Dynamic Option Adjusted Spread and the Value of Mortgage Backed Securities (Draft 1)

We extend a reduced form model for pricing pass-through mortgage backed securities (MBS) and provide a novel hedging tool for investors in this market. To calculate the price of an MBS, traders use what is known as option-adjusted spread (OAS). The resulting OAS value represents the required basis points adjustment to reference curve discounting rates needed to match an observed market price. The OAS suffers from some drawbacks. For example, it remains constant until the maturity of the bond (thirty years in mortgage-backed securities), and does not incorporate interest rate volatility. We suggest instead what we call dynamic option adjusted spread (DOAS). The latter allows investors in the mortgage market to account for both prepayment risk and changes of the yield curve.

China´s new labour contract law: no harm to employment?

In January 2008, China imposed a new labour contract law. This new law is the most significant reform to the law of employment relations in mainland China in more than a decade. The paper provides a theoretical framework on the inter-linkages between labour market regulation, option value and the choice and timing of employment. All in all, the paper demonstrates that the Labour Contract Law in it´s own right will have only small impacts upon employment in the fast-growing Chinese economy. On the contrary, induced increasing unit labour costs represent the real issue and may reduce employment.

Structural Breaks in the Real Exchange Rate and Real Interest Rate Relationship

In this paper we empirically examine the relationship between the real exchange rate and real interest rate differentials using recent econometric methods robust to potential structural breaks. Generally, our study provides evidence of this relationship in the long-run context. More specifically, we first focus on the UK-US relationship, and interestingly find limited evidence of this long-run relationship using traditional methods. But when an approach robust to endogenously determined structural breaks is employed, we find evidence that the real interest rate differential is an important determinant of the real exchange rate. Secondly, in order to investigate the relevance of structural shifts in a more global context, we carry out multiple country analysis. While providing evidence of this long-run relationship, European data suggest that the presence of structural breaks is not very common across countries and is indeed country-specific.

Dynamic Option Adjusted Spread and the Value of Mortgage Backed Securities (Draft 2)

We extend a reduced form model for pricing pass-through mortgage backed securities (MBS) and provide a novel hedging tool for investors in this market. To calculate the price of an MBS, traders use what is known as option-adjusted spread (OAS). The resulting OAS value represents the required basis points adjustment to reference curve discounting rates needed to match an observed market price. The OAS suffers from some drawbacks. For example, it remains constant until the maturity of the bond (thirty years in mortgage-backed securities), and does not incorporate interest rate volatility. We suggest instead what we call dynamic option adjusted spread (DOAS), which allows investors in the mortgage market to account for both prepayment risk and changes of the yield curve.

A New Test of the Real Interest Rate Parity Hypothesis: Bounds Approach and Structural Breaks

We test the real interest rate parity hypothesis using data for the G7 countries over the period 1970-2008. Our contribution is two-fold. First, we utilize the ARDL bounds approach of Pesaran et al. (2001) which allows us to overcome uncertainty about the order of integration of real interest rates. Second, we test for structural breaks in the underlying relationship using the multiple structural breaks test of Bai and Perron (1998, 2003). Our results indicate significant parameter instability and suggest that, despite the advances in economic and financial integration, real interest rate parity has not fully recovered from a breakdown in the 1980s.

Optimal Martingales and American Option Pricing

Pricing American options is an interesting research topic since there is no analytical solution to value these derivatives. Different numerical methods have been proposed in the literature with some, if not all, either limited to a specific payoff or not applicable to multidimensional cases. Applications of Monte Carlo methods to price American options is a relatively new area that started with Longstaff and Schwartz (2001). Since then, few variations of that methodology have been proposed. The general conclusion is that Monte Carlo estimators tend to underestimate the true option price. The present paper follows Glasserman and Yu (2004b) and proposes a novel Monte Carlo approach, based on designing "optimal martingales" to determine stopping times. We show that our martingale approach can also be used to compute the dual as described in Rogers (2002).

Felodipine-metoprolol combination tablet: a valuable option to initiate antihypertensive therapy?

The aim of the present study was to assess the efficacy and tolerability of a calcium antagonist/beta-blocker fixed combination tablet used as first-line antihypertesnive therapy in comparison with an angiotensin converting enzyme inhibitor and placebo. Patients with uncomplicated essential hypertension (diastolic blood pressure between 95 and 110 mm Hg at the end of a 4-week run-in period) were randomly allocated to a double-blind, 12-week treatment with either a combination tablet of felodipine and metoprolol (Logimax), 5/50 mg daily (n = 321), enalapril, 10 mg daily (n = 321), or placebo (n = 304), with the possibility of doubling the dose after 4 or 8 weeks of treatment if needed (diastolic blood pressure remaining >90 mm Hg). The combined felodipine-metoprolol treatment controlled blood pressure (diastolic < or =90 mm Hg 24 h after dose) in 72% of patients after 12 weeks, as compared with 49% for enalapril and 30% for placebo. A dose adjustment was required in 38% of patients receiving the combination, in 63% of patients allocated to placebo, and 61% of enalapril-treated patients. The overall incidence of adverse events was 54.5% during felodipine-metoprolol treatment; the corresponding values for enalapril and placebo were 51.7% and 47.4%, respectively. Withdrawal of treatment due to adverse events occurred in 18 patients treated with the combination, in 10 patients on enalapril, and 12 patients on placebo. No significant change in patients' well-being was observed in either of the three study groups. These results show that a fixed combination tablet of felodipine and metoprolol allows to normalize blood pressure in a substantially larger fraction of patients than enalapril given alone. This improved efficacy is obtained without impairing the tolerability. The fixed-dose combination of felodipine and metoprolol, therefore, may become a valuable option to initiate antihypertensive treatment.

A Panel Data Investigation of Real Exchange Rate Misalignment and Growth

The paper investigates the role of real exchange rate misalignment on long-run growth for a set of ninety countries using time series data from 1980 to 2004. We first estimate a panel data model (using fixed and random effects) for the real exchange rate, with different model specifications, in order to produce estimates of the equilibrium real exchange rate and this is then used to construct measures of real exchange rate misalignment. We also provide an alternative set of estimates of real exchange rate misalignment using panel cointegration methods. The variables used in our real exchange rate models are: real per capita GDP; net foreign assets; terms of trade and government consumption. The results for the two-step System GMM panel growth models indicate that the coefficients for real exchange rate misalignment are positive for different model specification and samples, which means that a more depreciated (appreciated) real exchange rate helps (harms) long-run growth. The estimated coefficients are higher for developing and emerging countries.

The Changing Inter-Industry Wage Structure of the Organised Manufacturing Sector in India, 1973-74 to 2003-04

This study examines the inter-industry wage structure of the organised manufacturing sector in India for the period 1973-74 to 2003-04 by estimating the growth of average real wages for production workers by industry. In order to estimate the growth rates, the study adopts a methodological framework that differs from other studies in that the time series properties of the concerned variables are closely considered in order to obtain meaningful estimates of growth that are unbiased and (asymptotically) efficient. Using wage data on 51 manufacturing industries at three digit level of the National Industrial Classification 1998 (India), our estimation procedure obtains estimates of growth of real wages per worker that are deterministic in nature by accounting for any potential structural break(s). Our findings show that the inter-industry wage structure in India has changed a lot in the period 1973-74 to 2003-04 and that it provides some evidence that the inter-industry wage differences have become more pronounced in the post-reforms period. Thus this paper provides new evidence from India on the need to consider the hypothesis that industry affiliation is potentially an important determinant of wages when studying any relationship between reforms and wages.

Regiones salientes complejas para aplicaciones de seguimiento facial

Este trabajo presenta una metodología para detectar y realizar el seguimiento de características faciales. En el primer paso del procedimiento se detectan caras mediante Adaboost con cascadas de clasificadores débiles. El segundo paso busca las características internas de la cara mediante el CSR, detectando zonas de interés. Una vez que estas características se capturan, un proceso de tracking basado en el descriptor SIFT, que hemos llamado pseudo-SIFT, es capaz de guardar información sobre la evolución de movimiento en las regiones detectadas. Además, un conjunto de datos públicos ha sido desarrollado con el propósito de compartirlo con otras investigaciones sobre detección, clasificación y tracking. Experimentos reales muestran la robustez de este trabajo y su adaptabilidad para trabajos futuros.

Convergencia real y envejecimiento: retos y propuestas

España se enfrenta en las próximas décadas a dos grandes retos económicos y sociales: completar el proceso de convergencia en renta y bienestar con los países de nuestro entorno y asegurar la sostenibilidad del Estado del bienestar en un contexto demográfico desfavorable. La superación de estos retos exigirá reformas en muchos ámbitos para cuya implementación sería muy deseable contar con un amplio consenso político y social. Tras examinar la situación actual de la economía española y su evolución durante las últimas décadas desde una perspectiva comparada con la OCDE, en el presente trabajo se examinan las reformas necesarias en tres ámbitos que consideramos cruciales: educación, mercados de trabajo y de bienes y servicios, y sistema de pensiones.

Leading indicator properties of US high-yield credit spreads

In this paper we examine the out-of-sample forecast performance of high-yield credit spreads regarding real-time and revised data on employment and industrial production in the US. We evaluate models using both a point forecast and a probability forecast exercise. Our main findings suggest the use of few factors obtained by pooling information from a number of sector-specific high-yield credit spreads. This can be justified by observing that, especially for employment, there is a gain from using a principal components model fitted to high-yield credit spreads compared to the prediction produced by benchmarks, such as an AR, and ARDL models that use either the term spread or the aggregate high-yield spread as exogenous regressor. Moreover, forecasts based on real-time data are generally comparable to forecasts based on revised data. JEL Classification: C22; C53; E32 Keywords: Credit spreads; Principal components; Forecasting; Real-time data.

Scheduled Service Versus Personal Transportation: The Role of Distance

This paper presents a theoretical and empirical analysis of the relationship be- tween frequency of scheduled transportation services and their substitutability with personal transportation (using distance as a proxy). We study the interaction between a monopoly firm providing a high-speed scheduled service and private transportation (i.e., car). Interestingly, the carrier chooses to increase the frequency of service on longer routes when competing with personal transportation because by providing higher frequency (at extra cost) it can also charge higher fares which can boost its profits. However, in line with the results of earlier studies, frequency decreases for longer flights when driving is not a viable option. An empirical application of our analysis to the European airline industry confirms the predictions of our theoretical model. Keywords: short-haul routes; long-haul routes; flight frequency; distance JEL Classification Numbers: L13; L2; L93

Co-movements in Real Effective Exchange Rates: Evidence from the Dynamic Hierarchical Factor Model

We analyze and quantify co-movements in real effective exchange rates while considering the regional location of countries. More specifically, using the dynamic hierarchical factor model (Moench et al. (2011)), we decompose exchange rate movements into several latent components; worldwide and two regional factors as well as country-specific elements. Then, we provide evidence that the worldwide common factor is closely related to monetary policies in large advanced countries while regional common factors tend to be captured by those in the rest of the countries in a region. However, a substantial proportion of the variation in the real exchange rates is reported to be country-specific; even in Europe country-specific movements exceed worldwide and regional common factors.