Randomized Binomial Tree and Pricing of American-Style Options

Randomized binomial tree and methods for pricing American options were studied. Firstly, both the completeness and the no-arbitrage conditions in the randomized binomial tree market were proved. Secondly, the description of the node was given, and the cubic polynomial relationship between the number of nodes and the time steps was also obtained. Then, the characteristics of paths and storage structure of the randomized binomial tree were depicted. Then, the procedure and method for pricing American-style options were given in a random binomial tree market. Finally, a numerical example pricing the American option was illustrated, and the sensitivity analysis of parameter was carried out. The results show that the impact of the occurrence probability of the random binomial tree environment on American option prices is very significant. With the traditional complete market characteristics of random binary and a stronger ability to describe, at the same time, maintaining a computational feasibility, randomized binomial tree is a kind of promising method for pricing financial derivatives

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.

Holding on for too long? An experimental study on inertia in entrepreneurs’ and non-entrepreneurs’ disinvestment choices

Disinvestment, in the sense of project termination and liquidation of assets including the cession of a venture, is an important realm of entrepreneurial decision-making. This study presents the results of an experimental investigation modeling the choice to disinvest as a dynamic problem of optimal stopping in which the patterns of decisions are analyzed with entrepreneurs and non-entrepreneurs. Our experimental results reject the standard net present value approach as an account of observed behavior. Instead, most individuals seem to understand the value of waiting. Their choices are weakly related to the disinvestment triggers derived from a formal optimal stopping benchmark consistent with real options reasoning. We also observe a pronounced ‘psychological inertia’, i.e., most individuals hold on to a losing project for even longer than real options reasoning would predict. The study provides evidence for entrepreneurs and non-entrepreneurs being quite similar in their behavior.Real-Options, Disinvestment, Exit Behavior, Experimental Economics, Agribusiness, Agricultural and Food Policy, Agricultural Finance, Institutional and Behavioral Economics,

A modulated renewal Hawkes process and its application to modelling extreme mid-price drops on cryptocurrencies

The Hawkes process was first proposed by Alan G. Hawkes in which the arrival of events exhibits a self-exciting behaviour. One extension of the classical Hawkes process is the renewal Hawkes process, which allows the underlying process for background events to be a renewal process, rather than the homogeneous Poisson process in the classical Hawkes process. The renewal Hawkes process is stationary in nature, so it is not suitable in situations where there are systematic trends in event occurrence rate. Therefore, in this thesis, we propose a renewal Hawkes process in which a trend function is employed to account for the systematic patterns in the event occurrence rate. We term the process the modulated renewal Hawkes process. Due to the lack of an explicit expression for the intensity process, likelihood evaluation for the modulated renewal Hawkes process model is not trivial. However, by modifying the likelihood evaluation algorithm for renewal Hawkes process in Chen & Stindl (2018), we are able to propose an algorithm to evaluate the exact likelihood of the modulated renewal Hawkes process model. The evaluated likelihood can then be maximised to obtain the maximum likelihood estimator (MLE) of the model parameters. We also propose a method to obtain fast and accurate approximations to the likelihood. In the case where a suitable parametric form of the trend function is not available, we approximate the trend function using B-spline functions. We also derive the Rosenblatt residuals of the modulated renewal Hawkes process, which can serve as a basis for assessing the goodness-of-fit of the model. Simulation experiments were conducted to assess the performance of the MLE of the modulated renewal Hawkes process with either exact or approximate likelihood evaluation, both in the parametric model and in the semiparametric model with an unspecified trend function. We also present an application of the modulated renewal Hawkes process model to the analysis of cryptocurrency data. The modulated renewal Hawkes process model with a B-spline trend function is applied to model extreme intraday negative returns on several cryptocurrencies. The estimated trend function suggests an inverse U-shaped trend in the intraday occurrence times of extreme negative returns on cryptocurrencies. We also compared the model fitting results with several simpler models, such as the nonstationary Hawkes process and the renewal Hawkes process. On most of the cryptocurrency data sets considered in this work, the modulated renewal Hawkes process was found to provide the best fit both by the Rosenblatt residuals based goodness-of-fit check and by the Akaike Information Criterion

Strength is negatively associated with depression and accounts for some of the sex difference A replication and extension

Background Depression occurs about twice as often in women as in men, a disparity that remains poorly understood. In a previous publication, Hagen and Rosenstrom predicted and found that grip strength, a highly sexually dimorphic index of physical formidability, mediated much of the effect of sex on depression. Striking results like this are more likely to be published than null results, potentially biasing the scientific record. It is therefore critical to replicate and extend them. Methodology Using new data from the 2013-14 cycle of the National Health and Nutrition Examination Survey, a nationally representative sample of US households (n = 3650), we replicated models of the effect of sex and grip strength on depression reported in Hagen and Rosenstrom, along with additional potential confounds and a new detailed symptom-level exploration. Results Overall, the effects from the original paper were reproduced although with smaller effect sizes. Grip strength mediated 38% of the effect of sex on depression, compared to 63% in Hagen and Rosenstrom. These results were extended with findings that grip strength had a stronger association with some depression symptoms, like suicidality, low interest and low mood than with other symptoms, like appetite changes. Conclusions Grip strength is negatively associated with depression, especially its cognitive-affective symptoms, controlling for numerous possible confounds. Although many factors influence depression, few of these reliably occur cross-culturally in a sex-stratified manner and so are unlikely to explain the well-established, cross-cultural sex difference in depression. The sex difference in upper body strength occurs in all populations and is therefore a candidate evolutionary explanation for some of the sex difference in depression. Lay summary: Why are women at twice the risk of developing depression as men? Depression typically occurs during social conflicts, such as physical or sexual abuse. Physically strong individuals can often single-handedly resolve conflicts in their favor, whereas physically weaker individuals often need help from others. We argue that depression is a credible cry for help. Because men generally have greater strength than women, we argue that men may be more likely to resolve conflicts using physical formidability and women to signal others for help. We find that higher grip strength is associated with lower depression, particularly symptoms like feeling down or thoughts of suicide and that strength accounts for part of the sex difference in rates of depression.Peer reviewe

The forecast ability of risk-neutral densities of foreign exchange

We estimate the process underlying the pricing of American options by using higher-order lattices combined with a multigrid method. This paper also tests whether the risk-neutral densities given from American options provide a good forecasting tool. We use a nonparametric test of the densities that is based on the inverse probability functions and is modified to account for correlation across time between our random variables, which are uniform under the null hypothesis. We find that the densities based on the American option markets for foreign exchange do quite well for the forecasting period over which the options are thickly traded. Further, simple models that fit the densities do about as well as more sophisticated models.Foreign exchange futures ; Options (Finance) ; Economic forecasting

Efficient Vengeance: The role of processing fluency in making decisions about retaliation

Aggressive behavior is a harmful and pervasive psychological and behavioral phenomenon. Inherent to every act of aggression are decisions regarding the modality, severity, and timing of such actions. Prevailing theories of aggression emphasize the role of cognitive processes in aggression, especially retaliatory aggression. Despite this emphasis, few cognitive processes have been examined for their possible involvement in making decisions about retaliatory aggression. Across two studies, I examined the role of processing fluency in making decisions about retaliation. I drew from contemporary models of aggression (e.g., the General Aggression Model) and processing fluency (e.g., the Multi-Source Account) to develop hypotheses in this novel extension of the aggression literature. Study 1 provided correlational evidence that processing fluency facilitates greater retaliation severity among vengeance-seekers and that such fluency linked with greater levels of antagonistic dispositions (i.e., Sadism). Study 2 extended these findings with a between-subjects experiment which provided evidence that induced angry rumination increased processing fluency for retaliation decisions, indirectly facilitating greater severity. Both studies also provided evidence that the Drift Diffusion Model can account for such decisions and that drift rate estimates are a valid measure of processing fluency. These findings hold major implications for contemporary theories of aggression and processing fluency, laboratory research, and clinical practice

Pricing synthetic CDO tranche on ABS

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A slightly depressing jump model: intraday volatility pattern simulation

Hawkes processes have been finding more applications in diverse areas of science, engineering and quantitative finance. In multi-frequency finance various phenomena have been observed, such as shocks, crashes, volatility clustering, turbulent flows and contagion. Hawkes processes have been proposed to model those challenging phenomena appearing across asset prices in various exchanges. The original Hawkes process is an intensity-based model for series of events with path dependence and self-exciting or mutual-exciting mechanisms. This paper introduces a slightly depressing process to model the reverse phenomenon of self-exciting mechanisms. Such a process models the decline in the intensity of jumps observed in market regimes. The proposed birth-immigration-death process captures the decline in jump intensity observed at the start of a daily trading regime while the classical immigration-birth process models an increase in jump intensity toward the close of daily trading. Each of these processes can be expressed as a special case of a simple bivariate Hawkes process