Forecasting volatility and correlation : the role of option implied measures

Forecasts of volatility and correlation are important inputs into many practical financial problems. Broadly speaking, there are two ways of generating forecasts of these variables. Firstly, time-series models apply a statistical weighting scheme to historical measurements of the variable of interest. The alternative methodology extracts forecasts from the market traded value of option contracts. An efficient options market should be able to produce superior forecasts as it utilises a larger information set of not only historical information but also the market equilibrium expectation of options market participants. While much research has been conducted into the relative merits of these approaches, this thesis extends the literature along several lines through three empirical studies. Firstly, it is demonstrated that there exist statistically significant benefits to taking the volatility risk premium into account for the implied volatility for the purposes of univariate volatility forecasting. Secondly, high-frequency option implied measures are shown to lead to superior forecasts of the intraday stochastic component of intraday volatility and that these then lead on to superior forecasts of intraday total volatility. Finally, the use of realised and option implied measures of equicorrelation are shown to dominate measures based on daily returns.

On the efficacy of techniques for evaluating multivariate volatility forecasts

The performance of techniques for evaluating multivariate volatility forecasts are not yet as well understood as their univariate counterparts. This paper aims to evaluate the efficacy of a range of traditional statistical-based methods for multivariate forecast evaluation together with methods based on underlying considerations of economic theory. It is found that a statistical-based method based on likelihood theory and an economic loss function based on portfolio variance are the most effective means of identifying optimal forecasts of conditional covariance matrices.

On the prediction of simultaneous inbreeding coefficients at multiple loci

A new deterministic method for predicting simultaneous inbreeding coefficients at three and four loci is presented. The method involves calculating the conditional probability of IBD (identical by descent) at one locus given IBD at other loci, and multiplying this probability by the prior probability of the latter loci being simultaneously IBD. The conditional probability is obtained applying a novel regression model, and the prior probability from the theory of digenic measures of Weir and Cockerham. The model was validated for a finite monoecious population mating at random, with a constant effective population size, and with or without selfing, and also for an infinite population with a constant intermediate proportion of selfing. We assumed discrete generations. Deterministic predictions were very accurate when compared with simulation results, and robust to alternative forms of implementation. These simultaneous inbreeding coefficients were more sensitive to changes in effective population size than in marker spacing. Extensions to predict simultaneous inbreeding coefficients at more than four loci are now possible.

Essays on volatility and liquidity in financial markets

The price formation of financial assets is a complex process. It extends beyond the standard economic paradigm of supply and demand to the understanding of the dynamic behavior of price variability, the price impact of information, and the implications of trading behavior of market participants on prices. In this thesis, I study aggregate market and individual assets volatility, liquidity dimensions, and causes of mispricing for US equities over a recent sample period. How volatility forecasts are modeled, what determines intradaily jumps and causes changes in intradaily volatility and what drives the premium of traded equity indexes? Are they induced, for example, by the information content of lagged volatility and return parameters or by macroeconomic news, changes in liquidity and volatility? Besides satisfying our intellectual curiosity, answers to these questions are of direct importance to investors developing trading strategies, policy makers evaluating macroeconomic policies and to arbitrageurs exploiting mispricing in exchange-traded funds. Results show that the leverage effect and lagged absolute returns improve forecasts of continuous components of daily realized volatility as well as jumps. Implied volatility does not subsume the information content of lagged returns in forecasting realized volatility and its components. The reported results are linked to the heterogeneous market hypothesis and demonstrate the validity of extending the hypothesis to returns. Depth shocks, signed order flow, the number of trades, and resiliency are the most important determinants of intradaily volatility. In contrast, spread shock and resiliency are predictive of signed intradaily jumps. There are fewer macroeconomic news announcement surprises that cause extreme price movements or jumps than those that elevate intradaily volatility. Finally, the premium of exchange-traded funds is significantly associated with momentum in net asset value and a number of liquidity parameters including the spread, traded volume, and illiquidity. The mispricing of industry exchange traded funds suggest that limits to arbitrage are driven by potential illiquidity.

The benefit of modeling jumps in realized volatility for risk prediction : evidence from Chinese mainland stocks

Recent literature has focused on realized volatility models to predict financial risk. This paper studies the benefit of explicitly modeling jumps in this class of models for value at risk (VaR) prediction. Several popular realized volatility models are compared in terms of their VaR forecasting performances through a Monte Carlo study and an analysis based on empirical data of eight Chinese stocks. The results suggest that careful modeling of jumps in realized volatility models can largely improve VaR prediction, especially for emerging markets where jumps play a stronger role than those in developed markets.

Simultaneous determination by UPLC-ESI-MS of scoparone, capillarisin, rhein, and emodin in rat urine after oral administration of Yin Chen Hao Tang preparation

A simple, sensitive, and validated method was developed for simultaneous determination of scoparone, capillarisin, rhein, and emodin in rat urine by ultra-performance liquid chromatography/electrospray ionization quadruple time-of-flight mass spectrometry (UPLC-MS). The urinary samples were analyzed on an Acquity UPLC BEH C18 1.7 microm 2.1x50 mm column. Scoparone, capillarisin, rhein, and emodin in rat urine were simultaneously analyzed with good separation. The lower limits of detection were 6.0, 9.0, 7.0, and 3.0 ng/mL, and the lower limits of quantification were 20.0, 33.0, 24.0, and 12.0 ng/mL for scoparone, capillarisin, rhein, and emodin, respectively. The intra- and inter-day precisions (RSD) were less than 9%. The intra- and inter-accuracies were found to be in the range of 94.14-104.54% for scoparone, 101.72-107.34% for capillarisin, 95.24-103.59% for rhein, and 101.32-107.82% for emodin at three concentration levels. The absolute recoveries for scoparone, capillarisin, rhein, and emodin were not less than 77.0%. The developed method has been applied to determine scoparone, capillarisin, rhein, and emodin in rat urine after oral administration of Yin Chen Hao Tang preparation, a traditional Chinese medicine formulation widely used in China for treatment of jaundice and liver disorders.

Quality evaluation of Yin Chen Hao Tang extract based on fingerprint chromatogram and simultaneous determination of five bioactive constituents

A completely validated method based on HPLC coupled with photodiode array detector (HPLC-UV) was described for evaluating and controlling quality of Yin Chen Hao Tang extract (YCHTE). First, HPLC-UV fingerprint chromatogram of YCHTE was established for preliminarily elucidating amount and chromatographic trajectory of chemical constituents in YCHTE. Second, for the first time, five mainly bioactive constituents in YCHTE were simultaneously determined based on fingerprint chromatogram for furthermore controlling the quality of YCHTE quantitatively. The developed method was applied to analyze 12 batches of YCHTE samples which consisted of herbal drugs from different places of production, showed acceptable linearity, intraday (RSD <5%), interday precision (RSD <4.80%), and accuracy (RSD <2.80%). As a result, fingerprint chromatogram determined 15 representative general fingerprint peaks, and the fingerprint chromatogram resemblances are all better than 0.9996. The contents of five analytes in different batches of YCHTE samples do not indicate significant difference. So, it is concluded that the developed HPLC-UV method is a more fully validated and complete method for evaluating and controlling the quality of YCHTE.

Simultaneous determination of 6,7-dimethylesculetin and geniposide in rat plasma and its application to pharmacokinetic studies of Yin Chen Hao Tang preparation

A method for the rapid and simultaneous determination of 6,7-dimethylesculetin (CAS 120-08-1) and geniposide (CAS 24512-63-8) in rat plasma has been developed, using validated high performance liquid chromatography (HPLC) with solid phase extraction (SPE). The HPLC analysis was performed on a commercially available column (200 mm x 4.6 mm, 5 microm) with acetonitrile-methanol-0.1% aqueous formic acid as mobile phase and the UV detection at 343 nm and 238 nm for 6,7-dimethylesculetin and geniposide, respectively. The calibration curves for 6,7-dimethylesculetin and geniposide were linear over the range 0.4-25.6 microg/mL and 1.12-71.68 microg/mL, respectively. The lower limits of quantitation were 0.40 microg/ mL and 1.12 microg/mL, and the lower limits of detection were 0.06 microg/mL and 0.09 microg/ mL, respectively. The intra-day and inter-day precision for 6,7-dimethylesculetin and geniposide were < 5%, whereas the absolute recovery percentages were > 74%. A successful application of the developed HPLC analysis was demonstrated for the pharmacokinetic study of a Traditional Chinese Medicine formula of Yin Chen Hao Tang preparation.

A novel multiplex PCR-RFLP method for simultaneous detection of the MTHFR 677 C > T, eNOS +894 G > T and - eNOS -786 T > C variants among Malaysian Malays

Background Hyperhomocysteinemia as a consequence of the MTHFR 677 C > T variant is associated with cardiovascular disease and stroke. Another factor that can potentially contribute to these disorders is a depleted nitric oxide level, which can be due to the presence of eNOS +894 G > T and eNOS −786 T > C variants that make an individual more susceptible to endothelial dysfunction. A number of genotyping methods have been developed to investigate these variants. However, simultaneous detection methods using polymerase chain reaction-restriction fragment length polymorphism (PCR-RFLP) analysis are still lacking. In this study, a novel multiplex PCR-RFLP method for the simultaneous detection of MTHFR 677 C > T and eNOS +894 G > T and eNOS −786 T > C variants was developed. A total of 114 healthy Malay subjects were recruited. The MTHFR 677 C > T and eNOS +894 G > T and eNOS −786 T > C variants were genotyped using the novel multiplex PCR-RFLP and confirmed by DNA sequencing as well as snpBLAST. Allele frequencies of MTHFR 677 C > T and eNOS +894 G > T and eNOS −786 T > C were calculated using the Hardy Weinberg equation. Methods The 114 healthy volunteers were recruited for this study, and their DNA was extracted. Primer pair was designed using Primer 3 Software version 0.4.0 and validated against the BLAST database. The primer specificity, functionality and annealing temperature were tested using uniplex PCR methods that were later combined into a single multiplex PCR. Restriction Fragment Length Polymorphism (RFLP) was performed in three separate tubes followed by agarose gel electrophoresis. PCR product residual was purified and sent for DNA sequencing. Results The allele frequencies for MTHFR 677 C > T were 0.89 (C allele) and 0.11 (T allele); for eNOS +894 G > T, the allele frequencies were 0.58 (G allele) and 0.43 (T allele); and for eNOS −786 T > C, the allele frequencies were 0.87 (T allele) and 0.13 (C allele). Conclusions Our PCR-RFLP method is a simple, cost-effective and time-saving method. It can be used to successfully genotype subjects for the MTHFR 677 C > T and eNOS +894 G > T and eNOS −786 T > C variants simultaneously with 100% concordance from DNA sequencing data. This method can be routinely used for rapid investigation of the MTHFR 677 C > T and eNOS +894 G > T and eNOS −786 T > C variants.

Identification and simultaneous analysis of harmane, harmol, isovitexin and vitexin in Passiflora incarnata extracts with a novel HLPC method

A high performance liquid chromatographic method for the simultaneous analysis of two flavonoids (iso-vitexin and vitexin), and three indole alkaloids (harmane, harmine, and harmol) was developed. This method was then utilised to quantitate levels of these five constituents in methanolic extracts of Australian Passiflora incarnata. HPLC analysis was performed using a Waters™ Novapak C18 (150 × 4 mm, 4 μm) column, with a gradient solvent system of methanol-water-acetic acid. Detection was achieved by PDA UV (254 nm) and fluorescence (excitation 254 nm, emission 414 nm), utilising the external standard method to obtain quantification.