A note on the Malliavin differentiability of the Heston volatility

We show that the Heston volatility or equivalently the Cox-Ingersoll-Ross process is Malliavin differentiable and give an explicit expression for the derivative. This result assures the applicability of Malliavin calculus in the framework of the Heston stochastic volatility model and the Cox-Ingersoll-Ross model for interest rates.

The great diversification and its undoing

We investigate the hypothesis that macroeconomic fluctuations are primitively theresults of many microeconomic shocks, and show that it has significant explanatorypower for the evolution of macroeconomic volatility. We define ?fundamental? volatilityas the volatility that would arise from an economy made entirely of idiosyncratic microeconomicshocks, occurring primitively at the level of sectors or firms. In its empiricalconstruction, motivated by a simple model, the sales share of different sectors vary overtime (in a way we directly measure), while the volatility of those sectors remains constant.We find that fundamental volatility accounts for the swings in macroeconomicvolatility in the US and the other major world economies in the past half century. Itaccounts for the ?great moderation? and its undoing. Controlling for our measure offundamental volatility, there is no break in output volatility. The initial great moderationis due to a decreasing share of manufacturing between 1975 and 1985. The recentrise of macroeconomic volatility is due to the increase of the size of the financial sector.We provide a model to think quantitatively about the large comovement generated byidiosyncratic shocks. As the origin of aggregate shocks can be traced to identifiablemicroeconomic shocks, we may better understand the origins of aggregate fluctuations.

Monetary policy and rational asset price bubbles

I examine the impact of alternative monetary policy rules on arational asset price bubble, through the lens of an overlapping generations model with nominal rigidities. A systematic increase in interestrates in response to a growing bubble is shown to enhance the fluctuations in the latter, through its positive effect on bubble growth. Theoptimal monetary policy seeks to strike a balance between stabilization of the bubble and stabilization of aggregate demand. The paper'smain findings call into question the theoretical foundations of the casefor "leaning against the wind" monetary policies.

Changes of beta-amyloid precursor protein splice patterns in brain cell aggregate cultures.

The splice pattern of beta-amyloid precursor protein (beta-APP) has been studied in a variety of neuronal and glial cells and in brain cell aggregate cultures by the polymerase chain reaction (PCR). The brain-typical pattern, in which beta-APP695 is the dominant form, has been found only in aggregate cultures but not in any of the other cell types including neuronal cell lines. Selective elimination of glial cells from aggregates resulted in increased quantities of beta-APP695, whereas removal of neurons led to a reduction of beta-APP695 and to an elevation of beta-APP751 and beta-APP770. This shift of splice pattern was not observed in cocultures of the neuronal cell line PC 12 with primary astrocytes combined in a variety of cellular ratios. Blood serum, which is an essential component of these cultures, tested on aggregates, did not reduce the amount of beta-APP695 or have any marked effects on splice patterns generally. From these results it is concluded that investigations on brain-typical splicing of beta-APP require primary neurons. Neuronal cell lines may be no suitable model systems. Splicing events favoring production of beta-APP695 may mark an important, very early step of amyloid formation in the brain.

Labor market heterogeneity and the aggregate matching function

The matching function -a key building block in models of labor market frictions- impliesthat the job finding rate depends only on labor market tightness. We estimate such amatching function and find that the relation, although remarkably stable over 1967-2007,broke down spectacularly after 2007. We argue that labor market heterogeneities are notfully captured by the standard matching function, but that a generalized matching functionthat explicitly takes into account worker heterogeneity and market segmentation is fullyconsistent with the behavior of the job finding rate. The standard matching function canbreak down when, as in the Great Recession, the average characteristics of the unemployedchange too much, or when dispersion in labor market conditions -the extent to which somelabor markets fare worse than others- increases too much.

Alteration of amino acid metabolism in neuronal aggregate cultures exposed to hypoglycaemic conditions.

The neuronal effects of glucose deficiency on amino acid metabolism was studied on three-dimensional cultures of rat telencephalon neurones. Transient (6 h) exposure of differentiated cultures to low glucose (0.25 mm instead of 25 mm) caused irreversible damage, as judged by the marked decrease in the activities of two neurone-specific enzymes and lactate dehydrogenase, 1 week after the hypoglycemic insult. Quantification of amino acids and ammonia in the culture media supernatants indicated increased amino acid utilization and ammonia production during glucose-deficiency. Measurement of intracellular amino acids showed decreased levels of alanine, glutamine, glutamate and GABA, while aspartate was increased. Added lactate (11 mm) during glucose deficiency largely prevented the changes in amino acid metabolism and ammonia production, and attenuated irreversible damage. Higher media levels of glutamine (4 mm instead of 0.25 mm) during glucose deprivation prevented the decrease of intracellular glutamate and GABA, while it further increased intracellular aspartate, ammonia production and neuronal damage. Both lactate and glutamine were readily oxidized in these neuronal cultures. The present results suggest that in neurones, glucose deficiency enhances amino acid deamination at the expense of transamination reactions. This results in increased ammonia production and neuronal damage.

Aggregate shocks or vertical tax interdependence? Evidende from gasoline and cigarettes

[cat] Besley i Rosen -1998- van ser els primers autors en estimar empíricament la rellevància de les externalitats impositives verticals. Aquests autors varen fer-ho per al cas dels impostos sobre la benzina i el tabac, en concret, per al cas dels EEUU. Ara bé, no varen tenir en compte les diferències en el nivell de vida entre Estats: àrees amb un nivell elevat paguen menys en termes reals que àrees amb un nivell de vida baix, doncs l'impost unitari sobre la benzina o sobre el tabac no difereix d'acord amb l'Estat on l'impost s'aplica. En conseqüència, proposem que la competència impositiva vertical sigui estimada deflactant totes les variables monetàries utilitzant l'anomenat "House Price Index (HPI)", el qual està disponible al nivell dels Estats. Això genera una variable impositiva federal expressada en termes reals i que presenta variació entre Estats. Aquesta estratègia empírica ens permet diferenciar entre la interdependència vertical entre els tipus impositius federals i els estatals de shocks agregats al llarg del temps, utilitzant dades per als EEUU durant el període 1975 a 2006 per a benzina i tabac. Trobem una nivell significatiu de competència impositiva horitzontal, la qual és més elevada en el cas del tabac, però en cap cas reacció impositiva vertical. Els resultats són robustos al període analitzat.

Spatial variability of aggregate stability in latosols under sugarcane

The spatial variability of soils under a same management system is differentiated, as expressed in the properties. The spatial variability of aggregate stability of a eutrophic Red Latosol (ERL) and a dystrophic Red Latosol (DRL) under sugarcane was characterized. Samples were collected in a regular 10 m grid, in the layers 0.0-0.2 and 0.2-0.4 m, with 100 points per area, and the following properties were determined: geometric mean diameter (GMD) of aggregates, mean weight diameter (MWD) of aggregates, percent of aggregates in the > 2.0 mm class and organic matter (OM) content. The eutrophic Red Latosol (ERL) had a higher aggregate stability thn the dystrophic Red Latosol (DRL), which may be attributed to the higher clay and OM content and the gibbsitic mineralogy of this soil class. The differentiated evolution of the studied Oxisols explains the wider range and lower variation coefficient and variability, for all properties studied in the eutrophic Red Latosol.

Aggregate stability as affected by short and long-term tillage systems and nutrient sources of a hapludox in southern Brazil

The ability of a soil to keep its structure under the erosive action of water is usually high in natural conditions and decreases under frequent and intensive cultivation. The effect of five tillage systems (NT = no-till; CP = chisel plowing and one secondary disking; CT = primary and two secondary distings; CTb = CT with crop residue burning; and CTr = CT with removal of crop residues from the field), combined with five nutrient sources (C = control, no nutrient application; MF = mineral fertilizers according to technical recommendations for each crop; PL = 5 Mg ha-1 y-1 fresh matter of poultry litter; CM = 60 m³ ha-1 y-1 slurry cattle manure; and SM = 40 m³ ha-1 y-1 slurry swine manure) on wet-aggregate stability was determined after nine years (four sampled soil layers) and on five sampling dates in the 10th year (two sampled soil layers) of the experiment. The size distribution of the air-dried aggregates was strongly affected by soil bulk density, and greater values of geometric mean diameter (GMD AD) found in some soil tillage or layer may be partly due to the higher compaction degree. After nine years, the GMD AD on the surface was greater in NT and CP compared to conventional tillage systems (CT, CTb and CTr), due to the higher organic matter content, as well as less soil mobilization. Aggregate stability in water, on the other hand, was affected by the low variation in previous gravimetric moisture of aggregates, which contributed to a high coefficient of variation of this attribute. The geometric mean diameter of water-stable aggregates (GMD WS) was highest in the 0.00-0.05 m layer in the NT system, in the layers 0.05-0.10 and 0.12-0.17 m in the CT, and values were intermediate in CP. The stability index (SI) in the surface layers was greater in treatments where crop residues were kept in the field (NT, CP and CT), which is associated with soil organic matter content. No differences were found in the layer 0.27-0.32 m. The effect of nutrient sources on GMD AD and GMD WS was small and did not affect SI.

Aggregate monotonic stable single-valued solutions for cooperative games

[cat] En aquest treball caracteritzem les solucions puntuals de jocs cooperatius d'utilitat transferible que compleixen selecció del core i monotonia agregada. També mostrem que aquestes dues propietats són compatibles amb la individualitat racional, la propietat del jugador fals i la propietat de simetria. Finalment, caracteritzem les solucions puntuals que compleixen les cinc propietats a l'hora.

Aggregate shocks or vertical tax interdependence? Evidende from gasoline and cigarettes

[cat] Besley i Rosen -1998- van ser els primers autors en estimar empíricament la rellevància de les externalitats impositives verticals. Aquests autors varen fer-ho per al cas dels impostos sobre la benzina i el tabac, en concret, per al cas dels EEUU. Ara bé, no varen tenir en compte les diferències en el nivell de vida entre Estats: àrees amb un nivell elevat paguen menys en termes reals que àrees amb un nivell de vida baix, doncs l'impost unitari sobre la benzina o sobre el tabac no difereix d'acord amb l'Estat on l'impost s'aplica. En conseqüència, proposem que la competència impositiva vertical sigui estimada deflactant totes les variables monetàries utilitzant l'anomenat "House Price Index (HPI)", el qual està disponible al nivell dels Estats. Això genera una variable impositiva federal expressada en termes reals i que presenta variació entre Estats. Aquesta estratègia empírica ens permet diferenciar entre la interdependència vertical entre els tipus impositius federals i els estatals de shocks agregats al llarg del temps, utilitzant dades per als EEUU durant el període 1975 a 2006 per a benzina i tabac. Trobem una nivell significatiu de competència impositiva horitzontal, la qual és més elevada en el cas del tabac, però en cap cas reacció impositiva vertical. Els resultats són robustos al període analitzat.

Nutrient supply by mass flow and diffusion to maize plants in response to soil aggregate size and water potential

Nutrients are basically transported to the roots by mass flow and diffusion. The aim of this study was to quantify the contribution of these two mechanisms to the acquisition of macronutrients (N, P, K, Ca, Mg, and S) and cationic micronutrients (Fe, Mn, Zn, and Cu) by maize plants as well as xylem exudate volume and composition in response to soil aggregate size and water availability. The experiment was conducted in a greenhouse with samples of an Oxisol, from under two management systems: a region of natural savanna-like vegetation (Cerradão, CER) and continuous maize under conventional management for over 30 years (CCM). The treatments were arranged in a factorial [2 x (1 + 2) x 2] design, with two management systems (CER and CCM), (1 + 2) soil sifted through a 4 mm sieve and two aggregate classes (< 0.5 mm and 0.5 - 4.0 mm) and two soil matric potentials (-40 and -10 kPa). These were evaluated in a randomized block design with four replications. The experiment was conducted for 70 days after sowing. The influence of soil aggregate size and water potential on the nutrient transport mechanisms was highest in soil samples with higher nutrient concentrations in solution, in the CER system; diffusion became more relevant when water availability was higher and in aggregates < 0.5 mm. The volume of xylem exudate collected from maize plants increased with the decrease in aggregate size and the increased availability of soil water in the CER system. The highest Ca and Mg concentrations in the xylem exudate of plants grown on samples from the CER system were related to the high concentrations of these nutrients in the soil solution of this management system.

The aggregate claims distribution of a life insurance portfolio with a pairwise positive dependence structure

The individual life model has always been considered as the one closest to the real situation of the total claims of a life insurance portfolio. It only makes the ¿nearly inevitable assumption¿ of independence of the lifelenghts of insured persons in the portfolio. Many clinical studies, however, have demonstrated positive dependence of paired lives such as husband and wife. In our opinion, it won¿t be unrealistic expecting a considerable number of married couples in any life insurance portfolio (e.g. life insurance contracts formalized at the time of signing a mortatge) and these dependences materially increase the values for the stop-loss premiums associated to the aggregate claims of the portfolio. Since the stop-loss order is the order followed by any risk averse decison maker, the simplifying hypothesis of independence constitute a real financial danger for the company, in the sense that most of their decisions are based on the aggregated claims distribution. In this paper, we will determine approximations for the distribution of the aggregate claims of a life insurance portfolio with some married couples and we will describe how to make safe decisions when we don¿t know exactly the dependence structure between the risks in each couple. Results in this paper are partly based on results in Dhaene and Goovaerts (1997)

Three essays in financial economics: asset pricing, optimal portfolio selection and financial integration

Executive Summary The unifying theme of this thesis is the pursuit of a satisfactory ways to quantify the riskureward trade-off in financial economics. First in the context of a general asset pricing model, then across models and finally across country borders. The guiding principle in that pursuit was to seek innovative solutions by combining ideas from different fields in economics and broad scientific research. For example, in the first part of this thesis we sought a fruitful application of strong existence results in utility theory to topics in asset pricing. In the second part we implement an idea from the field of fuzzy set theory to the optimal portfolio selection problem, while the third part of this thesis is to the best of our knowledge, the first empirical application of some general results in asset pricing in incomplete markets to the important topic of measurement of financial integration. While the first two parts of this thesis effectively combine well-known ways to quantify the risk-reward trade-offs the third one can be viewed as an empirical verification of the usefulness of the so-called "good deal bounds" theory in designing risk-sensitive pricing bounds. Chapter 1 develops a discrete-time asset pricing model, based on a novel ordinally equivalent representation of recursive utility. To the best of our knowledge, we are the first to use a member of a novel class of recursive utility generators to construct a representative agent model to address some long-lasting issues in asset pricing. Applying strong representation results allows us to show that the model features countercyclical risk premia, for both consumption and financial risk, together with low and procyclical risk free rate. As the recursive utility used nests as a special case the well-known time-state separable utility, all results nest the corresponding ones from the standard model and thus shed light on its well-known shortcomings. The empirical investigation to support these theoretical results, however, showed that as long as one resorts to econometric methods based on approximating conditional moments with unconditional ones, it is not possible to distinguish the model we propose from the standard one. Chapter 2 is a join work with Sergei Sontchik. There we provide theoretical and empirical motivation for aggregation of performance measures. The main idea is that as it makes sense to apply several performance measures ex-post, it also makes sense to base optimal portfolio selection on ex-ante maximization of as many possible performance measures as desired. We thus offer a concrete algorithm for optimal portfolio selection via ex-ante optimization over different horizons of several risk-return trade-offs simultaneously. An empirical application of that algorithm, using seven popular performance measures, suggests that realized returns feature better distributional characteristics relative to those of realized returns from portfolio strategies optimal with respect to single performance measures. When comparing the distributions of realized returns we used two partial risk-reward orderings first and second order stochastic dominance. We first used the Kolmogorov Smirnov test to determine if the two distributions are indeed different, which combined with a visual inspection allowed us to demonstrate that the way we propose to aggregate performance measures leads to portfolio realized returns that first order stochastically dominate the ones that result from optimization only with respect to, for example, Treynor ratio and Jensen's alpha. We checked for second order stochastic dominance via point wise comparison of the so-called absolute Lorenz curve, or the sequence of expected shortfalls for a range of quantiles. As soon as the plot of the absolute Lorenz curve for the aggregated performance measures was above the one corresponding to each individual measure, we were tempted to conclude that the algorithm we propose leads to portfolio returns distribution that second order stochastically dominates virtually all performance measures considered. Chapter 3 proposes a measure of financial integration, based on recent advances in asset pricing in incomplete markets. Given a base market (a set of traded assets) and an index of another market, we propose to measure financial integration through time by the size of the spread between the pricing bounds of the market index, relative to the base market. The bigger the spread around country index A, viewed from market B, the less integrated markets A and B are. We investigate the presence of structural breaks in the size of the spread for EMU member country indices before and after the introduction of the Euro. We find evidence that both the level and the volatility of our financial integration measure increased after the introduction of the Euro. That counterintuitive result suggests the presence of an inherent weakness in the attempt to measure financial integration independently of economic fundamentals. Nevertheless, the results about the bounds on the risk free rate appear plausible from the view point of existing economic theory about the impact of integration on interest rates.