Pricing of credit risk and credit risk derivatives : from theory to implementation

Includes abstract. Includes bibliographical references (leaves 223-230)

"Market efficiency & arbitrage opportunities in the ftse-100 option market: an application on the put-call parity with high frequency data

This thesis examines Put Call Parity (PCP) deviations in the LIFFE FTSE-100 Options quoting system and tests the two competing hypotheses put forward in the literature. Our dataset covers the period of July 1994 to March 1997 and contains 357,985 and 431,145 observations (for the European and the American types) resulting in 40,124 and 57,382 PCP deviations respectively. We calculate PCP misspricings using the model proposed in Kamara and Miller (1995). The model used here accommodates market imperfections but does not include taxes. The model also allows for the immediacy risk and the early exercise risk associated with evidence of Put-Call Parity deviations documented in the literature. We find evidence of significant deviations, net of costs, throughout the period. We test misspricings in both American and European contracts for the same period and equal contract parameters and find evidence supporting both hypotheses where appropriate. The level of deviations found suggest that other factors could attribute to their identification, we propose liquidity-related factors such as inventory constraints. We assume that persistent deviations from the PCP, which are not supported by the option pricing theory are indications of market inefficiency. In well functioning markets we expect that larger PCP deviations will be removed from the system first. We fit a Cox Proportional Hazard model and test the significance of the level of deviations as a covariate. We find the degree of deviations to be a significant factor in the duration of the misspricings for the majority of the observations. We conclude that under these evidence the market is not characterised as inefficient. The last part of this thesis models the PCP deviation series as a sequential stochastic process. We fit around the process the Autoregressive Conditional Duration Model, as proposed by Engle and Russell (1995) and modified by Bauwens and Giot (1997). We conclude that the model offers an adequate representation for this high frequency, irregularly spaced series. Keywords: Put-Call Parity, High Frequency, Duration, Cox (AND) Proportional (AND) Hazai-ds, Irregularly Spaced Observations, Autoregressive (AND) Conditional (AND) Duration (AND) Model

Agent-Based Models of Highway Investment Processes: Forecasting Future Networks under Public and Private Ownership Regimes

The present highway funding system, especially fuel taxes, may become a less reliable revenue source in the future, while the transportation public agencies do not have sufficient financial resources needed to meet the increasing traffic demand. In the last two decades there has been increasing interest in utilizing private sector to develop, finance and operate new and existing roadways in the United States. While transportation privatization projects have shown signs of success, it is not always clear how to measure the true benefits associated with these projects for all stakeholders, including the public sector, the private sector and the public. "Win-win" privatization agreements are tricky to make due to conflicting nature of the various stakeholders involved. Therefore, there is a huge need to study the welfare impacts of various road privatization arrangements for the society as a whole, and the financial implications for private investors and public road authorities. In order to address these needs, first, an empirical analysis is performed to study the investment decision processes of public transportation agencies. Second, the agent-based decision-making model is developed to consider transportation investment processes at different levels of government which forecasts future transportation networks and their performance under both existing and alternative transportation planning processes. Third, various highway privatization schemes currently practiced in the U.S. are identified and an agent-based model for analyzing regulatory policies on private-sector transportation investments is developed. Fourth, the above mentioned models are demonstrated on the networks with grid and beltway topologies to study the impacts of topology configuration on the privatization arrangements. Based on the simulation results of developed models, a number of insights are provided about impacts of ownership structures on the socio-economic performance in transportation systems and transportation network changes over time. The proposed models and the approach can be used in long-run prediction of economic performance intended for describing a general methodology for transportation planning on large networks. Therefore, this research is expected to contribute significantly to the understanding and selecting proper road privatization programs on public networks

Credit Default Swap Markets and Credit Risk Pricing - A Comparative Study

This study focuses on the markets and pricing of credit default swaps. In order to understand various features of the instrument, different market venues are contrasted with their differentiating component, their liquidity. Structural and reduced-form models are brought into comparison in a way that their prediction power in pricing credit default swaps is tested. It is shown that simple and advanced forms of credit risk models perform similarly in reaching the fair price

Fuelling the zero-emissions road freight of the future: routing of mobile fuellers

The future of zero-emissions road freight is closely tied to the sufficient availability of new and clean fuel options such as electricity and Hydrogen. In goods distribution using Electric Commercial Vehicles (ECVs) and Hydrogen Fuel Cell Vehicles (HFCVs) a major challenge in the transition period would pertain to their limited autonomy and scarce and unevenly distributed refuelling stations. One viable solution to facilitate and speed up the adoption of ECVs/HFCVs by logistics, however, is to get the fuel to the point where it is needed (instead of diverting the route of delivery vehicles to refuelling stations) using "Mobile Fuellers (MFs)". These are mobile battery swapping/recharging vans or mobile Hydrogen fuellers that can travel to a running ECV/HFCV to provide the fuel they require to complete their delivery routes at a rendezvous time and space. In this presentation, new vehicle routing models will be presented for a third party company that provides MF services. In the proposed problem variant, the MF provider company receives routing plans of multiple customer companies and has to design routes for a fleet of capacitated MFs that have to synchronise their routes with the running vehicles to deliver the required amount of fuel on-the-fly. This presentation will discuss and compare several mathematical models based on different business models and collaborative logistics scenarios