Quantum spatial-periodic harmonic model for daily price-limited stock markets

We investigate the behavior of stocks in daily price-limited stock markets by purposing a quantum spatial-periodic harmonic model. The stock price is presumed to oscillate and damp in a quantum spatial-periodic harmonic oscillator potential well. Complicated non-linear relations including inter-band positive correlation and intra-band negative correlation between the volatility and the trading volume of stocks are derived by considering the energy band structure of the model. The validity of price limitation is then examined and abnormal phenomena of a price-limited stock market (Shanghai Stock Exchange) of China are studied by applying our quantum model.Comment: 8 pages, 9 figure

Ex-ante and ex-post effects of price limits in commodity futures markets

Master of ScienceDepartment of Agricultural EconomicsJoseph P. JanzenAfter October 1987, financial crisis, market regulators created dispositive called circuit breaks to contain high levels of volatility. As a type of circuit breaker, price limits were adopted not only on stock markets but in commodity futures contracts as well, however, its effects are not clear. The present study aimed to evaluate price limit ex-ante effects on the four major wheat futures markets by adopting Brogaard and Roshak (2015) methodology by estimating the probability of extreme movements and limit moves conditional to extreme movements and its ex-post effects on trading activity by contrasting the volume curve on limit days with a counterfactual volume curve that simulates a scenario where price limits were not hit. The results show that tighter limit levels decrease the probability of extreme movements by approximately 0.008% having an overall (four markets included) baseline probability of extreme moves equals 1.11% which agrees with the Holding Back hypothesis assuming extreme movements as a proxy for volatility. On the other hand, the probability of limit moves conditional to extreme movements increases when limit levels are tighter by approximately 0.066% with an overall baseline of 0.05% which supports the “Magnet” hypothesis. Regarding the ex-post effects, longer periods where prices stay at the limit level result in trading activity lost, however, if prices return to limit range but bounce back to a limit lock, the longer the gap between limit locks trading session experience an increase in trading activity. Moreover, the ex-post effects on trading activity are more intense in Chicago relative to Kansas City because Chicago presents a higher trading volume on average

The puzzle of privately-imposed price limits: are the limits imposed by financial exchanges effective?

Some of the world’s largest futures exchanges impose daily limits on the price movements of individual contracts. Using data from three of the most active US commodity futures contracts, we show that these price restrictions are largely ineffective because traders are able to take similar positions using other contracts. When price limits become binding on the futures market, the associated (but unrestricted) options market becomes the price discovery market: much of the trading that would have occurred on the futures market migrates to the options market, and options prices accurately predict the (unconstrained) futures price the next day. We also show that the presence of options mitigates the effect of price limits on information revelation by documenting that futures markets reflect more accurate information on days following limit hits when the associated options were trading on the previous day. Overall, our evidence suggests that price limits in US futures markets have little effect on prices when options markets exist.Price limits, Regulatory evasion, Put-call parity, Satellite market, Price discovery

A Non-Gaussian Option Pricing Model with Skew

Closed form option pricing formulae explaining skew and smile are obtained within a parsimonious non-Gaussian framework. We extend the non-Gaussian option pricing model of L. Borland (Quantitative Finance, {\bf 2}, 415-431, 2002) to include volatility-stock correlations consistent with the leverage effect. A generalized Black-Scholes partial differential equation for this model is obtained, together with closed-form approximate solutions for the fair price of a European call option. In certain limits, the standard Black-Scholes model is recovered, as is the Constant Elasticity of Variance (CEV) model of Cox and Ross. Alternative methods of solution to that model are thereby also discussed. The model parameters are partially fit from empirical observations of the distribution of the underlying. The option pricing model then predicts European call prices which fit well to empirical market data over several maturities.Comment: 37 pages, 11 ps figures, minor changes, typos corrected, to appear in Quantitative Financ

Upgrading investment regulations in second pillar pension systems : a proposal for Colombia

The passivity of the demand for pension products is one of the striking features of mandatory pension systems. Consequently, the provision of multiple investment alternatives to households (multifund schemes) does not ensure that contributions are invested efficiently. In addition, despite the theoretical findings that short term return maximization is not conductive to long-term return maximization, the regulatory framework of pension fund management companies puts excessive emphasis on short-term maximization. Therefore, it is not obvious that typical regulatory framework of pension funds is conductive to optimal pensions. By establishing a set of default options on investment portfolios, this paper proposes a mechanism to align the incentives of the pension fund management companies with the long-term objectives of the contributors. The paper provides a methodology, which is subsequently applied to Colombia.Debt Markets,Emerging Markets,Financial Literacy,Mutual Funds,Investment and Investment Climate

OPTIONS-BASED FORECASTS OF FUTURES PRICES IN THE PRESENCE OF LIMIT MOVES

This analysis examines a simultaneous estimation option-based approach to forecast futures prices in the presence of daily price limit moves. The procedure explicitly allows for changing implied volatilities by estimating the implied futures price and the implied volatility simultaneously. Using 15 years of futures and futures options data for three agricultural commodities, we find that the simultaneous estimation approach accounts for the abrupt changes in implied volatility associated with limit moves and generates more accurate price forecasts than conventional methods that rely on only one implied variable.Demand and Price Analysis, Marketing,

The History of the Quantitative Methods in Finance Conference Series. 1992-2007

This report charts the history of the Quantitative Methods in Finance (QMF) conference from its beginning in 1993 to the 15th conference in 2007. It lists alphabetically the 1037 speakers who presented at all 15 conferences and the titles of their papers.

Sudden changes in volatility: The case of five central European stock markets

This is the post-print version of the final paper published in Journal of International Financial Markets, Institutions and Money. The published article is available from the link below. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. Copyright @ 2007 Elsevier B.V.This paper investigates sudden changes in volatility in the stock markets of new European Union (EU) members by utilizing the iterated cumulative sums of squares (ICSS) algorithm. Using weekly data over the sample period 1994–2006, the time period of sudden change in variance of returns and the length of this variance shift are detected. A sudden change in volatility seems to arise from the evolution of emerging stock markets, exchange rate policy changes and financial crises. Evidence also reveals that when sudden shifts are taken into account in the GARCH models, the persistence of volatility is reduced significantly in every series. It suggests that many previous studies may have overestimated the degree of volatility persistence existing in financial time series