The Impact of New Capital Requirements on the Portfolio Decisions of Finnish Pension Institutions

This paper examines the potential impact of new capital requirements on asset allocations of Finnish pension institutions. We describe the new requirements and consider portfolio construction to minimize regulatory capital, given the investor’s preferred level of expected return. Results identify portfolio transactions that enhance expected return without increasing capital needs. Regulation calls for portfolio diversification and prudence in management, but this paper shows that market participants can exploit inconsistencies in regulation. Possible future consequences include capital outflows from the pension system and an unintended decrease in pre-funding of old-age pensions.

Maximum Loss Calculation using Scenario Analysis, Heavy Tails and Implied Volatility Patterns

The objective of this paper is to improve option risk monitoring by examining the information content of implied volatility and by introducing the calculation of a single-sum expected risk exposure similar to the Value-at-Risk. The figure is calculated in two steps. First, there is a need to estimate the value of a portfolio of options for a number of different market scenarios, while the second step is to summarize the information content of the estimated scenarios into a single-sum risk measure. This involves the use of probability theory and return distributions, which confronts the user with the problems of non-normality in the return distribution of the underlying asset. Here the hyperbolic distribution is used to describe one alternative for dealing with heavy tails. Results indicate that the information content of implied volatility is useful when predicting future large returns in the underlying asset. Further, the hyperbolic distribution provides a good fit to historical returns enabling a more accurate definition of statistical intervals and extreme events.

Technology-related peso problems in stock returns

Although empirical evidence suggests the contrary, many asset pricing models assume stock returns to be symmetrically distributed. In this paper it is argued that the occurrence of negative jumps in a firm's future earnings and, consequently, in its stock price, is positively related to the level of network externalities in the firm's product market. If the ex post frequency of these negative jumps in a sample does not equal the ex ante assessed probability of occurrence, the sample is subject to a peso problem. The hypothesis is tested for by regressing the skewness coefficient of a firm’s realised stock return distribution on the firm’s R&D intensity, i.e. the ratio of the firm’s research and development expenditure to its net sales. The empirical results support the technology-related peso problem hypothesis. In samples subject to such a peso problem, the returns are biased up and the variance is biased down.

The Influence of World Factors on Finnish Stock Market Volatility

This paper investigates to what extent the volatility of Finnish stock portfolios is transmitted through the "world volatility". We operationalize the volatility processes of Finnish leverage, industry, and size portfolio returns by asymmetric GARCH specifications according to Glosten et al. (1993). We use daily return data for January, 2, 1987 to December 30, 1998. We find that the world shock significantly enters the domestic models, and that the impact has increased over time. This applies also for the variance ratios, and the correlations to the world. The larger the firm, the larger is the world impact. The conditional variance is higher during recessions. The asymmetry parameter is surprisingly non-significant, and the leverage hypothesis cannot be verified. The return generating process of the domestic portfolio returns does usually not include the world information set, thus indicating that the returns are generated by a segmented conditional asset pricing model.

Monetary Policy, Stock Price Misalignments and Macroeconomic Instability

Perhaps the most fundamental prediction of financial theory is that the expected returns on financial assets are determined by the amount of risk contained in their payoffs. Assets with a riskier payoff pattern should provide higher expected returns than assets that are otherwise similar but provide payoffs that contain less risk. Financial theory also predicts that not all types of risks should be compensated with higher expected returns. It is well-known that the asset-specific risk can be diversified away, whereas the systematic component of risk that affects all assets remains even in large portfolios. Thus, the asset-specific risk that the investor can easily get rid of by diversification should not lead to higher expected returns, and only the shared movement of individual asset returns – the sensitivity of these assets to a set of systematic risk factors – should matter for asset pricing. It is within this framework that this thesis is situated. The first essay proposes a new systematic risk factor, hypothesized to be correlated with changes in investor risk aversion, which manages to explain a large fraction of the return variation in the cross-section of stock returns. The second and third essays investigate the pricing of asset-specific risk, uncorrelated with commonly used risk factors, in the cross-section of stock returns. The three essays mentioned above use stock market data from the U.S. The fourth essay presents a new total return stock market index for the Finnish stock market beginning from the opening of the Helsinki Stock Exchange in 1912 and ending in 1969 when other total return indices become available. Because a total return stock market index for the period prior to 1970 has not been available before, academics and stock market participants have not known the historical return that stock market investors in Finland could have achieved on their investments. The new stock market index presented in essay 4 makes it possible, for the first time, to calculate the historical average return on the Finnish stock market and to conduct further studies that require long time-series of data.

Examining and Modeling the Dynamics of the Volatility Surface

The objective of this paper is to investigate and model the characteristics of the prevailing volatility smiles and surfaces on the DAX- and ESX-index options markets. Continuing on the trend of Implied Volatility Functions, the Standardized Log-Moneyness model is introduced and fitted to historical data. The model replaces the constant volatility parameter of the Black & Scholes pricing model with a matrix of volatilities with respect to moneyness and maturity and is tested out-of-sample. Considering the dynamics, the results show support for the hypotheses put forward in this study, implying that the smile increases in magnitude when maturity and ATM volatility decreases and that there is a negative/positive correlation between a change in the underlying asset/time to maturity and implied ATM volatility. Further, the Standardized Log-Moneyness model indicates an improvement to pricing accuracy compared to previous Implied Volatility Function models, however indicating that the parameters of the models are to be re-estimated continuously for the models to fully capture the changing dynamics of the volatility smiles.

Nature of hydrogen atom trapped inside palladium lattice

Colloid of palladium nanoparticles has been prepared by the Solvated Metal Atom Dispersion (SMAD) method. Reaction of Pd(0) nanopowder obtained upon precipitation from the colloid, with ammonia borane (H3N center dot BH3, AB) in aqueous solutions at room temperature results in the generation of active hydrogen atoms. The active hydrogen atoms either combine with one another resulting in H-2 evolution or diffuse into the Pd lattice to afford PdHx. Diffusion of hydrogen atoms leads to an expansion of the Pd lattice. The diffused hydrogen atoms are distributed uniformly over the entire particle. These features were established using powder XRD and electron microscopy studies. The H-1 NMR spectral studies of PdHx before and after desorption of H-2 revealed that the hydrogen atoms trapped inside Pd lattice are hydridic in nature. Desorption of hydrogen from PdHx did not result in complete reversibility suggesting that some hydrogen atoms are strongly trapped inside the Pd lattice. (C) 2010 Professor T. Nejat Veziroglu. Published by Elsevier Ltd. All rights reserved.

Application of nonlinear filtering to credit risk

Merton's model views equity as a call option on the asset of the firm. Thus the asset is partially observed through the equity. Then using nonlinear filtering an explicit expression for likelihood ratio for underlying parameters in terms of the nonlinear filter is obtained. As the evolution of the filter itself depends on the parameters in question, this does not permit direct maximum likelihood estimation, but does pave the way for the `Expectation-Maximization' method for estimating parameters. (C) 2010 Elsevier B.V. All rights reserved.

The evolution of genomic imprinting

We explore three possible pathways for the evolution of genomic imprinting. (1) Imprinting may be advantageous in itself when imprinted and unimprinted alleles of a locus confer different phenotypes. If a segment of DNA is imprinted in the gametes of one sex but not in those of the other, it might lead to effects correlated with sexual dimorphism. More fundamentally, in certain organisms, sex determination might have evolved because of imprinting. When imprinting leads to chromosome elimination or inactivation and occurs in some embryos but not in others, two classes of embryos, differing in the number of functional gene copies, would result. A model for sex determination based on inequality in the actual or effective copy-number of particular noncoding, regulatory sequences of DNA has been proposed (Chandra, Proc. natn. Acad. Sci. U.S.A. 82. 1165–1169 and 6947–6949, 1985). Maternal control of offspring sex is another possible consequence of imprinting; this would indicate a potential role for imprinting in sex ratio evolution. (2) Genes responsible for imprinting may have pleiotropic effects and they may have been selected for reasons other than their imprinting ability. Lack of evidence precludes further consideration of this possibility. (3) Imprinting could have co-evolved with other traits. For instance, gamete-specific imprinting could lead to a lowered fitness of androgenetic or gynogenetic diploids relative to the fitness of ‘normal’ diploids. This in turn would reinforce the evolution of anisogamy. The reversibility of imprinting raises the possibility of occasional incomplete or improper erasure. If the site of imprinting is the egg – as appears to be the case with the human X (Chandra and Brown, Nature 253. 165–168, 1975) – either improper imprinting or improper erasure could lead to unusual patterns of inheritance (as in the fragile-X syndrome) or fitness effects skipping generations.

Electroless nickel hydroxide: synthesis and characterization

An electroless method of nickel hydroxide synthesis through the complexation-precipitation route which yields a fine particle material having a specific surface area of 178 m2 g–1 has been described. The morphology of this material as revealed by electron microscopy is distinctly different from the turbostratic nature of electrosynthesized nickel hydroxide. While the long range structure as shown by the X-ray diffraction pattern is similar to that of beta-Ni(OH)2, the short range structure as revealed by infrared spectroscopy incorporates characteristics similar to that of agr-Ni(OH)2. Cyclic voltammetry studies show that the electroless nickel hydroxide has a higher coulombic efficiency (>90%), a more anodic reversible potential and a higher degree of reversibility compared to the electrosynthesized nickel hydroxide and conventionally prepared nickel hydroxide.

Synthesis and characterization of single-crystalline alpha-MoO3 nanofibers for enhanced Li-ion intercalation applications

High quality, single-crystalline alpha-MoO3 nanofibers are synthesized by rapid hydrothermal method using a polymeric nitrosyl-complex of molybdenum(II) as molybdenum source without employing catalysts, surfactants, or templates. The possible reaction pathway is decomposition and oxidation of the complex to the polymolybdate and then surface condensation on the energetically favorable 001] direction in the initially formed nuclei of solid alpha-MoO3 under hydrothermal conditions. Highly crystalline alpha-MoO3 nanofibers have grown along 001] with lengths up to several micrometres and widths ranging between 280 and 320 nm. The alpha-MoO3 nanofibers exhibit desirable electrochemical properties such as high capacity reversibility as a cathode material of a Li-ion battery.

Electrochemically deposited crystalline thin film of polyaniline on nickel for redox reactions at positive potentials

Redox reactions which occur at positive potentials such as ferrous/ferric, hydroquinone/quinone, ferrocyanide/ferricyanide etc. in aqueous acidic electrolytes cannot be studied on non-platinum metals, for example, a Ni electrode. On the contrary, these reactions occur on polyaniline (PANI) modified Ni electrodes, as evidenced from cyclic voltammetry, amperometry and steady-state polarization experiments. Under identical experimental conditions of scan rate (v) and concentration (C), the peak current density (i(p)) values of Fe2+/Fe3+ redox reaction are greater on the PANI modified Ni than on Pt. Additionally, the peak potential separation (DeltaE(p)) of the voltammogram is lesser on the PANI modified Ni. With an increase in thickness of the PANI, DeltaE(p) increases suggesting that the redox reactions tend to depart from the reversibility. Scanning electron micrographs reveal the presence of a crystalline deposit of PANI on Ni when the thickness of PANI is about 0.08 mum. However, the PANI becomes amorphous and porous at higher thickness values. Raman spectroscopy and X-ray diffraction studies corroborate the observations made out of scanning electron microscopy. Higher catalytic activity of PANI is attributed to crystalline nature of PANI on Ni. Exchange current density and standard rate constant of Fe2+/Fe(3+)redox reaction are evaluated. (C) 2002 Published by Elsevier Science B.V.

Electrochemical tuning and mechanical resilience of single-wall carbon nanotubes

Single-wall carbon nanotubes (SWNTs) are fascinating systems exhibiting many novel physical properties. In this paper, we give a brief review of the structural, electronic, vibrational, and mechanical properties of carbon nanotubes. In situ resonance Raman scattering of SWNTs investigated under electrochemical biasing demonstrates that the intensity of the radial breathing mode varies significantly in a nonmonotonic manner as a function of the cathodic bias voltage, but does not change appreciably under anodic bias. These results can be quantitatively understood in terms of the changes in the energy gaps between the 1 D van Hove singularities in the electron density of states, arising possibly due to the alterations in the overlap integral of pi bonds between the p-orbitals of the adjacent carbon atoms. In the second part of this paper, we review our high-pressure X-ray diffraction results, which show that the triangular lattice of the carbon nanotube bundles continues to persist up to similar to10 GPa. The lattice is seen to relax just before the phase transformation, which is observed at similar to10 GPa. Further, our results display the reversibility of the 2D lattice symmetry even after compression up to 13 GPa well beyond the 5 GPa value observed recently. These experimental results explicitly validate the predicted remarkable mechanical resilience of the nanotubes.

Role of Management Decision Variables in Determining Technology Progress and Technical Efficiency in Indian Electronic Industry

This paper analyses the influence of management on Technical Efficiency Change (TEC) and Technological Progress (TP) in the communication equipment and consumer electronics sub-sectors of Indian hardware electronics industry. Each sub-sector comprises 13 sample firms for two time periods.The primary objective is to determine the relative contribution of TP and TEC to TFP Growth (TFPG) and to establish the influence of firm specific operational management decision variables on these two components. The study finds that both the sub-sectors have strived and achieved steady TP but not TEC in the period of economic liberalisation to cope with the intensifying competition. The management decisions with respect to asset and profit utilization, vertical integration, among others, improved TP and TE in the sub-sectors. However, R&D investments and technology imports proved costly for TFP indicating inadequate efforts and/or poor resource utilisation by the management. Management was found to be complacent in terms of improving or developing their own technology as indicated by their higher dependence on import of raw materials and no influence of R&D on TP.

Direct evidence of redox interaction between metal ion and support oxide in Ce(0.98)Pd(0.02)O(2-delta) by a combined electrochemical and XPS study

A combined electrochemical method and X-ray photo electron spectroscopy (XPS) has been utilized to understand the Pd(2+)/CeO(2) interaction in Ce(1-x)Pd(x)O(2-delta) (x = 0.02). A constant positive potential (chronoamperometry) is applied to Ce(0.98)Pd(0.02)O(2-delta) working electrode which causes Ce(4+) to reduce to Ce(3+) to the extent of similar to 35%, while Pd remains in the +2 oxidation state. Electrochemically cycling this electrode between 0.0-1.2 V reverts back to the original state of the catalyst. This reversibility is attributed to the reversible reduction of Ce(4+) to Ce(3+) state. CeO(2) electrode with no metal component reduces to CeO(2-y) (y similar to 0.4) after applying 1.2 V which is not reversible and the original composition of CeO(2) cannot be brought back in any electrochemical condition. During the electro-catalytic oxygen evolution reaction at a constant 1.2 V for 1000 s, Ce(0.98)Pd(0.02)O(2-delta) reaches a steady state composition with Pd in the +2 states and Ce(4+) : Ce(3+) in the ratio of 0.65 : 0.35. This composition can be denoted as Ce(0.63)(4+)Ce(0.35)(4+)Pd(0.02)O(2-delta-y) (y similar to 0.17). When pure CeO(2) is put under similar electrochemical condition, it never reaches the steady state composition and reduces almost to 85%. Thus, Ce(0.98)Pd(0.02)O(2-delta) forms a stable electrode for the electro-oxidation of H(2)O to O(2) unlike CeO(2) due to the metal support interaction.