Three essays on the psychology of investment and financial markets

Préface My thesis consists of three essays where I consider equilibrium asset prices and investment strategies when the market is likely to experience crashes and possibly sharp windfalls. Although each part is written as an independent and self contained article, the papers share a common behavioral approach in representing investors preferences regarding to extremal returns. Investors utility is defined over their relative performance rather than over their final wealth position, a method first proposed by Markowitz (1952b) and by Kahneman and Tversky (1979), that I extend to incorporate preferences over extremal outcomes. With the failure of the traditional expected utility models in reproducing the observed stylized features of financial markets, the Prospect theory of Kahneman and Tversky (1979) offered the first significant alternative to the expected utility paradigm by considering that people focus on gains and losses rather than on final positions. Under this setting, Barberis, Huang, and Santos (2000) and McQueen and Vorkink (2004) were able to build a representative agent optimization model which solution reproduced some of the observed risk premium and excess volatility. The research in behavioral finance is relatively new and its potential still to explore. The three essays composing my thesis propose to use and extend this setting to study investors behavior and investment strategies in a market where crashes and sharp windfalls are likely to occur. In the first paper, the preferences of a representative agent, relative to time varying positive and negative extremal thresholds are modelled and estimated. A new utility function that conciliates between expected utility maximization and tail-related performance measures is proposed. The model estimation shows that the representative agent preferences reveals a significant level of crash aversion and lottery-pursuit. Assuming a single risky asset economy the proposed specification is able to reproduce some of the distributional features exhibited by financial return series. The second part proposes and illustrates a preference-based asset allocation model taking into account investors crash aversion. Using the skewed t distribution, optimal allocations are characterized as a resulting tradeoff between the distribution four moments. The specification highlights the preference for odd moments and the aversion for even moments. Qualitatively, optimal portfolios are analyzed in terms of firm characteristics and in a setting that reflects real-time asset allocation, a systematic over-performance is obtained compared to the aggregate stock market. Finally, in my third article, dynamic option-based investment strategies are derived and illustrated for investors presenting downside loss aversion. The problem is solved in closed form when the stock market exhibits stochastic volatility and jumps. The specification of downside loss averse utility functions allows corresponding terminal wealth profiles to be expressed as options on the stochastic discount factor contingent on the loss aversion level. Therefore dynamic strategies reduce to the replicating portfolio using exchange traded and well selected options, and the risky stock.

Optimal feedback control rules sensitive to controlled endogenous risk-aversion

The objective of this paper is to correct and improve the results obtained by Van der Ploeg (1984a, 1984b) and utilized in the theoretical literature related to feedback stochastic optimal control sensitive to constant exogenous risk-aversion (see, Jacobson, 1973, Karp, 1987 and Whittle, 1981, 1989, 1990, among others) or to the classic context of risk-neutral decision-makers (see, Chow, 1973, 1976a, 1976b, 1977, 1978, 1981, 1993). More realistic and attractive, this new approach is placed in the context of a time-varying endogenous risk-aversion which is under the control of the decision-maker. It has strong qualitative implications on the agent's optimal policy during the entire planning horizon.

The generic Hanna Neumann conjecture and post correspondence problem

"Vegeu el resum a l'inici del document del fitxer adjunt."

Cancer du sein chez la jeune femme: traitements adjuvants et désir de grossesse [Breast cancer in young women: adjuvant therapy and fertility]

Prognosis of breast cancer women has been dramatically improved by the adjuvant therapies. As the vast majority of patients are cured, the importance of long-term quality of life is growing. The question of the maternity is an essential concern for the young women who have to receive chemotherapy or several years of endocrine therapy. This problem is often underestimated and may lead to emotional distress, depression or anxiety. A regional multidisciplinary working group was set up in order to offer optimal information about fertility and cancer as to propose specific therapeutic reproduction options, when applicable. Specificity of the young patients' breast cancer, the treatment approaches and their impact on fertility are discussed in this paper.

Combined clonotyping and gene signatures of individual tumor-reactive CD8 T-cells define their functional relevance following peptide vaccination in melanoma patients

Novel cancer vaccines are capableto efficiently induce and boost humantumor antigen specific T-cells. However,the properties of these CD8T-cells are only partially characterized.For in depth investigation ofT-cells following Melan-A/MART-1peptide vaccination in melanoma patients,we conducted a detailed prospectivestudy at the single cell level.We first sorted individual human naiveand effector CD8 T-cells from peripheralblood by flow cytometry, andtested a modified RT-PCR protocolincluding a global amplification ofexpressed mRNAs to obtain sufficientcDNAfromsingle cells.We successfullydetected the expression ofseveral specific genes of interest evendown to 106-fold dilution (equivalentto 10-5 cell). We then analyzed tumor-specific effector memory (EM)CD8T-cell subpopulations ex vivo, assingle cells from vaccinated melanomapatients. To elucidate the hallmarksof effective immunity the genesignatures were defined by a panel ofgenes related to effector functions(e.g. IFN-, granzyme B, perforin),and individual clonotypes were identifiedaccording to the expression ofdistinct T-cell receptors (TCR). Usingthis novel single cell analysis approach,we observed that T-cell differentiationis clonotype dependent,with a progressive restriction in TCRBV clonotype diversity from EMCD28pos to EMCD28neg subsets. However,the effector function gene imprintingis clonotype-independent,but dependent on differentiation,since it correlates with the subset oforigin (EMCD28pos or EMCD28neg). We also conducted a detailedcomparative analysis after vaccinationwith natural vs. analog Melan-Apeptide. We found that the peptideused for vaccination determines thefunctional outcome of individualT-cell clonotypes, with native peptideinducing more potent effector functions.Yet, selective clonotypic expansionwith differentiation was preservedregardless of the peptide usedfor vaccination. In summary, the exvivo single cell RT-PCR approach ishighly sensitive and efficient, andrepresents a reliable and powerfultool to refine our current view of molecularprocesses taking place duringT-cell differentiation.

Immuno-reactive proteins from Mycobacterium immunogenum useful for serodiagnosis of metalworking fluid hypersensitivity pneumonitis.

Metalworking fluid-associated hypersensitivity pneumonitis (MWF-HP) is a pulmonary disease caused by inhaling microorganisms present in the metalworking fluids used in the industrial sector. Mycobacterium immunogenum is the main etiological agent. Among the clinical, radiological and biological tools used for diagnosis, serological tests are important. The aim of this study was to identify immunogenic proteins in M. immunogenum and to use recombinant antigens for serological diagnosis of MWF-HP. Immunogenic proteins were detected by two-dimensional Western blot and candidate proteins were identified by mass spectrometry. Recombinant antigens were expressed in Escherichia coli and tested by enzyme-linked immunosorbent assay (ELISA) with the sera of 14 subjects with MWF-HP and 12 asymptomatic controls exposed to M. immunogenum. From the 350 spots visualized by two-dimensional gel electrophoresis with M. immunogenum extract, 6 immunogenic proteins were selected to be expressed as recombinant antigens. Acyl-CoA dehydrogenase antigen allowed for the best discrimination of MWF-HP cases against controls with an area under the receiver operating characteristics (ROC) curve of 0.930 (95% CI=0.820-1), a sensitivity of 100% and a specificity of 83% for the optimum threshold. Other recombinant antigens correspond to acyl-CoA dehydrogenase FadE, cytosol aminopeptidase, dihydrolipoyl dehydrogenase, serine hydroxymethyltransferase and superoxide dismutase. This is the first time that recombinant antigens have been used for the serodiagnosis of hypersensitivity pneumonitis. The availability of recombinant antigens makes it possible to develop standardized serological tests which in turn could simplify diagnosis, thus making it less invasive.

Reactive and proactive approaches for introspective CBR

This work investigates applying introspective reasoning to improve the performance of Case-Based Reasoning (CBR) systems, in both reactive and proactive fashion, by guiding learning to improve how a CBR system applies its cases and by identifying possible future system deficiencies. First we present our reactive approach, a new introspective reasoning model which enables CBR systems to autonomously learn to improve multiple facets of their reasoning processes in response to poor quality solutions. We illustrate our model’s benefits with experimental results from tests in an industrial design application. Then as for our proactive approach, we introduce a novel method for identifying regions in a case-base where the system gives low confidence solutions to possible future problems. Experimentation is provided for Zoology and Robo-Soccer domains and we argue how encountered regions of dubiosity help us to analyze the case-bases of a given CBR system.

Optimal Monetary Policy in a New Keynesian Model with Habits in Consumption

While consumption habits have been utilised as a means of generating a humpshaped output response to monetary policy shocks in sticky-price New Keynesian economies, there is relatively little analysis of the impact of habits (particularly,external habits) on optimal policy. In this paper we consider the implications of external habits for optimal monetary policy, when those habits either exist at the level of the aggregate basket of consumption goods (‘superficial’ habits) or at the level of individual goods (‘deep’ habits: see Ravn, Schmitt-Grohe, and Uribe (2006)). External habits generate an additional distortion in the economy, which implies that the flex-price equilibrium will no longer be efficient and that policy faces interesting new trade-offs and potential stabilisation biases. Furthermore, the endogenous mark-up behaviour, which emerges when habits are deep, can also significantly affect the optimal policy response to shocks, as well as dramatically affecting the stabilising properties of standard simple rules.

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).

Sex difference and the role of leptin in the association between high-sensitivity C-reactive protein and adiposity in two different populations.

Elevated high-sensitivity C-reactive protein (hs-CRP) concentration is associated with an increased risk of cardiovascular disease but this association seems to be largely mediated via conventional cardiovascular risk factors. In particular, the association between hs-CRP and obesity has been extensively demonstrated and correlations are stronger in women than men. We used fractional polynomials-a method that allows flexible modeling of non linear relations-to investigate the dose/response mathematical relationship between hs-CRP and several indicators of adiposity in Caucasians (Switzerland) and Africans (Seychelles) surveyed in two population-based studies. This relationship was non-linear exhibiting a steeper slope for low levels of hs-CRP and a higher level in women. The observed sex difference in the relationship between hs-CRP and adiposity almost disappeared upon adjustment for leptin, suggesting that these sex differences might be partially mediated, by leptin. All these relationship were similar in Caucasians and Africans. This is the first report on a non-linear relation, stratified by gender, between hs-CRP and adiposity.

Optimal Climate Change Policies When Governments Cannot Commit

This paper examines the optimal design of climate change policies in the context where governments want to encourage the private sector to undertake significant immediate investment in developing cleaner technologies, but the carbon taxes and other environmental policies that could in principle stimulate such investment will be imposed over a very long future. The conventional claim by environmental economists is that environmental policies alone are sufficient to induce firms to undertake optimal investment. However this argument requires governments to be able to commit to these future taxes, and it is far from clear that governments have this degree of commitment. We assume instead that governments cannot commit, and so both they and the private sector have to contemplate the possibility of there being governments in power in the future that give different (relative) weights to the environment. We show that this lack of commitment has a significant asymmetric effect. Compared to the situation where governments can commit it increases the incentive of the current government to have the investment undertaken, but reduces the incentive of the private sector to invest. Consequently governments may need to use additional policy instruments – such as R&D subsidies – to stimulate the required investment.