Estimating and forecasting the volatility of Brazilian finance series using arch models (Preliminary Version)

The goal of this paper is to present a comprehensive emprical analysis of the return and conditional variance of four Brazilian …nancial series using models of the ARCH class. Selected models are then compared regarding forecasting accuracy and goodness-of-…t statistics. To help understanding the empirical results, a self-contained theoretical discussion of ARCH models is also presented in such a way that it is useful for the applied researcher. Empirical results show that although all series share ARCH and are leptokurtic relative to the Normal, the return on the US$ has clearly regime switching and no asymmetry for the variance, the return on COCOA has no asymmetry, while the returns on the CBOND and TELEBRAS have clear signs of asymmetry favoring the leverage e¤ect. Regarding forecasting, the best model overall was the EGARCH(1; 1) in its Gaussian version. Regarding goodness-of-…t statistics, the SWARCH model did well, followed closely by the Student-t GARCH(1; 1)

Hedging options in a garch environment: testing the term structure of stochastic volatility models

This paper develops a methodology for testing the term structure of volatility forecasts derived from stochastic volatility models, and implements it to analyze models of S&P500 index volatility. U sing measurements of the ability of volatility models to hedge and value term structure dependent option positions, we fmd that hedging tests support the Black-Scholes delta and gamma hedges, but not the simple vega hedge when there is no model of the term structure of volatility. With various models, it is difficult to improve on a simple gamma hedge assuming constant volatility. Ofthe volatility models, the GARCH components estimate of term structure is preferred. Valuation tests indicate that all the models contain term structure information not incorporated in market prices.

Non- parametric specification tests for conditional duration models

This paper deals with the estimation and testing of conditional duration models by looking at the density and baseline hazard rate functions. More precisely, we foeus on the distance between the parametric density (or hazard rate) function implied by the duration process and its non-parametric estimate. Asymptotic justification is derived using the functional delta method for fixed and gamma kernels, whereas finite sample properties are investigated through Monte Carlo simulations. Finally, we show the practical usefulness of such testing procedures by carrying out an empirical assessment of whether autoregressive conditional duration models are appropriate to oIs for modelling price durations of stocks traded at the New York Stock Exchange.

Simulation-based smoothing and filtering in factor stochastic volatility models : two econometric applications

In this article we use factor models to describe a certain class of covariance structure for financiaI time series models. More specifical1y, we concentrate on situations where the factor variances are modeled by a multivariate stochastic volatility structure. We build on previous work by allowing the factor loadings, in the factor mo deI structure, to have a time-varying structure and to capture changes in asset weights over time motivated by applications with multi pIe time series of daily exchange rates. We explore and discuss potential extensions to the models exposed here in the prediction area. This discussion leads to open issues on real time implementation and natural model comparisons.

Simulation -based smoothing and filtering in factor stochastic volatility models : two econometric applications (July-2001)

The past decade has wítenessed a series of (well accepted and defined) financial crises periods in the world economy. Most of these events aI,"e country specific and eventually spreaded out across neighbor countries, with the concept of vicinity extrapolating the geographic maps and entering the contagion maps. Unfortunately, what contagion represents and how to measure it are still unanswered questions. In this article we measure the transmission of shocks by cross-market correlation\ coefficients following Forbes and Rigobon's (2000) notion of shift-contagion,. Our main contribution relies upon the use of traditional factor model techniques combined with stochastic volatility mo deIs to study the dependence among Latin American stock price indexes and the North American indexo More specifically, we concentrate on situations where the factor variances are modeled by a multivariate stochastic volatility structure. From a theoretical perspective, we improve currently available methodology by allowing the factor loadings, in the factor model structure, to have a time-varying structure and to capture changes in the series' weights over time. By doing this, we believe that changes and interventions experienced by those five countries are well accommodated by our models which learns and adapts reasonably fast to those economic and idiosyncratic shocks. We empirically show that the time varying covariance structure can be modeled by one or two common factors and that some sort of contagion is present in most of the series' covariances during periods of economical instability, or crisis. Open issues on real time implementation and natural model comparisons are thoroughly discussed.

Options listing and the volatility of the underlying asset: a study on the derivative market function

Os mercados de derivativos são vistos com muita desconfiança por inúmeras pessoas. O trabalho analisa o efeito da introdução de opções sobre ações no mercado brasileiro buscando identificar uma outra justificativa para a existência destes mercados: a alteração no nível de risco dos ativos objetos destas opções. A evidência empírica encontrada neste mercado está de acordo com os resultados obtidos em outros mercados - a introdução de opções é benéfica para o investidor posto que reduz a volatilidade do ativo objeto. Existe também uma tênue indicação de que a volatilidade se torna mais estocástica com a introdução das opções.

Generalized partition function zeros of 1D spin models and their critical behavior at edge singularities

Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq)

Pricing in stochastic-local volatility models with default

In recent years is becoming increasingly important to handle credit risk. Credit risk is the risk associated with the possibility of bankruptcy. More precisely, if a derivative provides for a payment at cert time T but before that time the counterparty defaults, at maturity the payment cannot be effectively performed, so the owner of the contract loses it entirely or a part of it. It means that the payoff of the derivative, and consequently its price, depends on the underlying of the basic derivative and on the risk of bankruptcy of the counterparty. To value and to hedge credit risk in a consistent way, one needs to develop a quantitative model. We have studied analytical approximation formulas and numerical methods such as Monte Carlo method in order to calculate the price of a bond. We have illustrated how to obtain fast and accurate pricing approximations by expanding the drift and diffusion as a Taylor series and we have compared the second and third order approximation of the Bond and Call price with an accurate Monte Carlo simulation. We have analysed JDCEV model with constant or stochastic interest rate. We have provided numerical examples that illustrate the effectiveness and versatility of our methods. We have used Wolfram Mathematica and Matlab.

Identification of eight novel coagulation factor XIII subunit A mutations: implied consequences for structure and function

Severe hereditary coagulation factor XIII deficiency is a rare homozygous bleeding disorder affecting one person in every two million individuals. In contrast, heterozygous factor XIII deficiency is more common, but usually not associated with severe hemorrhage such as intracranial bleeding or hemarthrosis. In most cases, the disease is caused by F13A gene mutations. Causative mutations associated with the F13B gene are rarer.

Steady-state function of the ubiquitous mammalian Na/H exchanger (NHE1) in relation to dimer coupling models with 2Na/2H stoichiometry

We describe the steady-state function of the ubiquitous mammalian Na/H exchanger (NHE)1 isoform in voltage-clamped Chinese hamster ovary cells, as well as other cells, using oscillating pH-sensitive microelectrodes to quantify proton fluxes via extracellular pH gradients. Giant excised patches could not be used as gigaseal formation disrupts NHE activity within the patch. We first analyzed forward transport at an extracellular pH of 8.2 with no cytoplasmic Na (i.e., nearly zero-trans). The extracellular Na concentration dependence is sigmoidal at a cytoplasmic pH of 6.8 with a Hill coefficient of 1.8. In contrast, at a cytoplasmic pH of 6.0, the Hill coefficient is <1, and Na dependence often appears biphasic. Results are similar for mouse skin fibroblasts and for an opossum kidney cell line that expresses the NHE3 isoform, whereas NHE1(-/-) skin fibroblasts generate no proton fluxes in equivalent experiments. As proton flux is decreased by increasing cytoplasmic pH, the half-maximal concentration (K(1/2)) of extracellular Na decreases less than expected for simple consecutive ion exchange models. The K(1/2) for cytoplasmic protons decreases with increasing extracellular Na, opposite to predictions of consecutive exchange models. For reverse transport, which is robust at a cytoplasmic pH of 7.6, the K(1/2) for extracellular protons decreases only a factor of 0.4 when maximal activity is decreased fivefold by reducing cytoplasmic Na. With 140 mM of extracellular Na and no cytoplasmic Na, the K(1/2) for cytoplasmic protons is 50 nM (pH 7.3; Hill coefficient, 1.5), and activity decreases only 25% with extracellular acidification from 8.5 to 7.2. Most data can be reconstructed with two very different coupled dimer models. In one model, monomers operate independently at low cytoplasmic pH but couple to translocate two ions in "parallel" at alkaline pH. In the second "serial" model, each monomer transports two ions, and translocation by one monomer allosterically promotes translocation by the paired monomer in opposite direction. We conclude that a large fraction of mammalian Na/H activity may occur with a 2Na/2H stoichiometry.

Effect of fluid resuscitation on mortality and organ function in experimental sepsis models

Introduction Several recent studies have shown that a positive fluid balance in critical illness is associated with worse outcome. We tested the effects of moderate vs. high-volume resuscitation strategies on mortality, systemic and regional blood flows, mitochondrial respiration, and organ function in two experimental sepsis models. Methods 48 pigs were randomized to continuous endotoxin infusion, fecal peritonitis, and a control group (n = 16 each), and each group further to two different basal rates of volume supply for 24 hours [moderate-volume (10 ml/kg/h, Ringer's lactate, n = 8); high-volume (15 + 5 ml/kg/h, Ringer's lactate and hydroxyethyl starch (HES), n = 8)], both supplemented by additional volume boli, as guided by urinary output, filling pressures, and responses in stroke volume. Systemic and regional hemodynamics were measured and tissue specimens taken for mitochondrial function assessment and histological analysis. Results Mortality in high-volume groups was 87% (peritonitis), 75% (endotoxemia), and 13% (controls). In moderate-volume groups mortality was 50% (peritonitis), 13% (endotoxemia) and 0% (controls). Both septic groups became hyperdynamic. While neither sepsis nor volume resuscitation strategy was associated with altered hepatic or muscle mitochondrial complex I- and II-dependent respiration, non-survivors had lower hepatic complex II-dependent respiratory control ratios (2.6 +/- 0.7, vs. 3.3 +/- 0.9 in survivors; P = 0.01). Histology revealed moderate damage in all organs, colloid plaques in lung tissue of high-volume groups, and severe kidney damage in endotoxin high-volume animals. Conclusions High-volume resuscitation including HES in experimental peritonitis and endotoxemia increased mortality despite better initial hemodynamic stability. This suggests that the strategy of early fluid management influences outcome in sepsis. The high mortality was not associated with reduced mitochondrial complex I- or II-dependent muscle and hepatic respiration.

Cross-Country Evidence on Output Growth Volatility: Nonstationary Variance and GARCH Models

This paper revisits the issue of conditional volatility in real GDP growth rates for Canada, Japan, the United Kingdom, and the United States. Previous studies find high persistence in the volatility. This paper shows that this finding largely reflects a nonstationary variance. Output growth in the four countries became noticeably less volatile over the past few decades. In this paper, we employ the modified ICSS algorithm to detect structural change in the unconditional variance of output growth. One structural break exists in each of the four countries. We then use generalized autoregressive conditional heteroskedasticity (GARCH) specifications modeling output growth and its volatility with and without the break in volatility. The evidence shows that the time-varying variance falls sharply in Canada, Japan, and the U.K. and disappears in the U.S., excess kurtosis vanishes in Canada, Japan, and the U.S. and drops substantially in the U.K., once we incorporate the break in the variance equation of output for the four countries. That is, the integrated GARCH (IGARCH) effect proves spurious and the GARCH model demonstrates misspecification, if researchers neglect a nonstationary unconditional variance.

Folding protein models with a simple hydrophobic energy function: The fundamental importance of monomer inside/outside segregation

The present study explores a “hydrophobic” energy function for folding simulations of the protein lattice model. The contribution of each monomer to conformational energy is the product of its “hydrophobicity” and the number of contacts it makes, i.e., E(h⃗, c⃗) = −Σi=1N cihi = −(h⃗.c⃗) is the negative scalar product between two vectors in N-dimensional cartesian space: h⃗ = (h1, … , hN), which represents monomer hydrophobicities and is sequence-dependent; and c⃗ = (c1, … , cN), which represents the number of contacts made by each monomer and is conformation-dependent. A simple theoretical analysis shows that restrictions are imposed concomitantly on both sequences and native structures if the stability criterion for protein-like behavior is to be satisfied. Given a conformation with vector c⃗, the best sequence is a vector h⃗ on the direction upon which the projection of c⃗ − c̄⃗ is maximal, where c̄⃗ is the diagonal vector with components equal to c̄, the average number of contacts per monomer in the unfolded state. Best native conformations are suggested to be not maximally compact, as assumed in many studies, but the ones with largest variance of contacts among its monomers, i.e., with monomers tending to occupy completely buried or completely exposed positions. This inside/outside segregation is reflected on an apolar/polar distribution on the corresponding sequence. Monte Carlo simulations in two dimensions corroborate this general scheme. Sequences targeted to conformations with large contact variances folded cooperatively with thermodynamics of a two-state transition. Sequences targeted to maximally compact conformations, which have lower contact variance, were either found to have degenerate ground state or to fold with much lower cooperativity.