Stochastic volatility jump-diffusions for European equity index dynamics

Major research on equity index dynamics has investigated only US indices (usually the S&P 500) and has provided contradictory results. In this paper a clarification and extension of that previous research is given. We find that European equity indices have quite different dynamics from the S&P 500. Each of the European indices considered may be satisfactorily modelled using either an affine model with price and volatility jumps or a GARCH volatility process without jumps. The S&P 500 dynamics are much more difficult to capture in a jump-diffusion framework.

The effect of asymmetries on stock index return value-at-risk estimates

It is widely accepted that equity return volatility increases more following negative shocks rather than positive shocks. However, much of value-at-risk (VaR) analysis relies on the assumption that returns are normally distributed (a symmetric distribution). This article considers the effect of asymmetries on the evaluation and accuracy of VaR by comparing estimates based on various models.

Environmental evaluation of agri-environment schemes using participatory approaches: experiences of testing the Agri-Environmental Footprint Index

The Agri-Environment Footprint Index (AFI) has been developed as a generic methodology to assess changes in the overall environmental impacts from agriculture at the farm level and to assist in the evaluation of European agri-environmental schemes (AES). The methodology is based on multicriteria analysis (MCA) and involves stakeholder participation to provide a locally customised evaluation based on weighted environmental indicators. The methodology was subjected to a feasibility assessment in a series of case studies across the EU. The AFI approach was able to measure significant differences in environmental status between farms that participated in an AES and nonparticipants. Wider environmental concerns, beyond the scheme objectives, were also considered in some case studies and the benefits for identification of unintentional (and often beneficial) impacts of AESs are presented. The participatory approach to AES valuation proved efficient in different environments and administrative contexts. The approach proved to be appropriate for environmental evaluation of complex agri-environment systems and can complement any evaluation conducted under the Common Monitoring and Evaluation Framework. The applicability of the AFI in routine monitoring of AES impacts and in providing feedback to improve policy design is discussed.

A simplified pricing model for volatility futures

We develop a general model to price VIX futures contracts. The model is adapted to test both the constant elasticity of variance (CEV) and the Cox–Ingersoll–Ross formulations, with and without jumps. Empirical tests on VIX futures prices provide out-of-sample estimates within 2% of the actual futures price for almost all futures maturities. We show that although jumps are present in the data, the models with jumps do not typically outperform the others; in particular, we demonstrate the important benefits of the CEV feature in pricing futures contracts. We conclude by examining errors in the model relative to the VIX characteristics

Persistence of volatility in futures markets

This article examines the characteristics of key measures of volatility for different types of futures contracts to provide a better foundation for modeling volatility behavior and derivative values. Particular attention is focused on analyzing how different measures of volatility affect volatility persistence relationships. Intraday realized measures of volatility are found to be more persistent than daily measures, the type of GARCH procedure used for conditional volatility analysis is critical, and realized volatility persistence is not coherent with conditional volatility persistence. Specifically, although there is a good fit between the realized and conditional volatilities, no coherence exists between their degrees of persistence, a counterintuitive finding that shows realized and conditional volatility measures are not a substitute for one another

Modelling the implied volatility of options on long gilt futures

This paper investigates the properties of implied volatility series calculated from options on Treasury bond futures, traded on LIFFE. We demonstrate that the use of near-maturity at the money options to calculate implied volatilities causes less mis-pricing and is therefore superior to, a weighted average measure encompassing all relevant options. We demonstrate that, whilst a set of macroeconomic variables has some predictive power for implied volatilities, we are not able to earn excess returns by trading on the basis of these predictions once we allow for typical investor transactions costs.

Identifying barriers and opportunities for transitions towards more sustainable agriculture through system analysis: the case of Vereda La Hoya, Colombia

The paper presents the results of studies which investigated farmers’ reasoning and behaviour with regards to the mis‐use of personal protective equipment and pesticide among smallholders in Colombia. First, the research approach is described. In particular, the structured mental models approach and the integrative agent‐centred framework are presented. These approaches permit to understand the farmers’ reasoning and behaviour in a system perspective. Second, the results are summarized. The methods adopted allowed not only for identifying the factors, but also the social dynamics influencing farmers. Finally, suggestions for interventions are provided, which are not limited to a technical fix, but address the underlying social causes of the problem.

An analysis of commercial real estate returns: an anatomy of smoothing in asset and index returns

In this article, we investigate the commonly used autoregressive filter method of adjusting appraisal-based real estate returns to correct for the perceived biases induced in the appraisal process. Many articles have been written on appraisal smoothing but remarkably few have considered the relationship between smoothing at the individual property level and the amount of persistence in the aggregate appraisal-based index. To investigate this issue we analyze a large sample of appraisal data at the individual property level from the Investment Property Databank. We find that commonly used unsmoothing estimates at the index level overstate the extent of smoothing that takes place at the individual property level. There is also strong support for an ARFIMA representation of appraisal returns at the index level and an ARMA model at the individual property level.

Societal choice for climate change futures: trees, biotechnology and clean development

The rate and magnitude of predicted climate change require that we urgently mitigate emissions or sequester carbon on a substantial scale in order to avoid runaway climate change. Geo- and bioengineering solutions are increasingly proposed as viable and practical strategies for tackling global warming. Biotechnology companies are already developing transgenic “super carbon-absorbing” trees, which are sold as a cost-effective and relatively low-risk means of sequestering carbon. The question posed in this article is, Do super carbon trees provide real benefits or are they merely a fanciful illusion? It remains unclear whether growing these trees makes sense in terms of the carbon cost of production and the actual storage of carbon. In particular, it is widely acknowledged that “carbon-eating” trees fail to sequester as much carbon as they oxidize and return to the atmosphere; moreover, there are concerns about the biodiversity impacts of large-scale monoculture plantations. The potential social and ecological risks and opportunities presented by such controversial solutions warrant a societal dialogue.

Reforming the CDM for sustainable development: lessons learned and policy futures

The Clean Development Mechanism (CDM) has successfully demonstrated that market-based mechanisms can achieve some cost effective emissions reductions in developing countries. However the distribution of CDM projects has been extremely uneven across countries and regions, and a few technologies and sectors have dominated the early stages of CDM experience. This has caused some to question whether the CDM has fallen short of its potential in contributing to sustainable development. We review the broad patterns of CDM project approvals and evaluate 10 CDM projects according to their sustainability benefits. The difficulty of defining “sustainable development” and the process of defining criteria by individual non-Annex 1 governments has meant that sustainable development concerns have been marginalized in some countries. Given these observed limitations, we present possible CDM policy futures, focusing on the main proposals for a post-2012 climate regime. Five options for enhancing the sustainable development benefits in the CDM are discussed, including proactive approaches to favour eligibility of emission reduction projects which ensure such co-benefits.