fluxes that are ~10 times lower than required for riometers, while nighttime fluxes can be 10,000 times lower. Riometers are likely to respond only to radiation belt fluxes during the largest EEP events and vTEC is unlikely to be significantly disturbed by radiation belt EEP. For the substorm EEP case both the riometer absorption and the subionospheric VLF technique respond significantly, as does the change in vTEC, which is likely to be detectable at ~3-4 TECu.

In-situ comparison of the NOy instruments flown in MOZAIC and SPURT

Two aircraft instruments for the measurement of total odd nitrogen (NOy) were compared side by side aboard a Learjet A35 in April 2003 during a campaign of the AFO2000 project SPURT (Spurengastransport in der Tropopausenregion). The instruments albeit employing the same measurement principle (gold converter and chemiluminescence) had different inlet configurations. The ECO-Physics instrument operated by ETH-Zürich in SPURT had the gold converter mounted outside the aircraft, whereas the instrument operated by FZ-Jülich in the European project MOZAIC III (Measurements of ozone, water vapour, carbon monoxide and nitrogen oxides aboard Airbus A340 in-service aircraft) employed a Rosemount probe with 80 cm of FEP-tubing connecting the inlet to the gold converter. The NOy concentrations during the flight ranged between 0.3 and 3 ppb. The two data sets were compared in a blind fashion and each team followed its normal operating procedures. On average, the measurements agreed within 7%, i.e. within the combined uncertainty of the two instruments. This puts an upper limit on potential losses of HNO3 in the Rosemount inlet of the MOZAIC instrument. Larger transient deviations were observed during periods after calibrations and when the aircraft entered the stratosphere. The time lag of the MOZAIC instrument observed in these instances is in accordance with the time constant of the MOZAIC inlet line determined in the laboratory for HNO3.

Evaluation of genetic markers as instruments for Mendelian randomization studies on vitamin D

Combining SNPs into allele scores provides a more powerful instrument for MR analysis than a single SNP in isolation. Population stratification and the potential for pleiotropic effects need to be considered in MR studies on vitamin D.

The cross-currency hedging performance of implied versus statistical forecasting models

This article examines the ability of several models to generate optimal hedge ratios. Statistical models employed include univariate and multivariate generalized autoregressive conditionally heteroscedastic (GARCH) models, and exponentially weighted and simple moving averages. The variances of the hedged portfolios derived using these hedge ratios are compared with those based on market expectations implied by the prices of traded options. One-month and three-month hedging horizons are considered for four currency pairs. Overall, it has been found that an exponentially weighted moving-average model leads to lower portfolio variances than any of the GARCH-based, implied or time-invariant approaches.

The SPARC Data Initiative: Comparison of upper troposphere/lower stratosphere ozone climatologies from limb-viewing instruments and the nadir-viewing Tropospheric Emission Spectrometer

We present the first comprehensive intercomparison of currently available satellite ozone climatologies in the upper troposphere/lower stratosphere (UTLS) (300–70 hPa) as part of the Stratosphere-troposphere Processes and their Role in Climate (SPARC) Data Initiative. The Tropospheric Emission Spectrometer (TES) instrument is the only nadir-viewing instrument in this initiative, as well as the only instrument with a focus on tropospheric composition. We apply the TES observational operator to ozone climatologies from the more highly vertically resolved limb-viewing instruments. This minimizes the impact of differences in vertical resolution among the instruments and allows identification of systematic differences in the large-scale structure and variability of UTLS ozone. We find that the climatologies from most of the limb-viewing instruments show positive differences (ranging from 5 to 75%) with respect to TES in the tropical UTLS, and comparison to a “zonal mean” ozonesonde climatology indicates that these differences likely represent a positive bias for p ≤ 100 hPa. In the extratropics, there is good agreement among the climatologies regarding the timing and magnitude of the ozone seasonal cycle (differences in the peak-to-peak amplitude of <15%) when the TES observational operator is applied, as well as very consistent midlatitude interannual variability. The discrepancies in ozone temporal variability are larger in the tropics, with differences between the data sets of up to 55% in the seasonal cycle amplitude. However, the differences among the climatologies are everywhere much smaller than the range produced by current chemistry-climate models, indicating that the multiple-instrument ensemble is useful for quantitatively evaluating these models.

Evaluation of sensor configurations for robotic surgical instruments

Designing surgical instruments for robotic-assisted minimally-invasive surgery (RAMIS) is challenging due to constraints on the number and type of sensors imposed by considerations such as space or the need for sterilization. A new method for evaluating the usability of virtual teleoperated surgical instruments based on virtual sensors is presented. This method uses virtual prototyping of the surgical instrument with a dual physical interaction, which allows testing of different sensor configurations in a real environment. Moreover, the proposed approach has been applied to the evaluation of prototypes of a two-finger grasper for lump detection by remote pinching. In this example, the usability of a set of five different sensor configurations, with a different number of force sensors, is evaluated in terms of quantitative and qualitative measures in clinical experiments with 23 volunteers. As a result, the smallest number of force sensors needed in the surgical instrument that ensures the usability of the device can be determined. The details of the experimental setup are also included.

Independent uncertainty estimates for coefficient based sea surface temperature retrieval from the Along-Trck Scanning Radiometer instruments

We establish a methodology for calculating uncertainties in sea surface temperature estimates from coefficient based satellite retrievals. The uncertainty estimates are derived independently of in-situ data. This enables validation of both the retrieved SSTs and their uncertainty estimate using in-situ data records. The total uncertainty budget is comprised of a number of components, arising from uncorrelated (eg. noise), locally systematic (eg. atmospheric), large scale systematic and sampling effects (for gridded products). The importance of distinguishing these components arises in propagating uncertainty across spatio-temporal scales. We apply the method to SST data retrieved from the Advanced Along Track Scanning Radiometer (AATSR) and validate the results for two different SST retrieval algorithms, both at a per pixel level and for gridded data. We find good agreement between our estimated uncertainties and validation data. This approach to calculating uncertainties in SST retrievals has a wider application to data from other instruments and retrieval of other geophysical variables.

Reliability, validity and acceptability of modified response formats of APD instruments for children using AAC

A pilot study consisting of a parent questionnaire, four APD tests and an acceptability questionnaire were presented to normal hearing and cognitively developing children between the ages of 8-12 years. Responses to a standard and modified response format of the APD tests were obtained over two test sessions. Results indicated that the modified response formats of the four APD tests were acceptable, fairly reliable and three out of the four APD tests were valid.

PAIN IN FIBROMYALGIA AND DISCRIMINATIVE POWER OF THE INSTRUMENTS: VISUAL ANALOG SCALE, DOLORIMETRY AND THE MCGILL PAIN QUESTIONNAIRE

Objective: The aim of this study was to verify the discriminative power of the most widely used pain assessment instruments. Methods: The sample consisted of 279 subjects divided into Fibromyalgia Group (FM- 205 patients with fibromyalgia) and Control Group (CG-74 healthy subjects), mean age 49.29 +/- 10.76 years. Only 9 subjects were male, 6 in FM and 3 in CG. FM were outpatients from the Rheumatology Clinic of the University of Sao Paulo - Hospital das Clinicas (HCFMUSP); the CG included people accompanying patients and hospital staff with similar socio-demographic characteristics. Three instruments were used to assess pain: the McGill Pain Questionnaire (MPQ), the Visual Analog Scale (VAS), and the Dolorimetry, to measure pain threshold on tender points (generating the TP index). In order to assess the discriminative power of the instruments, the measurements obtained were submitted to descriptive analysis and inferential analysis using ROC Curve - sensibility (S), specificity (S I) and area under the curve (AUC) - and Contingence tables with Chi-square Test and odds ratio. Significance level was 0.05. Results: Higher sensibility, specificity and area under the curve was obtained by VAS (80%, 80% and 0.864, respectively), followed by Dolorimetry (S 77%, S177% and AUC 0.851), McGill Sensory (S 72%, S167% and AUC 0.765) and McGill Affective (S 69%, S1 67% and AUC 0.753). Conclusions: VAS presented the higher sensibility, specificity and AUC, showing the greatest discriminative power among the instruments. However, these values are considerably similar to those of Dolorimetry.