Pricing short leases and break clauses using simulation methodology

This paper examines the changes in the length of commercial property leases over the last decade and presents an analysis of the consequent investment and occupational pricing implications for commercial property investmentsIt is argued that the pricing implications of a short lease to an investor are contingent upon the expected costs of the letting termination to the investor, the probability that the letting will be terminated and the volatility of rental values.The paper examines the key factors influencing these variables and presents a framework for incorporating their effects into pricing models.Approaches to their valuation derived from option pricing are critically assessed. It is argued that such models also tend to neglect the price effects of specific risk factors such as tenant circumstances and the terms of break clause. Specific risk factors have a significant bearing on the probability of letting termination and on the level of the resultant financial losses. The merits of a simulation methododology are examined for rental and capital valuations of short leases and properties with break clauses.It is concluded that in addition to the rigour of its internal logic, the success of any methodology is predicated upon the accuracy of the inputs.The lack of reliable data on patterns in, and incidence of, lease termination and the lack of reliable time series of historic property performance limit the efficacy of financial models.

Trading death: the implications of annuity replication for the annuity puzzle, arbitrage, speculation and portfolios

Annuities are perceived as being illiquid financial instruments, and this has limited their attractiveness to consumers and their inclusion in financial models. However, short positions in annuities can be replicated using life insurance and debt, permitting long positions in annuities to be offset, or short annuity positions to be created. The implications of this result for the annuity puzzle, arbitrage between the annuity and life insurance markets, and speculation on expected longevity are investigated. It is argued that annuity replication could help reduce the annuity puzzle, improve the price efficiency of annuity markets and promote the inclusion of annuities in household portfolios.

Design and assessment of a large commercial Photovoltaic System in Barbados

One of the main aims of this thesis is to design an optimized commercial Photovoltaic (PV) system in Barbados from several variables such as racking type, module type and inverter type based on practicality, technical performance as well as financial returns to the client. Detailed simulations are done in PVSYST and financial models are used to compare different systems and their viability. Once the preeminent system is determined from a financial and performance perspective a detailed design is done using PVSYST and AutoCAD to design the most optimal PV system for the customer. In doing so, suitable engineering drawings are generated which are detailed enough for construction of the system. Detailed cost with quotes from relevant manufacturers, suppliers and estimators become instrumental in determining Balance of System Costs in addition to total project cost. The final simulated system is suggested with a PV capacity of 425kW and an inverter output of 300kW resulting in an array oversizing of 1.42. The PV system has a weighted Performance Ratio of 77 %, a specific yield of 1467 kWh/kWp and a projected annual production of 624 MWh/yr. This system is estimated to offset approximately 28 % of Carlton’s electrical load annually. Over the course of 20 years the PV system is projected to produce electricity at a cost of $0.201USD/kWh which is significantly lower than the $0.35 USD/kWh paid to the utility at the time of writing this thesis. Due to the high cost of electricity on the island, an attractive Feed-In-Tariff is not necessary to warrant the installation of a commercial System which over a lifetime which produces electricity at less than 60% of the cost to the user purchasing electricity from the utility. A simple payback period of 5.4 years, a return on investment of 17 % without incentives, in addition to an estimated diversion of 6840 barrels of oil or 2168 tonnes of CO2 further provides compelling justification for the installation of a commercial Photovoltaic System not only on Carlton A-1 Supermarket, but also island wide as well as regionally where most electricity supplies are from imported fossil fuels.

Business implications of manufacturing innovation : the experience of increasing automation in smaller to medium sized companies.

Despite the considerable potential of advanced manufacturing technologies (AMT) for improving the economic performance of many firms, a growing body of literature highlights many instances where realising this potential has proven to be a more difficult task than initially envisaged. Focussing upon the implementation of new manufacturing technologies in several smaller to medium sized enterprises (SME), the research examines the proposition that many of these problems can be attributed in part to inadequate consideration of the integrated nature of such technologies, where the effects of their implementation are not localised, but are felt throughout a business. The criteria for the economic evaluation of such technologies are seen as needing to reflect this, and the research develops an innovative methodology employing micro-computer based spreadsheets, to demonstrate how a series of financial models can be used to quantify the effects of new investments upon overall company performance. Case studies include: the development of a prototype machine based absorption costing system to assist in the evaluation of CNC machine tool purchases in a press making company; the economics and strategy of introducing a flexible manufacturing system for the production of ballscrews; and analysing the progressive introduction of computer based printing presses in a packaging and general print company. Complementary insights are also provided from discussion with the management of several other companies which have experienced technological change. The research was conducted as a collaborative CASE project in the Interdisciplinary Higher Degrees Scheme and was jointly funded by the SERC and Gaydon Technology Limited and later assisted by PE-Inbucon. The findings of the research shows that the introduction of new manufacturing technologies usually requires a fundamental rethink of the existing practices of a business. In particular, its implementation is seen as ideally needing to take place as part of a longer term business and manufacturing strategy, but that short term commercial pressures and limited resources often mean that firms experience difficulty in realising this. The use of a spreadsheet based methodology is shown to be of considerable assistance in evaluating new investments, and is seen as being the limit of sophistication that a smaller business is willing to employ. Several points for effective modelling practice are also given, together with an outline of the context in which a modelling approach is most applicable.

Measuring and managing liquidity risk in the Hungarian practice

The crisis that unfolded in 2007/2008 turned the attention of the financial world toward liquidity, the lack of which caused substantial losses. As a result, the need arose for the traditional financial models to be extended with liquidity. Our goal is to discover how Hungarian market players relate to liquidity. Our results are obtained through a series of semi-structured interviews, and are hoped to be a starting point for extending the existing models in an appropriate way. Our main results show that different investor groups can be identified along their approaches to liquidity, and they rarely use sophisticated models to measure and manage liquidity. We conclude that although market players would have access to complex liquidity measurement and management tools, there is a limited need for these, because the currently available models are unable to use complex liquidity information effectively.

Measuring and managing liquidity risk in the Hungarian practice

The crisis that unfolded in 2007/2008 turned the attention of the financial world toward liquidity, the lack of which caused substantial losses. As a result, the need arose for the traditional financial models to be extended with liquidity. Our goal is to discover how Hungarian market players relate to liquidity. Our results are obtained through a series of semistructured interviews, and are hoped to be a starting point for extending the existing models in an appropriate way. Our main results show that different investor groups can be identified along their approaches to liquidity, and they rarely use sophisticated models to measure and manage liquidity. We conclude that although market players would have access to complex liquidity measurement and management tools, there is a limited need for these, because the currently available models are unable to use complex liquidity information effectively.

Periphyton light transmission relationships in Florida Bay and the Florida Keys, USA

Light transmission was measured through intact, submerged periphyton communities on artificial seagrass leaves. The periphyton communities were representative of the communities on Thalassia testudinum in subtropical seagrass meadows. The periphyton communities sampled were adhered carbonate sediment, coralline algae, and mixed algal assemblages. Crustose or film-forming periphyton assemblages were best prepared for light transmission measurements using artificial leaves fouled on both sides, while measurements through three-dimensional filamentous algae required the periphyton to be removed from one side. For one-sided samples, light transmission could be measured as the difference between fouled and reference artificial leaf samples. For two-sided samples, the percent periphyton light transmission to the leaf surface was calculated as the square root of the fraction of incident light. Linear, exponential, and hyperbolic equations were evaluated as descriptors of the periphyton dry weight versus light transmission relationship. Hyperbolic and exponential decay models were superior to linear models and exhibited the best fits for the observed relationships. Differences between the coefficients of determination (r2) of hyperbolic and exponential decay models were statistically insignificant. Constraining these models for 100% light transmission at zero periphyton load did not result in any statistically significant loss in the explanatory capability of the models. In most all cases, increasing model complexity using three-parameter models rather than two-parameter models did not significantly increase the amount of variation explained. Constrained two-parameter hyperbolic or exponential decay models were judged best for describing the periphyton dry weight versus light transmission relationship. On T. testudinum in Florida Bay and the Florida Keys, significant differences were not observed in the light transmission characteristics of the varying periphyton communities at different study sites. Using pooled data from the study sites, the hyperbolic decay coefficient for periphyton light transmission was estimated to be 4.36 mg dry wt. cm−2. For exponential models, the exponential decay coefficient was estimated to be 0.16 cm2 mg dry wt.−1.

Quantitative and Qualitative Aspects of Dissolved Organic Carbon Leached from Senescent Plants in an Oligotrophic Wetland

We conducted a series of experiments whereby dissolved organic matter (DOM) was leached from various wetland and estuarine plants, namely sawgrass (Cladium jamaicense), spikerush (Eleocharis cellulosa), red mangrove (Rhizophora mangle), cattail (Typha domingensis), periphyton (dry and wet mat), and a seagrass (turtle grass; Thalassia testudinum). All are abundant in the Florida Coastal Everglades (FCE) except for cattail, but this species has a potential to proliferate in this environment. Senescent plant samples were immersed into ultrapure water with and without addition of 0.1% NaN3 (w/ and w/o NaN3, respectively) for 36 days. We replaced the water every 3 days. The amount of dissolved organic carbon (DOC), sugars, and phenols in the leachates were analyzed. The contribution of plant leachates to the ultrafiltered high molecular weight fraction of DOM (>1 kDa; UDOM) in natural waters in the FCE was also investigated. UDOM in plant leachates was obtained by tangential flow ultrafiltration and its carbon and phenolic compound compositions were analyzed using solid state 13C cross-polarization magic angle spinning nuclear magnetic resonance (13C CPMAS NMR) spectroscopy and thermochemolysis in the presence of tetramethylammonium hydroxide (TMAH thermochemolysis), respectively. The maximum yield of DOC leached from plants over the 36-day incubations ranged from 13.0 to 55.2 g C kg−1 dry weight. This amount was lower in w/o NaN3 treatments (more DOC was consumed by microbes than produced) except for periphyton. During the first 2 weeks of the 5 week incubation period, 60–85% of the total amount of DOC was leached, and exponential decay models fit the leaching rates except for periphyton w/o NaN3. Leached DOC (w/ NaN3) contained different concentrations of sugars and phenols depending on the plant types (1.09–7.22 and 0.38–12.4 g C kg−1 dry weight, respectively), and those biomolecules comprised 8–34% and 4–28% of the total DOC, respectively. This result shows that polyphenols that readily leach from senescent plants can be an important source of chromophoric DOM (CDOM) in wetland environments. The O-alkyl C was found to be the major C form (55±9%) of UDOM in plant leachates as determined by 13C CPMAS NMR. The relative abundance of alkyl C and carbonyl C was consistently lower in plant-leached UDOM than that in natural water UDOM in the FCE, which suggests that these constituents increase in relative abundance during diagenetic processing. TMAH thermochemolysis analysis revealed that the phenolic composition was different among the UDOM leached from different plants, and was expected to serve as a source indicator of UDOM in natural water. Polyphenols are, however, very reactive and photosensitive in aquatic environments, and thus may loose their plant-specific molecular characteristics shortly. Our study suggests that variations in vegetative cover across a wetland landscape will affect the quantity and quality of DOM leached into the water, and such differences in DOM characteristics may affect other biogeochemical processes.

Tuple-based morphisms for interoperability establishment of financial information models

Dissertação apresentada na Faculdade de Ciências e Tecnologia da Universidade Nova de Lisboa para obtenção do grau de Mestre em Engenharia Electrotécnica e Computadores

How bank business models relate with risk?: The case of Portugal in times of financial crisis

A Work Project, presented as part of the requirements for the Award of a Masters Degree in Finance from the NOVA – School of Business and Economics

Are one factor logarithmic volatility models useful to fit the features of financial data? An application to microsoft data.

This paper provides empirical evidence that continuous time models with one factor of volatility, in some conditions, are able to fit the main characteristics of financial data. It also reports the importance of the feedback factor in capturing the strong volatility clustering of data, caused by a possible change in the pattern of volatility in the last part of the sample. We use the Efficient Method of Moments (EMM) by Gallant and Tauchen (1996) to estimate logarithmic models with one and two stochastic volatility factors (with and without feedback) and to select among them.

Application of theoretical models to financial innovation

The present paper is aimed at providing a general strategic overview of the existing theoretical models that have applications in the field of financial innovation. Whereas most financialdevelopments have relied upon traditional economic tools, a new stream of research is defining a novel paradigm in which mathematical models from diverse scientific disciplines are being applied to conceptualize and explain economic and financial behavior. Indeed, terms such as ‘econophysics’ or ‘quantum finance’ have recently appeared to embrace efforts in this direction. As a first contact with such research, the project will present a brief description of some of the main theoretical models that have applications in finance and economics, and will try to present, if possible, potential new applications to particular areas in financial analysis, or new applicable models. As a result, emphasiswill be put on the implications of this research for the financial sector and its future dynamics.

Model for interevent times with long tails and multifractality in human communications: An application to financial trading

Social, technological, and economic time series are divided by events which are usually assumed to be random, albeit with some hierarchical structure. It is well known that the interevent statistics observed in these contexts differs from the Poissonian profile by being long-tailed distributed with resting and active periods interwoven. Understanding mechanisms generating consistent statistics has therefore become a central issue. The approach we present is taken from the continuous-time random-walk formalism and represents an analytical alternative to models of nontrivial priority that have been recently proposed. Our analysis also goes one step further by looking at the multifractal structure of the interevent times of human decisions. We here analyze the intertransaction time intervals of several financial markets. We observe that empirical data describe a subtle multifractal behavior. Our model explains this structure by taking the pausing-time density in the form of a superstatistics where the integral kernel quantifies the heterogeneous nature of the executed tasks. A stretched exponential kernel provides a multifractal profile valid for a certain limited range. A suggested heuristic analytical profile is capable of covering a broader region.

Neural and wavelet network models for financial distress classification

This work analyzes the use of linear discriminant models, multi-layer perceptron neural networks and wavelet networks for corporate financial distress prediction. Although simple and easy to interpret, linear models require statistical assumptions that may be unrealistic. Neural networks are able to discriminate patterns that are not linearly separable, but the large number of parameters involved in a neural model often causes generalization problems. Wavelet networks are classification models that implement nonlinear discriminant surfaces as the superposition of dilated and translated versions of a single "mother wavelet" function. In this paper, an algorithm is proposed to select dilation and translation parameters that yield a wavelet network classifier with good parsimony characteristics. The models are compared in a case study involving failed and continuing British firms in the period 1997-2000. Problems associated with over-parameterized neural networks are illustrated and the Optimal Brain Damage pruning technique is employed to obtain a parsimonious neural model. The results, supported by a re-sampling study, show that both neural and wavelet networks may be a valid alternative to classical linear discriminant models.

On the utility of input selection and pruning for financial distress prediction models

Analyzes the use of linear and neural network models for financial distress classification, with emphasis on the issues of input variable selection and model pruning. A data-driven method for selecting input variables (financial ratios, in this case) is proposed. A case study involving 60 British firms in the period 1997-2000 is used for illustration. It is shown that the use of the Optimal Brain Damage pruning technique can considerably improve the generalization ability of a neural model. Moreover, the set of financial ratios obtained with the proposed selection procedure is shown to be an appropriate alternative to the ratios usually employed by practitioners.