On the robustness of least-squares Monte Carlo (LSM) for pricing American derivatives

This paper analyses the robustness of Least-Squares Monte Carlo, a techniquerecently proposed by Longstaff and Schwartz (2001) for pricing Americanoptions. This method is based on least-squares regressions in which theexplanatory variables are certain polynomial functions. We analyze theimpact of different basis functions on option prices. Numerical resultsfor American put options provide evidence that a) this approach is veryrobust to the choice of different alternative polynomials and b) few basisfunctions are required. However, these conclusions are not reached whenanalyzing more complex derivatives.

IEEE LOM is not an option. Lessons to learn

Although some projects and most LMS still rely on IEEE LOM, this standard is not yet an option. We suggest some lessons to learn.

Option valuation as an expectation in the complex domain: The Black-Scholes case

It is very well known that the first succesful valuation of a stock option was done by solving a deterministic partial differential equation (PDE) of the parabolic type with some complementary conditions specific for the option. In this approach, the randomness in the option value process is eliminated through a no-arbitrage argument. An alternative approach is to construct a replicating portfolio for the option. From this viewpoint the payoff function for the option is a random process which, under a new probabilistic measure, turns out to be of a special type, a martingale. Accordingly, the value of the replicating portfolio (equivalently, of the option) is calculated as an expectation, with respect to this new measure, of the discounted value of the payoff function. Since the expectation is, by definition, an integral, its calculation can be made simpler by resorting to powerful methods already available in the theory of analytic functions. In this paper we use precisely two of those techniques to find the well-known value of a European call

Poison without antidote for the historical Socrates and french classical tragedy in El verí del teatre (The Poison of the Theatre) by Rodolf Sirera. (An extreme dose of sadism to put a stop to the excesses of theatrical fiction).

Socrates' serene attitude before his death -although this is questioned-, as described by Xenophon in his Apologia Socratis becomes for the playwright Rodolf Sirera a useful reference in an effort to reflect boldly on the limits of theatrical fiction in another clear example of the Classical Tradition, including that derived from Baroque Tragedy. However, in this case, it is judged severely to make us more conscious of the risk of turning life into a mere theatrical performance and human beings into actors and actresses in a play they did not write.

Consumer Advisory Bulletin, Don’t Let a Contractor “Put the Fix in” on YOUR Home Repairs & Improvements!, April 2012

The Attorney General’s Consumer Protection Division receives hundreds of calls and consumer complaints every year. Follow these tips to avoid unexpected expense and disappointments. This record is about: Don’t Let a Contractor “Put the Fix in” on YOUR Home Repairs & Improvements!

Option valuation as an expectation in the complex domain: The Black-Scholes case

It is very well known that the first succesful valuation of a stock option was done by solving a deterministic partial differential equation (PDE) of the parabolic type with some complementary conditions specific for the option. In this approach, the randomness in the option value process is eliminated through a no-arbitrage argument. An alternative approach is to construct a replicating portfolio for the option. From this viewpoint the payoff function for the option is a random process which, under a new probabilistic measure, turns out to be of a special type, a martingale. Accordingly, the value of the replicating portfolio (equivalently, of the option) is calculated as an expectation, with respect to this new measure, of the discounted value of the payoff function. Since the expectation is, by definition, an integral, its calculation can be made simpler by resorting to powerful methods already available in the theory of analytic functions. In this paper we use precisely two of those techniques to find the well-known value of a European call

Native Grassland Conversion: the Roles of Risk Intervention and Switching Costs

We develop a real option model of the irreversible native grassland conversion decision. Upon plowing, native grassland can be followed by either a permanent cropping system or a system in which land is put under cropping (respectively, grazing) whenever crop prices are high (respectively, low). Switching costs are incurred upon alternating between cropping and grazing. The effects of risk intervention in the form of crop insurance subsidies are studied, as are the effects of cropping innovations that reduce switching costs. We calibrate the model by using cropping return data for South Central North Dakota from 1989 to 2012. Simulations show that a risk intervention that offsets 20% of a cropping return shortfall increases the sod-busting cost threshold, below which native sod will be busted, by 41% (or $43.7/acre). Omitting cropping return risk across time underestimates this sod-busting cost threshold by 23% (or $24.35/acre), and hence underestimates the native sod conversion caused by crop production.

Policy -Strategy Option Description, January 30, 2009

Like many states, Iowa faces significant challenges on the energy front.  Energy prices have  surged in recent years to record levels before declining precipitously following the financial  crisis that broke in September 2008.  Despite this pullback, the fundamentals that contributed to  higher energy prices are expected to return once economies rebound. Oil prices have gone up  on increased demand, driven in large part by developing countries such as China and India,  whose economies have been rapidly expanding.  Natural gas prices have also fluctuated  dramatically, trading in a range from $4.50 to $13.00/MMBtu over the past year, but are unlikely  to remain at low levels over the long term.  As shown in our analysis later on in this report, the  difference in levelized cost of electricity from a gas‐fired combined cycle plant can vary  significantly depending on the fuel cost.    Dependence on others for energy supply involves significant risks and uncertainties.  Thus, if  Iowa wishes to reduce its dependence on others – or even achieve energy independence – Iowa  needs to pursue actions on a numbers of fronts.  Following the status quo is not an option.    A carbon tax would change the energy landscape in Iowa.  Since Iowa is currently 75%  dependent on coal, a carbon tax could mean that generators, and in turn ratepayers, could be on  the hook for higher electricity prices, though it remains to be seen exactly what the tax scheme  will be.  In addition to existing plants, a carbon tax would also have a significant impact on the  cost of new generation plant.  We have modeled carbon taxes ranging from $0‐50/ton in our  analysis in the Appendix.  However, if a more aggressive carbon policy came into play resulting  in market values of for example, $100/ton or even $200/ton, then that could raise the cost of coal‐  and gas‐fired generation significantly, making alternatives such as wind more economical.

Effect of interleukin-6 receptor inhibition with tocilizumab in patients with rheumatoid arthritis (OPTION study): a double-blind, placebo-controlled, randomised trial.

BACKGROUND: Interleukin 6 is involved in the pathogenesis of rheumatoid arthritis via its broad effects on immune and inflammatory responses. Our aim was to assess the therapeutic effects of blocking interleukin 6 by inhibition of the interleukin-6 receptor with tocilizumab in patients with rheumatoid arthritis. METHODS: In this double-blind, randomised, placebo-controlled, parallel group phase III study, 623 patients with moderate to severe active rheumatoid arthritis were randomly assigned with an interactive voice response system, stratified by site with a randomisation list provided by the study sponsor, to receive tocilizumab 8 mg/kg (n=205), tocilizumab 4 mg/kg (214), or placebo (204) intravenously every 4 weeks, with methotrexate at stable pre-study doses (10-25 mg/week). Rescue therapy with tocilizumab 8 mg/kg was offered at week 16 to patients with less than 20% improvement in both swollen and tender joint counts. The primary endpoint was the proportion of patients with 20% improvement in signs and symptoms of rheumatoid arthritis according to American College of Rheumatology criteria (ACR20 response) at week 24. Analyses were by intention to treat. This trial is registered with ClinicalTrials.gov, number NCT00106548. FINDINGS: The intention-to-treat analysis population consisted of 622 patients: one patient in the 4 mg/kg group did not receive study treatment and was thus excluded. At 24 weeks, ACR20 responses were seen in more patients receiving tocilizumab than in those receiving placebo (120 [59%] patients in the 8 mg/kg group, 102 [48%] in the 4 mg/kg group, 54 [26%] in the placebo group; odds ratio 4.0 [95% CI 2.6-6.1], p<0.0001 for 8 mg/kg vs placebo; and 2.6 [1.7-3.9], p<0.0001 for 4 mg/kg vs placebo). More people receiving tocilizumab than those receiving placebo had at least one adverse event (143 [69%] in the 8 mg/kg group; 151 [71%] in the 4 mg/kg group; 129 [63%] in the placebo group). The most common serious adverse events were serious infections or infestations, reported by six patients in the 8 mg/kg group, three in the 4 mg/kg group, and two in the placebo group. INTERPRETATION: Tocilizumab could be an effective therapeutic approach in patients with moderate to severe active rheumatoid arthritis. FUNDING: F Hoffmann-La Roche, Chugai Pharmaceutical.

Tailored thoracomyoplasty as a valid treatment option for chronic postlobectomy empyema.

BACKGROUND: Chronic post-lobectomy empyema is rare but may require space obliteration for infection control. We report our experience by using a tailored thoracomyoplasty for this specific indication with respect to infection control and functional outcome. METHODS: We retrospectively analyzed 17 patients (11 men, 6 women) with chronic postlobectomy empyema who were treated by thoracomyoplasty in our institution between 2000 and 2011. All patients underwent an initial treatment attempt by use of chest tube drainage and antibiotics except those with suspicion of pleural aspergillosis (n = 6). In 5 patients, bronchus stump insufficiency was identified at preoperative bronchoscopy. A tailored thoracoplasty was combined with a serratus anterior-rhomboid myoplasty, which also served to close a bronchopleural fistula, if present. The first rib was resected in 11 of 17 patients. RESULTS: The 90-day mortality was 11.7%. Thoracomyoplasty was successful in all surviving patients with respect to infection control, space obliteration, and definitive closure of bronchopleural fistula, irrespective of the type of infection, the presence of a bronchopleural fistula, or whether a first rib resection was performed. Postlobectomy pulmonary function testing before and after thoracoplasty revealed a mean predicted FEV(1) of 63.0% ± 8.5% and 51.5% ± 4.2% (p = 0.01) and a mean predicted DLCO of 59.8% ± 11.6% and 54.5% ± 12.5%, respectively. Postoperative shoulder girdle dysfunction and scoliosis were prevented in patients willing to undergo intense physiotherapy. CONCLUSIONS: Tailored thoracomyoplasty represents a valid option for patients with chronic postlobectomy empyema without requiring a preceding open window thoracostomy. Space obliteration and infection control were equally obtained with and without first rib resection.

Human papillomavirus (HPV) vaccines as an option for preventing cervical malignancies: (how) effective and safe?

We carried out a systematic review of HPV vaccine pre- and post-licensure trials to assess the evidence of their effectiveness and safety. We find that HPV vaccine clinical trials design, and data interpretation of both efficacy and safety outcomes, were largely inadequate. Additionally, we note evidence of selective reporting of results from clinical trials (i.e., exclusion of vaccine efficacy figures related to study subgroups in which efficacy might be lower or even negative from peer-reviewed publications). Given this, the widespread optimism regarding HPV vaccines long-term benefits appears to rest on a number of unproven assumptions (or such which are at odd with factual evidence) and significant misinterpretation of available data. For example, the claim that HPV vaccination will result in approximately 70% reduction of cervical cancers is made despite the fact that the clinical trials data have not demonstrated to date that the vaccines have actually prevented a single case of cervical cancer (let alone cervical cancer death), nor that the current overly optimistic surrogate marker-based extrapolations are justified. Likewise, the notion that HPV vaccines have an impressive safety profile is only supported by highly flawed design of safety trials and is contrary to accumulating evidence from vaccine safety surveillance databases and case reports which continue to link HPV vaccination to serious adverse outcomes (including death and permanent disabilities). We thus conclude that further reduction of cervical cancers might be best achieved by optimizing cervical screening (which carries no such risks) and targeting other factors of the disease rather than by the reliance on vaccines with questionable efficacy and safety profiles.