The Libor Market Model: from theory to calibration

This thesis is focused on the financial model for interest rates called the LIBOR Market Model. In the appendixes, we provide the necessary mathematical theory. In the inner chapters, firstly, we define the main interest rates and financial instruments concerning with the interest rate models, then, we set the LIBOR market model, demonstrate its existence, derive the dynamics of forward LIBOR rates and justify the pricing of caps according to the Black’s formula. Then, we also present the Swap Market Model, which models the forward swap rates instead of the LIBOR ones. Even this model is justified by a theoretical demonstration and the resulting formula to price the swaptions coincides with the Black’s one. However, the two models are not compatible from a theoretical point. Therefore, we derive various analytical approximating formulae to price the swaptions in the LIBOR market model and we explain how to perform a Monte Carlo simulation. Finally, we present the calibration of the LIBOR market model to the markets of both caps and swaptions, together with various examples of application to the historical correlation matrix and the cascade calibration of the forward volatilities to the matrix of implied swaption volatilities provided by the market.

The secondary market for life insurance policies in the United States market evolution and product valuation

In this work we discuss the secondary market for life insurance policies in the United States of America. First, we give an overview of the life settlement market: how it came into existence, its growth prospects and the ethical issues it arises. Secondly, we discuss the characteristics of the different life insurance products present in the market and describe how life settlements are originated. Life settlement transactions tend to be long and complex transactions that require the involvement of a number of parties. Also, a direct investment into life insurance policies is fraught with a number of practical issues and entails risks that are not directly related to longevity. This may reduce the efficiency of a direct investment in physical policies. For these reasons, a synthetic longevity market has evolved. The number of parties involved in a synthetic longevity transaction is typically smaller and the broker-dealer transferring the longevity exposure will be retaining most or all of the risks a physical investment entails. Finally, we describe the main methods used in the market to evaluate life settlement investments and the role of life expectancy providers.

The informal market of education in Egypt: Private tutoring and its implications /// Arbeitspapiere / Institut für Ethnologie und Afrikastudien ; 88

Education is generally perceived as a public good which should be provided by the state. In Egypt, free and equal access to education has been guaranteed to all citizens since President Nasser’s socialist reforms in the 1950s. However, due to high population growth rates and a lack of financial resources, the public education system has been struggling to accommodate rapidly increasing numbers of students. While enrolment rates have risen steadily, the quality of state-provided services has deteriorated. Teachers and students have to cope with high class densities, insufficient facilities, a rigid syllabus and a centralized examination system. Today, teaching is among the lowest-paying occupations in the public sector. One strategy to cope with this situation is the widespread practice of private tutoring, which usually takes place at students’ homes or in commercial tutoring centers. Based on research carried out in Cairo in 2004/05 and 2006, I use an actor-centered approach to analyze the motivations of Egyptian teachers and students for participating in private tutoring and the impact that this practice has on the relationship between teachers and students. Students of all socio-economic backgrounds resort to tutoring in order to succeed in a highly competitive and exam-oriented education system. However, the form and quality of tutoring that can be accessed depends on the financial means of the family. For teachers, tutoring provides a good opportunity not only to supplement their income, but also, in the case of renowned “star teachers”, to improve their professional status and autonomy. On the informal “market of education” that has developed in Egypt during the last decades, the educational responsibilities of the state are increasingly being taken over by private actors, i.e. the process of teaching and learning is dissociated from the direct control of the state and from school as an institution. At the same time, education is turned into a marketable commodity. Despite the government’s efforts to provide free education to all citizens, the quality of social services that can be accessed in Egypt, thus, depends mainly on the financial means of the individual or the family.

Gold and the Stock Market: 3 Essays on Gold Investments

This thesis gives an overview of the history of gold per se, of gold as an investment good and offers some institutional details about gold and other precious metal markets. The goal of this study is to investigate the role of gold as a store of value and hedge against negative market movements in turbulent times. I investigate gold’s ability to act as a safe haven during periods of financial stress by employing instrumental variable techniques that allow for time varying conditional covariance. I find broad evidence supporting the view that gold acts as an anchor of stability during market downturns. During periods of high uncertainty and low stock market returns, gold tends to have higher than average excess returns. The effectiveness of gold as a safe haven is enhanced during periods of extreme crises: the largest peaks are observed during the global financial crises of 2007-2009 and, in particular, during the Lehman default (October 2008). A further goal of this thesis is to investigate whether gold provides protection from tail risk. I address the issue of asymmetric precious metal behavior conditioned to stock market performance and provide empirical evidence about the contribution of gold to a portfolio’s systematic skewness and kurtosis. I find that gold has positive coskewness with the market portfolio when the market is skewed to the left. Moreover, gold shows low cokurtosis with the market returns during volatile periods. I therefore show that gold is a desirable investment good to risk averse investors, since it tends to decrease the probability of experiencing extreme bad outcomes, and the magnitude of losses in case such events occur. Gold thus bears very important and under-researched characteristics as an asset class per se, which this thesis contributed to address and unveil.

Understanding the impact of Twitter on the financial market

Negli anni la funzione dei social network è cambiata molte volte. Alle origini i social network erano uno strumento di connessione tra amici, ora sono siti internet in cui le persone mettono informazioni e quando un social network ha milioni di utenti, diventa un’incredibile sorgente di dati. Twitter è uno dei siti internet più visitati, e viene descritto come “the SMS of internet”, perchè è un social network che permette ai suoi utenti di inviare e leggere messaggi corti, di 140 caratteri, chiamati “tweets”. Con il passare del tempo Twitter `e diventato una fonte fondamentale di notizie. Il suo grande numero di utenti permette alle notizie di espandersi nella rete in modo virale. Molte persone hanno cercato di analizzare il potere dei tweet, come il contenuto positivo o negativo, mentre altri hanno cercato di capire se avessero un potere predittivo. In particolare nel mondo finanziario, sono state avviate molte ricerche per verificare l’esistenza di una effettiva correlazione tra i tweets e la fluttuazione del mercato azionario. L’effettiva presenza di tale relazione unita a un modello predittivo, potrebbe portare allo sviluppo di un modello che analizzando i tweets presenti nella rete, relativi a un titolo azionario, dia informazioni sulle future variazioni del titolo stesso. La nostra attenzione si è rivolata alla ricerca e validazione statistica di tale correlazione. Sono stati effettuati test su singole azioni, sulla base dei dati disponibili, poi estesi a tutto il dataset per vedere la tendenza generale e attribuire maggior valore al risultato. Questa ricerca è caratterizzata dal suo dataset di tweet che analizza un periodo di oltre 2 anni, uno dei periodi più lunghi mai analizzati. Si è cercato di fornire maggior valore ai risultati trovati tramite l’utilizzo di validazioni statistiche, come il “permutation test”, per validare la relazione tra tweets di un titolo con i relativi valori azionari, la rimozione di una percentuale di eventi importanti, per mostrare la dipendenza o indipendenza dei dati dagli eventi più evidenti dell’anno e il “granger causality test”, per capire la direzione di una previsione tra serie. Sono stati effettuati anche test con risultati fallimentari, dai quali si sono ricavate le direzioni per i futuri sviluppi di questa ricerca.

Testing the allegiance bias hypothesis: a meta-analysis

This meta-analysis investigated whether the association between researcher allegiance (RA) and the relative effect of two psychotherapies can be explained through the methodological weaknesses of the treatment comparisons. Seventy-nine comparisons of psychotherapies for depression or posttraumatic stress disorder (PTSD) were included. Methodological quality (MQ) was investigated as both a moderator and a mediator of the RA-outcome association. MQ included balanced nonspecific factors, balanced specific factors, conceptual quality, patients-per-therapist ratio, randomization to conditions and outcome assessment. The RA-outcome association was stronger when the MQ was low, suggesting a buffering effect of MQ. In addition, differences in the conceptual quality of treatments mediated the effect of RA on outcome. The results support the view that RA acts as a bias in treatment comparisons.

Testing the TICT State Hypothesis: an Investigation into the Solvatochromic Behavior of 2-Naphthalenylmethylene Malononitrile

Towards the goal of investigating the possible Twisted Intramolecular Charge Transfer (TICT) state mechanism of fluorescence emission, two aromatic dicyanovinyl compounds, 2-(naphthalene-2-ylmethylene) malononitrile (DCN) and a rigidified analogue, 3,4-dihydrophenanthren-1(2H)-ylidene)malononitrile (RDCN) were synthesized and their absorption and steady-state fluorescence emission spectra characterized. The spectral characterization was divided into two studies: first, DCN and RDCN were characterized in liquid solvents of increasing polarity; second, DCN and RDCN were characterized in viscous solvents and rigid glass media. The absorption spectra for both DCN and RDCN in all solvents demonstrated little to no solvatochromism. Emission results for DCN and RDCN in liquid solvents of increasing polarity showed DCN possessing strong solvatochromism while RDCN showed much less solvatochromism. Using the Lippert-Mataga equation, the difference between the ground and excited state dipole moment for DCN was estimated to be 8.4 + 0.4 Debye and between ~3.0 to 5.0 Debye for RDCN. Quantum yield measurements for DCN and RDCN in hexane, diethyl ether and acetonitrile were less than 0.01 and independent of polarity for both both solvents, with DCN generally possessing a quantum yield 3-4 times greater than RDCN. Experiments in glass media for DCN and RDCN showed a lessening of their solvatochromic character in both polar and non-polar glasses. These data provide strong evidence for a link between molecular flexibility and solvatochromism. However, while these data are consistent with a TICT state hypothesis for the emission mechanism, an alternative mechanism proposed by Maroncelli et al.10 involving rotation about the dicyanovinyl double bond in the excited state remains a possibility as well.

Formation of Exchange Rates on the Russian Market: Dynamics and Modelling

Galina Kovaleva. The Formation of the Exchange Rate on the Russian Market: Dynamics and Modelling. The Russian financial market is fast becoming one of the major sectors of the Russian economy. Assets have been increasing steadily, while new market segments and new financial market instruments have emerged. Kovaleva attempted to isolate the factors influencing exchange rates, determine patterns in the dynamic changes to the rouble/dollar exchange rate, construct models of the processes, and on the basis of these activities make forecasts. She studied the significance of economic indicators influencing the rouble/dollar exchange rate at different times, and developed multi-factor econometric models. In order to reveal the inner structure of the financial indicators and to work out ex-post forecasts for different time intervals, she carried out a series of calculations with the aim of constructing trend-cyclical (TC) and harmonic models, and Box and Jenkins models. She found that: 1. The Russian financial market is dependant on the rouble/dollar exchange rate. Its dynamics are formed under the influence of the short-term state treasury notes and government bonds markets, interbank loans, the rouble/DM exchange rate, the inflation rate, and the DM/dollar exchange rate. The exchange rate is influenced by sales on the Moscow Interbank Currency Exchange and the mechanism of those sales. 2. The TC model makes it possible to conduct an in-depth study of the structure of the processes and to make forecasts of the dynamic changes to currency indicators. 3. The Russian market is increasingly influenced by the world currency market and its prospects are of crucial interest for the world financial community.