Flexible multivariate GARCH modeling with an application to international stock markets

The goal of this paper is to estimate time-varying covariance matrices.Since the covariance matrix of financial returns is known to changethrough time and is an essential ingredient in risk measurement, portfolioselection, and tests of asset pricing models, this is a very importantproblem in practice. Our model of choice is the Diagonal-Vech version ofthe Multivariate GARCH(1,1) model. The problem is that the estimation ofthe general Diagonal-Vech model model is numerically infeasible indimensions higher than 5. The common approach is to estimate more restrictive models which are tractable but may not conform to the data. Our contributionis to propose an alternative estimation method that is numerically feasible,produces positive semi-definite conditional covariance matrices, and doesnot impose unrealistic a priori restrictions. We provide an empiricalapplication in the context of international stock markets, comparing thenew estimator to a number of existing ones.

Stochastic evolution of rules for playing normal form games

The evolution of boundedly rational rules for playing normal form games is studied within stationary environments ofstochastically changing games. Rules are viewed as algorithms prescribing strategies for the different normal formgames that arise. It is shown that many of the folk results of evolutionary game theory typically obtained witha fixed game and fixed strategies carry over to the present case. The results are also related to recent experimentson rules and games.

Use of NIR spectroscopy and multivariate process spectra calibration methodology for pharmaceutical solid samples analysis

Accomplish high quality of final products in pharmaceutical industry is a challenge that requires the control and supervision of all the manufacturing steps. This request created the necessity of developing fast and accurate analytical methods. Near infrared spectroscopy together with chemometrics, fulfill this growing demand. The high speed providing relevant information and the versatility of its application to different types of samples lead these combined techniques as one of the most appropriated. This study is focused on the development of a calibration model able to determine amounts of API from industrial granulates using NIR, chemometrics and process spectra methodology.

Eliminació d'artefactes en EGG mitjançant l'ús de la Multivariate Empirical Mode Decomposition

La tècnica de l’electroencefalograma (EEG) és una de les tècniques més utilitzades per estudiar el cervell. En aquesta tècnica s’enregistren els senyals elèctrics que es produeixen en el còrtex humà a través d’elèctrodes col•locats al cap. Aquesta tècnica, però, presenta algunes limitacions a l’hora de realitzar els enregistraments, la principal limitació es coneix com a artefactes, que són senyals indesitjats que es mesclen amb els senyals EEG. L’objectiu d’aquest treball de final de màster és presentar tres nous mètodes de neteja d’artefactes que poden ser aplicats en EEG. Aquests estan basats en l’aplicació de la Multivariate Empirical Mode Decomposition, que és una nova tècnica utilitzada per al processament de senyal. Els mètodes de neteja proposats s’apliquen a dades EEG simulades que contenen artefactes (pestanyeigs), i un cop s’han aplicat els procediments de neteja es comparen amb dades EEG que no tenen pestanyeigs, per comprovar quina millora presenten. Posteriorment, dos dels tres mètodes de neteja proposats s’apliquen sobre dades EEG reals. Les conclusions que s’han extret del treball són que dos dels nous procediments de neteja proposats es poden utilitzar per realitzar el preprocessament de dades reals per eliminar pestanyeigs.

Stochastic resonance in noisy nondynamical systems

We have analyzed the effects of the addition of external noise to nondynamical systems displaying intrinsic noise, and established general conditions under which stochastic resonance appears. The criterion we have found may be applied to a wide class of nondynamical systems, covering situations of different nature. Some particular examples are discussed in detail.

Stochastic Population Projection for Germany - based on the Quadratic Spline approach to modelling age specific fertility rates

This contribution builds upon a former paper by the authors (Lipps and Betz 2004), in which a stochastic population projection for East- and West Germany is performed. Aim was to forecast relevant population parameters and their distribution in a consistent way. We now present some modifications, which have been modelled since. First, population parameters for the entire German population are modelled. In order to overcome the modelling problem of the structural break in the East during reunification, we show that the adaptation process of the relevant figures by the East can be considered to be completed by now. As a consequence, German parameters can be modelled just by using the West German historic patterns, with the start-off population of entire Germany. Second, a new model to simulate age specific fertility rates is presented, based on a quadratic spline approach. This offers a higher flexibility to model various age specific fertility curves. The simulation results are compared with the scenario based official forecasts for Germany in 2050. Exemplary for some population parameters (e.g. dependency ratio), it can be shown that the range spanned by the medium and extreme variants correspond to the s-intervals in the stochastic framework. It seems therefore more appropriate to treat this range as a s-interval covering about two thirds of the true distribution.

Irrigation with domestic wastewater: a multivariate analysis of main soil changes

Irrigation with treated domestic sewage wastewater (TSE) is an agricultural practice to reduce water requirements of agroecossystems and the nutrient load impact on freshwaters, but adverse effects on soil chemical (salinization, sodification, etc.) and soil physical properties (alteration in soil porosity and hydraulic conductivity, etc.) have been reported. This study aimed to define some relationships among these changes in an Oxisol using multivariate analysis. Corn (Zea mays L.) and sunflower (Helianthus annuus L.) were grown for two years, irrigated with TSE. The following soil properties were determined: Ca2+; Mg2+; Na+; K+ and H + Al contents, cationic exchangeable capacity (CEC), sum of bases (SB), base saturation (V), texture (sand, silt and clay), macro-, micro-, and cryptoporosity (V MA, V MI and V CRI), water content at soil saturation (θS) and at field capacity (θFC), residual water content (θR), soil bulk density (d s), water dispersed clay (WDC) and saturated hydraulic conductivity (K SAT). Factor analysis revealed the following six principal factors: Fine Porosity (composed of Na+; K+; WDC, θR, θRFC, and V CRI); Large Porosity (θS, d s, V MA, Vs); Soil CEC (Ca2+; Mg2+; CEC, SB, V); Soil Acidity (H + Al); and Soil Texture (factors 5 and 6). A dual pore structure appears clearly to the factors 1 and 2, with an apparent relationship between fine porosity and the monovalent cations Na+ and K+. The irrigation (with potable sodic tap water or sewage wastewater) only had a significant effect on Fine Porosity and Large Porosity factors, while factors 3 and 4 (Soil CEC and Soil Acidity) were correlated with soil depth. The main conclusion was a shift in pore distribution (large to fine pores) during irrigation with TSE, which induces an increase of water storage and reduces the capacity of drainage of salts.

Multivariate analysis and geostatistics of the fertility of a humic rhodic hapludox under coffee cultivation

The spatial variability of soil and plant properties exerts great influence on the yeld of agricultural crops. This study analyzed the spatial variability of the fertility of a Humic Rhodic Hapludox with Arabic coffee, using principal component analysis, cluster analysis and geostatistics in combination. The experiment was carried out in an area under Coffea arabica L., variety Catucai 20/15 - 479. The soil was sampled at a depth 0.20 m, at 50 points of a sampling grid. The following chemical properties were determined: P, K+, Ca2+, Mg2+, Na+, S, Al3+, pH, H + Al, SB, t, T, V, m, OM, Na saturation index (SSI), remaining phosphorus (P-rem), and micronutrients (Zn, Fe, Mn, Cu and B). The data were analyzed with descriptive statistics, followed by principal component and cluster analyses. Geostatistics were used to check and quantify the degree of spatial dependence of properties, represented by principal components. The principal component analysis allowed a dimensional reduction of the problem, providing interpretable components, with little information loss. Despite the characteristic information loss of principal component analysis, the combination of this technique with geostatistical analysis was efficient for the quantification and determination of the structure of spatial dependence of soil fertility. In general, the availability of soil mineral nutrients was low and the levels of acidity and exchangeable Al were high.

Kinematic reduction of reaction-diffusion fronts with multiplicative noise. Derivation of stochastic sharp-interface equations

We study the dynamics of generic reaction-diffusion fronts, including pulses and chemical waves, in the presence of multiplicative noise. We discuss the connection between the reaction-diffusion Langevin-like field equations and the kinematic (eikonal) description in terms of a stochastic moving-boundary or sharp-interface approximation. We find that the effective noise is additive and we relate its strength to the noise parameters in the original field equations, to first order in noise strength, but including a partial resummation to all orders which captures the singular dependence on the microscopic cutoff associated with the spatial correlation of the noise. This dependence is essential for a quantitative and qualitative understanding of fluctuating fronts, affecting both scaling properties and nonuniversal quantities. Our results predict phenomena such as the shift of the transition point between the pushed and pulled regimes of front propagation, in terms of the noise parameters, and the corresponding transition to a non-Kardar-Parisi-Zhang universality class. We assess the quantitative validity of the results in several examples including equilibrium fluctuations and kinetic roughening. We also predict and observe a noise-induced pushed-pulled transition. The analytical predictions are successfully tested against rigorous results and show excellent agreement with numerical simulations of reaction-diffusion field equations with multiplicative noise.

Stochastic generation of homogeneous isotropic turbulence with well-defined-spectra

A precise and simple computational model to generate well-behaved two-dimensional turbulent flows is presented. The whole approach rests on the use of stochastic differential equations and is general enough to reproduce a variety of energy spectra and spatiotemporal correlation functions. Analytical expressions for both the continuous and the discrete versions, together with simulation algorithms, are derived. Results for two relevant spectra, covering distinct ranges of wave numbers, are given.

Three essays in financial economics: asset pricing, optimal portfolio selection and financial integration

Executive Summary The unifying theme of this thesis is the pursuit of a satisfactory ways to quantify the riskureward trade-off in financial economics. First in the context of a general asset pricing model, then across models and finally across country borders. The guiding principle in that pursuit was to seek innovative solutions by combining ideas from different fields in economics and broad scientific research. For example, in the first part of this thesis we sought a fruitful application of strong existence results in utility theory to topics in asset pricing. In the second part we implement an idea from the field of fuzzy set theory to the optimal portfolio selection problem, while the third part of this thesis is to the best of our knowledge, the first empirical application of some general results in asset pricing in incomplete markets to the important topic of measurement of financial integration. While the first two parts of this thesis effectively combine well-known ways to quantify the risk-reward trade-offs the third one can be viewed as an empirical verification of the usefulness of the so-called "good deal bounds" theory in designing risk-sensitive pricing bounds. Chapter 1 develops a discrete-time asset pricing model, based on a novel ordinally equivalent representation of recursive utility. To the best of our knowledge, we are the first to use a member of a novel class of recursive utility generators to construct a representative agent model to address some long-lasting issues in asset pricing. Applying strong representation results allows us to show that the model features countercyclical risk premia, for both consumption and financial risk, together with low and procyclical risk free rate. As the recursive utility used nests as a special case the well-known time-state separable utility, all results nest the corresponding ones from the standard model and thus shed light on its well-known shortcomings. The empirical investigation to support these theoretical results, however, showed that as long as one resorts to econometric methods based on approximating conditional moments with unconditional ones, it is not possible to distinguish the model we propose from the standard one. Chapter 2 is a join work with Sergei Sontchik. There we provide theoretical and empirical motivation for aggregation of performance measures. The main idea is that as it makes sense to apply several performance measures ex-post, it also makes sense to base optimal portfolio selection on ex-ante maximization of as many possible performance measures as desired. We thus offer a concrete algorithm for optimal portfolio selection via ex-ante optimization over different horizons of several risk-return trade-offs simultaneously. An empirical application of that algorithm, using seven popular performance measures, suggests that realized returns feature better distributional characteristics relative to those of realized returns from portfolio strategies optimal with respect to single performance measures. When comparing the distributions of realized returns we used two partial risk-reward orderings first and second order stochastic dominance. We first used the Kolmogorov Smirnov test to determine if the two distributions are indeed different, which combined with a visual inspection allowed us to demonstrate that the way we propose to aggregate performance measures leads to portfolio realized returns that first order stochastically dominate the ones that result from optimization only with respect to, for example, Treynor ratio and Jensen's alpha. We checked for second order stochastic dominance via point wise comparison of the so-called absolute Lorenz curve, or the sequence of expected shortfalls for a range of quantiles. As soon as the plot of the absolute Lorenz curve for the aggregated performance measures was above the one corresponding to each individual measure, we were tempted to conclude that the algorithm we propose leads to portfolio returns distribution that second order stochastically dominates virtually all performance measures considered. Chapter 3 proposes a measure of financial integration, based on recent advances in asset pricing in incomplete markets. Given a base market (a set of traded assets) and an index of another market, we propose to measure financial integration through time by the size of the spread between the pricing bounds of the market index, relative to the base market. The bigger the spread around country index A, viewed from market B, the less integrated markets A and B are. We investigate the presence of structural breaks in the size of the spread for EMU member country indices before and after the introduction of the Euro. We find evidence that both the level and the volatility of our financial integration measure increased after the introduction of the Euro. That counterintuitive result suggests the presence of an inherent weakness in the attempt to measure financial integration independently of economic fundamentals. Nevertheless, the results about the bounds on the risk free rate appear plausible from the view point of existing economic theory about the impact of integration on interest rates.

Reaction-diffusion fronts under stochastic advection

We study front propagation in stirred media using a simplified modelization of the turbulent flow. Computer simulations reveal the existence of the two limiting propagation modes observed in recent experiments with liquid phase isothermal reactions. These two modes respectively correspond to a wrinkled although sharp propagating interface and to a broadened one. Specific laws relative to the enhancement of the front velocity in each regime are confirmed by our simulations.

Dynamical properties of nonmarkovian stochastic differential equations

We study nonstationary non-Markovian processes defined by Langevin-type stochastic differential equations with an OrnsteinUhlenbeck driving force. We concentrate on the long time limit of the dynamical evolution. We derive an approximate equation for the correlation function of a nonlinear nonstationary non-Markovian process, and we discuss its consequences. Non-Markovicity can introduce a dependence on noise parameters in the dynamics of the correlation function in cases in which it becomes independent of these parameters in the Markovian limit. Several examples are discussed in which the relaxation time increases with respect to the Markovian limit. For a Brownian harmonic oscillator with fluctuating frequency, the non-Markovicity of the process decreases the domain of stability of the system, and it can change an infradamped evolution into an overdamped one.

Stochastic processes induced by dichotomous markov noise: Some exact dynamical results

Stochastic processes defined by a general Langevin equation of motion where the noise is the non-Gaussian dichotomous Markov noise are studied. A non-FokkerPlanck master differential equation is deduced for the probability density of these processes. Two different models are exactly solved. In the second one, a nonequilibrium bimodal distribution induced by the noise is observed for a critical value of its correlation time. Critical slowing down does not appear in this point but in another one.