Data analytics enhanced component volatility model

Volatility modelling and forecasting have attracted many attentions in both finance and computation areas. Recent advances in machine learning allow us to construct complex models on volatility forecasting. However, the machine learning algorithms have been used merely as additional tools to the existing econometrics models. The hybrid models that specifically capture the characteristics of the volatility data have not been developed yet. We propose a new hybrid model, which is constructed by a low-pass filter, the autoregressive neural network and an autoregressive model. The volatility data is decomposed by the low-pass filter into long and short term components, which are then modelled by the autoregressive neural network and an autoregressive model respectively. The total forecasting result is aggregated by the outputs of two models. The experimental evaluations using one-hour and one-day realized volatility across four major foreign exchanges showed that the proposed model significantly outperforms the component GARCH, EGARCH and neural network only models in all forecasting horizons

Globalization’s effect on interest rates and the yield curve

Globalization’s impact on the relationship between short- and long-term interest rates poses potentially formidable challenges for central banks around the world. It underscores the importance of formulating monetary policy in a credible, consistent and forward-looking way and better communicating it to the public. Adopting these virtues will help anchor long-run inflationary expectations and decrease associated risk premiums. It will also help the public better understand central banks’ behavior and decrease the perceived uncertainty of future monetary policy. Globalization may also call for greater cooperation and coordination of policy worldwide because international financial conditions increasingly affect the price of credit in all major countries.Interest rates ; Monetary policy ; Globalization

Artificial Intelligence And Big Data Technologies To Close The Achievement Gap.

We observe achievement gaps even in rich western countries, such as the UK, which in principle have the resources as well as the social and technical infrastructure to provide a better deal for all learners. The reasons for such gaps are complex and include the social and material poverty of some learners with their resulting other deficits, as well as failure by government to allocate sufficient resources to remedy the situation. On the supply side of the equation, a single teacher or university lecturer, even helped by a classroom assistant or tutorial assistant, cannot give each learner the kind of one-to-one attention that would really help to boost both their motivation and their attainment in ways that might mitigate the achievement gap. In this chapter Benedict du Boulay, Alexandra Poulovassilis, Wayne Holmes, and Manolis Mavrikis argue that we now have the technologies to assist both educators and learners, most commonly in science, technology, engineering and mathematics subjects (STEM), at least some of the time. We present case studies from the fields of Artificial Intelligence in Education (AIED) and Big Data. We look at how they can be used to provide personalised support for students and demonstrate that they are not designed to replace the teacher. In addition, we also describe tools for teachers to increase their awareness and, ultimately, free up time for them to provide nuanced, individualised support even in large cohorts

The New Basel Capital Accord and Questions for Research

The New Basel Accord for bank capital regulation is designed to better align regulatory capital to the underlying risks by encouraging better and more systematic risk management practices, especially in the area of credit risk. We provide an overview of the objectives, analytical foundations and main features of the Accord and then open the door to some research questions provoked by the Accord. We see these questions falling into three groups: what is the impact of the proposal on the global banking system through possible changes in bank behavior; a set of issues around risk analytics such as model validation, correlations and portfolio aggregation, operational risk metrics and relevant summary statistics of a bank’s risk profile; issues brought about by Pillar 2 (supervisory review) and Pillar 3 (public disclosure).Bank capital regulation, risk management, credit risk, operational risk

Real estate investment in global financial centers: risk, return and contagion

Global financial activity is heavily concentrated in a small number of world cities –international financial centers. The office markets in those cities receive significant flows of investment capital. The growing specialization of activity in IFCs and innovations in real estate investment vehicles lock developer, occupier, investment, and finance markets together, creating common patterns of movement and transmitting shocks from one office market throughout the system. International real estate investment strategies that fail to recognize this common source of volatility and risk may fail to deliver the diversification benefits sought

Analysis of new sentiment and its application to finance

This thesis was submitted for the degree of Doctor of philosophy and awarded by Brunel UniversityWe report our investigation of how news stories influence the behaviour of tradable financial assets, in particular, equities. We consider the established methods of turning news events into a quantifiable measure and explore the models which connect these measures to financial decision making and risk control. The study of our thesis is built around two practical, as well as, research problems which are determining trading strategies and quantifying trading risk. We have constructed a new measure which takes into consideration (i) the volume of news and (ii) the decaying effect of news sentiment. In this way we derive the impact of aggregated news events for a given asset; we have defined this as the impact score. We also characterise the behaviour of assets using three parameters, which are return, volatility and liquidity, and construct predictive models which incorporate impact scores. The derivation of the impact measure and the characterisation of asset behaviour by introducing liquidity are two innovations reported in this thesis and are claimed to be contributions to knowledge. The impact of news on asset behaviour is explored using two sets of predictive models: the univariate models and the multivariate models. In our univariate predictive models, a universe of 53 assets were considered in order to justify the relationship of news and assets across 9 different sectors. For the multivariate case, we have selected 5 stocks from the financial sector only as this is relevant for the purpose of constructing trading strategies. We have analysed the celebrated Black-Litterman model (1991) and constructed our Bayesian multivariate predictive models such that we can incorporate domain expertise to improve the predictions. Not only does this suggest one of the best ways to choose priors in Bayesian inference for financial models using news sentiment, but it also allows the use of current and synchronised data with market information. This is also a novel aspect of our work and a further contribution to knowledge.Engineering and Physical Sciences Research Council (EPSRC) and OptiRisk Systems